How Madoff inspired an ex-Salomon and UBS investment banker to launch a fintech startup
David Shulman was an investment banker for more than 30 years and never came into contact with Bernie Madoff, but he was inspired by the notorious fraudster – as well as his own experience dealing with accusations of insider trading at the start of the financial crisis – to launch a fintech firm that detects the potential for white-collar criminality among new recruits in financial services.
Shulman, who was most recently global head of municipal securities sales and Americas head of fixed income at UBS, now runs Veris Benchmarks, a firm that screens candidates for moral fiber and their degree of similarity or difference to white-collar criminals.
“I was in tune with human resources – I worked very closely with the HR department [at UBS], because I had an interest in the hiring and development of talent,” Shulman said. “I forged a close relationship with HR during that time and led me to my interest in launching Veris."
“UBS put me in charge of the fixed income department of the investment bank, where municipals were a significant drain, and due to the capital needs for the company, which was going through a lot of stress, the bank decided to wind down the [municipal securities] department,” he said.
Shulman himself has also been involved with some allegations of insider trading. In 2007, Shulman was riding high when his employees started sounding alarm bells about student-loan-backed auction-rate securities. A couple of days later, he allegedly sold off $1.45m worth of auction-rate securities before their market crashed in early 2008, the New York Times reported.
After an investigation by New York’s then-attorney general (now-governor) Andrew Cuomo, Shulman agreed to settle insider trading charges by paying a $2.75m fine, neither confirming nor denying guilt. He was also suspended from employment in the industry for close to a year.
“That was a low point,” Shulman said. “Back in 2008 when the Madoff scandal happened, I had a number of family and friends who were direct investors with Madoff, and I knew one of the Madoff sons, Mark [who committed suicide in 2010], so it hit so close to home.
“Given my involvement in the hiring and HR functions and the management of these global financial institutions, I decided to analyze what companies were doing that were acting in the capacity of a fiduciary in charge of stewarding money or people, basically firms in a responsible position to handle life assets,” he said. “I realized that there was nothing geared toward a higher IQ segment to really address these issues – companies do background checks and drug tests, but unless they really understand candidates and the people who are serving their customers, they couldn’t measure what I call ‘moral fiber.’
Are you more principled than a white-collar criminal?
Currently the Veris Benchmarks’ pre-employment assessment tools include a questionnaire consisting of 149 questions that are scored against a benchmark, which the firm created by testing actual white-collar criminals in prisons across the U.S. Hiring managers and HR executives can use this data as another variable in candidate assessments to understand prospective employees a little bit better and avoid hiring fraudsters or thieves.
“They are able to use this in conjunction with other assessments such as logic tests, background checks and interviews as another input into the calculus of whether you’re going to hire this potential employee,” Shulman said.
“An organization’s reputation is precious and all it takes is one or two bad apples to destroy the reputation of firms that have taken years to build up trust with clients – how could you not want to know that information?” he said.
The traditional Wall Street interview process is overdue for an overhaul
Since launching Veris, Shulman’s views have changed dramatically on the typical interview process at Wall Street firms.
“I’ve interviewed hundreds of candidates over the years, and what I’ve realized after my exposure to some fairly advanced financial services companies, the days of the standard interview questions that drove Wall Street hiring are yesterday’s news,” Shulman said. “Interviews are helpful but rife with bias – the standard interview process is not objective at all – it introduces biases that are not fair to the candidate.
“Unless you have a professional who is skilled in the interviewing, it can be a very biased experience, whereas the technology today can help interviews to be more objective and hold things constant,” he said. “Companies say it’s all about data, so having these employees take competency tests early on makes sense – meeting the person to determine whether they fit culturally in the company should be the last step in the process, not the first step.
“The more information you have, it makes it a more pure decision before that candidate ever walks through the door. Many firms continue to send people around to six or even 10 or more interviews and people say ‘I like his tie’ or ‘I liked her dress,’ ‘We went to the same school’ or ‘We played the same sports’ – that needs to be removed from the process to find thought-leaders and good quality employees.”
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