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December 11, 2008

Fraud at the Port -- Definitions and Penalties

The latest P.I. article on fraud at the Port of Seattle focuses on what the CEO and the commissioners think the word "fraud" means and what punishments should be meted out. It is stunning that, when faced with the results of their own investigation, port leadership implies that their past usage of the phrase "zero tolerance" may actually be open to interpretation:

When Yoshitani took the helm of the port from Mic Dinsmore in March 2007, he promised a different leadership style -- the reverse of Dinsmore's top-down, heavy-fisted approach.

In dealing with scandals since then, Yoshitani has revealed a pattern with his response to each controversy: support an expensive investigation that revealed widespread dysfunction, strengthen a host of port policies and procedures that had been ignored, and implement reforms while delivering slaps on the wrist to most of the employees in question.


But it's not just the Port CEO who vacillates over appropriate punishments for the offenders. For some, it comes down to what the definition of the word "is" "fraud" is:


Tarleton said that, when she pushed for "zero tolerance" for fraud during public meetings and news interviews after the state audit, she "wasn't aware of civil fraud."

Like Yoshitani, who has likened violations of state law to "jaywalking," Tarleton compared civil fraud to parking violations.

"If I had been aware of the fact that there was civil fraud related to willful, deliberate misrepresentation in the oversight of leadership responsibilities, I would have been more cautious about using 'zero tolerance,' " Tarleton said. "There is a difference between civil and criminal -- a difference between getting a parking ticket and breaking into a bank."


If civil fraud is like getting a parking ticket then those who committed fraud with millions in taxpayer dollars at the Port of Seattle can breathe easy -- they'll only be expected to pay a fine of $38 to the Municipal Court of Seattle. (That's what my parking ticket last January cost me.)


But maybe, just maybe, there's more to the legal concept of what constitutes civil fraud:


Fraud, in addition to being a criminal act, is also a type of civil law violation known as a tort. A tort is a civil wrong for which the law provides a remedy. A civil fraud typically involves the act of intentionally making a false representation of a material fact, with the intent to deceive, which is reasonably relied upon by another person to that person's detriment. A "false representation" can take many forms, such as:

  • A false statement of fact, known to be false at the time it was made;
  • A statement of fact with no reasonable basis to make that statement;
  • A promise of future performance made with an intent, at the time the promise was made, not to perform as promised;
  • A statement of opinion based on a false statement of fact;
  • A statement of opinion that the maker knows to be false; or
  • An expression of opinion that is false, made by one claiming or implying to have special knowledge of the subject matter of the opinion. "Special knowledge" in this case means knowledge or information superior to that possessed by the other party, and to which the other party did not have equal access.

If you or I had committed any of the above actions at our jobs we might have been given a reprimand. But more than likely, we would have had our asses kicked out the door. And there may well have been legal action taken against us. It's Reality Check Time. Mike McKay, a former U.S attorney, understands quite well the seriousness of civil fraud. In referencing a brief that port managers presented to the commissioners about TTI Constructors' bid on the third-runway embankment, McKay had this to say:

That memo became "less specific, more vague, and more misleading with each iteration" as it passed through the e-mail boxes of at least eight managers until it became "a material misstatement of fact" that used "overtly misleading language intended to lull the commission into taking no action," according to McKay's investigation.


The situation at the Port looks more and more dire with each piece of information that becomes public. And the feds still have their investigation coming up. Kristin Millares Young's reporting has been, in my view, exemplary. Her latest article is a searing series of observations about the confusion and incompetence at the Port -- then and now.


Posted by shoephone on December 11, 2008 at 12:13 AM in Policy, The Politics of Business | Permalink


Mind if I make this really simple for the Port Of Seattle? If you work for a company, and you do something stupid, reckless, or unethical that gets the company sued, more than likely, you'll be fired. Why should it be different for a public agency?

In short, it's not like getting a parking ticket. Most people don't get fired for that.

Now, can we please get on with fixing this?

Posted by: Cujo359 | Dec 12, 2008 2:10:41 AM

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