November 23, 2024

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Archives for 2007

Why CEOs and Companies Break the Law

June 28, 2007 by

Ben Horowitz, CEO of Opsware, offers an interesting essay on why so many bigshot CEOs seem to be in legal trouble. Why, he asks, would a rich and powerful executive risk going to prison? The easy answer, greed, is too simple because many of these guys were already tremendously rich and stood to gain little or nothing personally from the illegal acts. There must have been something else driving them.

One answer is pride. Exhibit A is WorldCom CEO Bernie Ebbers (now doing 25 years for fraud and conspiracy).

As WorldCom grew at a rapid pace, Bernie set expectations high. This led investors to give him advance credit, thus boosting his stock, which was the currency he used to build his company. When Bernie saw that WorldCom wasn’t going to meet those high expectations, and that thousands of shareholders to whom he had promised great performance would lose their money, and thousands of employees who he had hired would lose their jobs, he was willing to do anything to make things right. Even if it meant doing things that were wrong.

Like a killer committing his second murder, the decisions to commit fraud must have come easier as Bernie gained experience. In addition, the stakes continued to get higher. He continued to commit fraud, because if he hadn’t, there was a 100% chance that he would let everyone down who mattered to him and he would no longer be the person that he had worked so hard to become. He wouldn’t be Bernie Ebbers #11 in Time Magazine’s Cyber Elite; he’d be Bernie Ebbers, former milkman, bouncer, and disgraced CEO.

If this is right, Ebbers defined himself by the success of WorldCom. If the company failed, then his work – his contribution to society – would evaporate.

Even beyond pride, some executives see themselves as great benefactors, bringing happiness to employees, wealth to investors, and great products at low low prices to customers. If WorldCom’s growth was good for humanity, then it was worth taking risks to defend. And when the time came to take risks, the Great Man stepped forward.

While working on the Microsoft antitrust trial, I read Titan, Ron Chernow’s biography of John D. Rockefeller. Rockefeller saw most things clearly, but he had one blind spot: he honestly saw little distinction between the growth of Standard Oil and the advancement of humanity. Cheap, high quality oil would transform American life, and Standard Oil would be the agent of that transformation. America needed Standard Oil. Rockefeller had an uncommonly strong drive to do good in the world, a drive that was channeled into an intense need to win every business skirmish. His opponents, who were only trying to make money or run a business, were no match for a guy trying to save the world.

One gets the sense that WorldCom grew as big as it did, and the house of cards stood up for as long as it did, because Bernie Ebbers had a Rockefeller-like drive to make it so. He would do almost anything to keep WorldCom afloat, which is what made him dangerous to his employees and investors.

He was a danger, too, to his competitors.

Once WorldCom started committing accounting fraud to prop up their numbers, all of the other telecoms had to either (a) commit accounting fraud to keep pace with WorldCom’s blistering growth rate, or (b) be viewed as losers with severe consequences.

How severe were the consequences for not breaking the law? Well, like a baseball player who refuses to take steroids, CEO Mike Armstrong of AT&T did not keep pace with the cheaters. As a reward for his honesty and integrity, he was widely ridiculed in the press prior to being fired and AT&T, perhaps America’s most valuable brand, was acquired for cheap. Now you see why Barry Bonds needed something to help him keep pace with Mark McGwire.

The steroids analogy helps explain why corporate criminals must face serious punishment. It’s not enough for the average performer to know that the leaders probably aren’t cheating. Given the choice between believing that the other guy is cheating, and believing that he is honestly outperforming you, most people will go for the cheating theory. People need to know that nobody in their right mind would cheat – a lesson that Bernie Ebbers will be teaching us for the next twenty years or so.

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Woman Registers Dog to Vote, Demonstrates Ease of Fraud

June 26, 2007 by

A woman in Seattle registered her dog to vote, and submitted absentee ballots in three elections on the dog’s behalf, according to an AP story.

The woman, Jane Balogh, said she did this to demonstrate how easy it would be for a noncitizen to vote. She put her phone bill in her dog’s name (“Duncan M. MacDonald”) and then used the phone bill as evidence of residency. She submitted absentee ballots in Duncan’s name three times, each ballot “signed” with a paw print. She says the ballots did not designate any candidates and only had “void” written on them, so the elections were not affected.

Nevertheless, she broke the law and now faces charges.

