Falling Starr and the Lack of IT Governance

Kenneth Starr is the latest money manager to be arrested for cheating clients out of millions of dollars. Bloomberg BusinessWeek has a solid overview of the news story here if you're looking for the pure business side of the situation.  For me, it raises the question of the lack of IT governance from a pure technology point of view and how this affects businesses and investors.  

Having managed over $700 million for close to 200 well known, wealthy clients throughout the years, Starr & Co. was well connected in the elite Manhattan circles.  While his theft was nowhere near the scale of Bernie Madoff's, you have to wonder why it is so easy for these so-called money managers to get away with stealing so much money for so long.

Of course, there are a lot of reasons why this happens.  First and foremost, individuals are responsible for their own investments to a large extent.  However,  when you're talking about his clients' levels of wealth accumulation, it makes sense to hire an expert to manage and grow the funds.   

While Starr & Co'.s client roster dwindled as lawsuits and client audits piled up over the years, it wasn't until a lawyer for a former client combed through recent financial transactions that federal agents stepped in.  It was the uncanny coincidence that millions of dollars in wire transfers aligned with Starr's purchase of a $7.5 million condo that tipped off the lawyer. Without the due diligence of an outside party, who knows how long Starr could have continued.

From an IT perspective, I have to question where the IT governance is or was when it comes to these wire transfers, especially multi-million dollar transactions.  In such a heavily regulated industry, there are obviously reports and legal filings that accompany these activities though for the well trained thief, these hurdles are easy to clear.

As we discovered from the Madoff situation, Bernie was the sole overseer and quasi CTO of the company's mid-range system that executed those false transactions for years.   Let's not forget that Madoff  turned himself in to the FBI  -- it wasn't the government's discovery of the fake trades that led to his incarceration.  In one positive outcome, the Madoff Ponzi scheme led to new regulations by the Securities and Exchange Commission, not the least of which is the prioritization of transparency.  However, some would argue too little too late.

Given the latest news about Kenneth Starr, you have to wonder if there are other robber barrons on the edge of being caught after investors are bilked out of millions of dollars.

Can IT governance squarely address this issue?  While it can't solve crimes, it can help in the following three ways:

1. Establish policies and processes with regard to the execution of electronic fund transfers so that potentially questionable activities are proactively flagged.

2. Create more transparency throughout the IT infrastructure.

3. Securely verify the transactions in a more efficient way.


On a sidenote, there's actually more to the Madoff and IT infrastructure story that's included in my upcoming book, "Glitch: The Hidden Impact of Faulty Software."

Do you think IT governance could have caught Kenneth Starr sooner?  Share your thoughts below or send me a note at jeff@weblayers.com