We Send Teachers to Prison for Rigging the Numbers, Why Not Bankers?

By William K. Black
Quito: April Fools’ Day 2015

The New York Times ran the story on April Fools’ Day of a jury convicting educators of gaming the test numbers and lying about their actions to investigators.

“ATLANTA — In a dramatic conclusion to what has been described as the largest cheating scandal in the nation’s history, a jury here on Wednesday convicted 11 educators for their roles in a standardized test cheating scandal that tarnished a major school district’s reputation and raised broader questions about the role of high-stakes testing in American schools.

On their eighth day of deliberations, the jurors convicted 11 of the 12 defendants of racketeering, a felony that carries up to 20 years in prison. Many of the defendants — a mixture of Atlanta public school teachers, testing coordinators and administrators — were also convicted of other charges, such as making false statements, that could add years to their sentences.”

This was complicated trial that took six months to present and required eight days of jury deliberations.  It was a major commitment of investigative and prosecutorial resources.  But it was not investigated and prosecuted by the FBI and AUSAs, but by state and local officials.  In addition to the trial success, the prosecutors secured 21 guilty pleas.

Atlanta’s public schools, of course, did not engage in “the largest cheating scandal in the nation’s history.”  The big banks’ cheating scandals left the Atlanta educators in the dust.

The two obvious questions are why the educators cheated and how they got caught.  “High-stakes testing” cannot explain the scandal because we have had such tests for over 50 years.  The article explains the real drivers – compensation, promotions, fear, and ego (aka “reputation”).

“Officials said the cheating allowed employees to collect bonuses and helped improve the reputations of both Dr. Hall and the perpetually troubled school district she had led since 1999.

Investigators wrote in the report that Dr. Hall and her aides had ‘created a culture of fear, intimidation and retaliation’ that had permitted “cheating — at all levels — to go unchecked for years.”

Any reader familiar with my work should be running over in their mind Citigroup’s vastly larger cheating frauds that senior managers produced by using exactly the same tactics to produce hundreds of billions of dollars in fraud.

How did people become suspicious and decide to conduct a real investigation?  They realized that the reported results were too good to be true.  That too is directly parallel to Citi, where massive purchases of “liar’s” loans known to be 90% fraudulent supposedly led to massive profits.

“The dozen educators who stood trial, including five teachers and a principal, were indicted in 2013 after years of questions about how Atlanta students had substantially improved their scores on the Criterion-Referenced Competency Test, a standardized examination given throughout Georgia.

In 2009, The Atlanta Journal-Constitution started publishing a series of articles that sowed suspicion about the veracity of the test scores, and Gov. Sonny Perdue ultimately ordered an investigation.”

Wow, a newspaper did a series of articles, and documented a scandal built on deceit.  Imagine if the New York Times and the Wall Street Journal were to do an “unsparing” investigation into banking fraud – and into Attorney General Eric Holder’s refusal to prosecute.  What if they actually looked at culpability in the C-suites?

“The inquiry, which was completed in 2011, led to findings that were startling and unsparing: Investigators concluded that cheating had occurred in at least 44 schools and that the district had been troubled by “organized and systemic misconduct.” Nearly 180 employees, including 38 principals, were accused of wrongdoing as part of an effort to inflate test scores and misrepresent the achievement of Atlanta’s students and schools.

The investigators wrote that cheating was particularly ingrained in individual schools — at one, for instance, a principal wore gloves while she altered answer sheets — but they also said that the district’s top officials, including Superintendent Beverly L. Hall, bore some responsibility.”

Dr. Hall, who died on March 2, insisted that she had done nothing wrong and that her approach to education, which emphasized data, was not to blame. ‘I can’t accept that there’s a culture of cheating,’ Dr. Hall said in an interview in 2011. ‘What these 178 are accused of is horrific, but we have over 3,000 teachers.’

But a Fulton County grand jury later accused her and 34 other district employees of being complicit in the cheating. Twenty-one of the educators reached plea agreements; two defendants, including Dr. Hall, died before they could stand trial.”

Of course, Hall’s “approach to education” did not “emphasize data” – it emphasized faux data – like Citi’s accounting alchemists under Robert Rubin who transmuted fraudulent net liabilities (liar’s loans) into supposedly wondrously valuable assets that had zero risk (Super Senior CDO tranches).

A more general point is in order.  Atlanta is the culmination of destructive national trends and failing to mention Houston in the story was unfortunate.  First, the “reinventing government” movement decided the public sector was bad and the private sector was magnificent and said that the public sector should adopt private sector approaches including quite specifically “performance pay” based on quantitative measures.  This brought to the public sector the perverse incentives that were ruining the private sector and about to bring on Enron-era fraud epidemic and then the most recent three fraud epidemics.  Second, we were assured by proponents of the change that a concern for “reputation” would trump any perverse incentives.  What the proponents failed to see, of course, was that in both the private and public sectors the way to create a superb reputation was to report inflated data.  Reputation, instead of the “trump” ensuring good conduct, was a leading motive to engage in bad conduct.  Third, we were told that giving public administrators far more power to squash teachers was the key to success in education.  Lord Acton warned that absolute power leads to absolute corruption whether in Atlanta or Citi’s C-suite.

Houston should have been mentioned because the modern movement toward educational fraud began in Houston under Rod Paige – who became Secretary of Education based on massive fraudulent misrepresentation of data.  Paige kicked off the testing insanity, claiming it would produce objective, fact-based policies based on what educational measures actually worked.  As a famous takedown of Paige’s claims ends – the lesson is that it was too good to be true.  President Bush, however, bought it hook, line, sinker, bobber, rod, and the boat Paige rowed out in.

In any event, if Fulton County, Georgia can jail educators who lie and gimmick the data, Holder can send the elite bankers to prison on the same grounds.