This relates to an issue every applied security researcher has faced: how to demonstrate a security problem is real. People take a problem more seriously when they have seen a real, working demonstration of the problem – otherwise the problem will be dismissed as theoretical. Often there is a lawful way to demonstrate a problem, for example by “breaking in” to your own computer. But sometimes there is no way to demonstrate a problem without breaking the law. Careful researchers will stop and assess the legality of what they’re planning to do, and will hold back if the demo they’re considering breaks the law.

Ms. Balogh went ahead and broke the law. Beyond that (serious) misstep, she did everything right: admitting what she did, avoiding any side-effect on the elections by filing blank ballots, and leaving obvious clues like the paw prints.

Fortunately for her, the prosecutor decided not to charge her with a felony but instead offered to let her plead guilty to a misdemeanor, pay a $250 fine, and do ten hours of community service. She was lucky to get this and will apparently accept the deal.

Any readers considering such a stunt should think again. The next prosecutor may not be so forgiving.

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Inside Clouseau's Brain: Dissecting SafeMedia's Outlandish Technical Claims

June 22, 2007 by

I wrote in April about the over-the-top marketing claims of the “anti-piracy” company SafeMedia. (See Is SafeMedia a Parody?) The company’s marketing materials claim that its comically named product, “Clouseau,” can do what is provably impossible. Having both a professional and personal interest in how such claims come to be made, I wanted to learn more about how Clouseau actually worked. But the company, unsurprisingly, did not provide that information.

Now we have two more clues. First, SafeMedia founder Safwat Fahmy was actually invited to testify before a congressional hearing, where he provided written testimony. Second, I got hold of a white paper that SafeMedia salespeople are giving to prospective customers. Both documents give some technical information about Clouseau.

[CORRECTION (June 26): Mr. Fahmy was not actually invited to testify, and he did not appear before the committee, according to the committee’s own web site about the hearing. All he did was submit written testimony, which absolutely anyone is allowed to do. I was misled by a SafeMedia press release. I should have known better than to rely on those guys.]

The documents contradict each other in several ways. For example, Mr. Fahmy’s testimony says that Clouseau “detects and prohibits illegal P2P traffic while allowing the passage of legal P2P such as BitTorrent” (page 5). But the white paper says that BitTorrent is illegal and was blocked every time by Clouseau in their tests (page 6 and Appendix A).

Similarly, the white paper says, “In a series of tests conducted by us, Clouseau did not block any normal packets including web HTTP(S) and VPN (ipSec and PPTP).” (page 5) (HTTPS and VPN protocols are standard ways of using encryption to hide the content of communications.) But Mr. Fahmy’s congressional testimony says that “Clouseau is fully effective at forensically discriminating between legal and illegal P2P traffic with no false positives … whether encrypted or not” (page 7) which implies that it must block some HTTPS and VPN traffic.

One thing the documents seem to agree on is that Clouseau operates by trying to detect and block certain protocols, rather than looking at the material being transmitted. That is, it doesn’t look for infringing content but instead declares certain protocols to be illegitimate and then tries to block them. Which is a problematic design because many protocols are used for both infringing and noninfringing purposes. Some protocols, like BitTorrent see lots of noninfringing use and lots of infringing use. So Clouseau will get many cases wrong, whether it blocks BitTorrent or not – a problem the company apparently gets around by claiming to block BitTorrent and claiming not to block it.

How does the company square its protocol-blocking design with its claim to block illegal content with complete accuracy? Apparently they just redefine the term “illegal” to be co-extensive with the set of things their product blocks. In other words, the company’s legal claims seem to be just as implausible as its technical claims.

[UPDATE (Oct. 5, 2007): I hear rumors that SafeMedia is telling people that they offered me or my group access to a Clouseau device to study, but we refused. For the record, this is false.]

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Email Protected by 4th Amendment, Court Says

June 19, 2007 by

The Sixth Circuit Court of Appeals ruled yesterday, in Warshak v. U.S., that people have a reasonable expectation of privacy in their email, so that the government needs a search warrant or similar process to access it. The Court’s decision was swayed by amicus briefs submitted by EFF and a group of law professors.

When Alice sends an email to Bob, the email will be stored, for a while at least, on an email server run by Bob’s email provider. Depending on how Bob uses email, the message may sit on the server just until Bob’s computer picks up mail (which happens every few minutes when Bob is online), or Bob may store his long-term email archive on the server. Either way the server, which is typically run by Bob’s ISP, will have a copy of the email and will have the ability to access its contents.

The key question in Warshak was whether, notwithstanding the ISP’s ability to read his mail, Bob still has a reasonable expectation of privacy in the email. This matters because certain Fourth Amendment protections apply where there is a reasonable expectation of privacy. The government had used a certain kind of order authorized by the Stored Communications Act to compel Warshak’s ISP to turn over Warshak’s email without notifying Warshak. Warshak argued that that was improper and the government should have been required to get a search warrant.

The key to the Court’s ruling is an analogy, offered by the amici, between email and phone calls. The phone company has the ability to listen to your calls, but courts ruled long ago that there is a reasonable expectation of privacy in the content of phone calls, so that the government cannot eavesdrop on the content of calls without a warrant. The Court accepted that email is like a phone call, for privacy purposes at least, and the ruling essentially followed from this analogy.

This is not a general ruling that warrants are required to access electronic records held by third parties. The Court’s reasoning depended on the particular attributes of email, and even on the way these particular ISPs handled email. If the ISP’s employees regularly looked at customer email in the ordinary course of business, or if there was a written agreement giving the ISP broad latitude to look at email, the Court might have found differently. Warshak had a reasonable expectation of privacy in his email, but you might not. (Randy Picker has an interesting commentary on Warshak in relation to online records held by third parties.)

Interestingly, the Court drew a line between inspection of email by computer programs, such as virus or spam checkers, versus inspection by a person. The Court found that automated analysis of email did not erode the reasonable expectation of privacy, but routine manual inspection of email would erode it.

Pragmatically, a ruling like this is only possible because email has become a routine part of life for so many people. The analogy to phone calls, and the unquestioned assumption that people value the privacy of email, are both easy for judges who have gotten used to the idea of email. Ten years ago this could not have happened. Ten years from now it will seem obvious.

Orin Kerr, who is expert in this area of the law, thinks this ruling is at higher than usual risk of being invalidated on appeal. That may be the case. But it seems to me that the long-term trend is toward treating email like phone calls, because that is how people think of it. The government may win this battle on appeal, but they’re likely to lose this point in the long run.

Filed Under: Privacy & Security Tagged With: ,

Chinese Gold Farmers: Work or Fun?

June 18, 2007 by

Julian Dibbell had an interesting article in yesterday’s NYT, profiling several Chinese gold farmers, who make their living playing the massive multiplayer game World of Warcraft (WoW) and accumulating virtual loot that is ultimately sold for real money. If you’re not familiar with gold farming, or virtual-world economies in general, it’s a nice introduction.

Even if you’ve heard it all before, the article is still worthwhile as a meditation on the porous boundary between work and fun online. These guys make their living playing a game, in seven twelve-hour shifts a week. It’s highly repetitive work – they follow the loot-maximizing strategy which involves hanging around the same little area and whacking the same monsters over and over. WoW players even call this kind of play “the grind”.

Yet somehow the guys enjoy it, not all the time but often enough to find a work rewarding in an odd way. One guy, Wang Huachen, has a law degree but chooses to play/work WoW instead, at least for a while.

“I will miss this job,” [Wang] said. “It can be boring, but I still have sometimes a playful attitude. So I think I will miss this feeling.”

…

I turned to Wang Huachen, who remained intent on manipulating an arsenal of combat spells, and asked again how it was possible that in these circumstances anybody could, as he put it, “have sometimes a playful attitude”?

He didn’t even look up from his screen. “I cannot explain,” he said. “It just feels that way.”

Amazingly, after finishing a twelve-hour shift, some of these guys spend their long-awaited free time … playing WoW.

But all that changed when the boss of one gold farm got a new business idea: rather than grinding out more loot, his employees would instead build up a 40-man team of uber-characters who would serve as mercenaries, for hire by players who wanted reliable, non-greedy companions in attacking the toughest areas of WoW. Suddenly these gold farmers could really use their skills, and have more fun – for a while.

The end arrived without warning. One day word came down from the bosses that the 40-man raids were suspended indefinitely for lack of customers. In the meantime, team members would go back to gold farming, gathering loot in five-man dungeons that once might have thrilled Min but now presented no challenge whatsoever. “We no longer went to fight the big boss monsters,” Min said. “We were ordered to stay in one place doing the same thing again and again. Everyday I was looking at the same thing. I could not stand it.”

What’s most interesting about this, to me at least, is the relationship between the gold farmers and the players they serve. It’s not a personal relationship, only an economic one, in which the gold farmers play the boring part of the game in exchange for a cash payment from a richer customers.

This relationship is an amazing tangle of play and work. The gold farmer works playing a game, so he can earn money which he spends playing the same game. The customer finds part of the game too much like work, so he works at another job to earn money to pay a gold farmer to play for him, so the customer can have more fun when he plays. Got it?

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