4) Local Chapters

When Lore and Borodovsky invited volunteers to form local chapters -- or "regional affiliates" -- the response was tremendous. Chapters were formed around the world. Today, they exist in 34 countries, with multiple chapters in many of those countries. These regional affiliates run meetings with invited speakers. Some assist in administering GARP's professional certification program or its professional conferences.

The legal status of regional affiliates remains vague. In a March 1999 Risk Professional article, Borodovsky notes: "In the regions we need people to take the initiative. We don't need to incorporate a subsidiary company and involve the lawyers. We just need to go and do it." However, the status is clearly not one of an "arms length" relationship. While GARP was still a not-for-profit, its bylaws required that local committees obtain permission from the Executive Committee (Lore and Borodovsky) before forming a chapter. Local committees reported directly to the Executive Committee.

Almost a year after GARP's switch to for-profit status, local chapters seem to be in flux. New chapters continue to be announced, but some existing chapters seem to be inactive. The GARP website no longer lists contact information for many local directors.

5) FRM Exam

In Early 1997, Lore and Borodovsky announced a new "professional certification" called Financial Risk Manager (FRM). Candidates would earn the FRM certification by paying a $175 fee and taking a GARP-sponsored exam. Initially, the exam was to be offered at a single site in New York, but demand was stronger than expected. The first sitting in October 1997 attracted 130 registrants and was administered at 7 locations around the world. The registration fees earned GARP $22,750. Also, candidates were required to read certain books to prepare for the exam. Cash was generated by selling these through the GARP website. Expenses from running the exam were trivial as volunteers prepared, administered and graded the exams.

The FRM certification was a brilliant idea. It brought in cash, and it would develop a cadre of professionals around the world who, after going through all the trouble of studying for and taking the exam, would have a vested interest in seeing GARP flourish. Without GARP, their certifications would be worthless!

For the second sitting of the exam, in 1998, candidates were charged between $150 and $400. Most candidates probably paid $300. In total, 250 candidates registered to take the exam at 11 locations around the world. GARP earned approximately $75,000. In addition, GARP offered review courses for the exam and charged candidates $750 to attend. It is not known how many candidates took these courses.

GARP continued to increase the fees for the FRM exam and to offer the review courses. Total exam registrations exceeded 750 candidates in 1999 and 1,400 in 2000. The majority of candidates were located in Asia.

6) Publishing Ventures

Upon forming GARP in 1996, Lore and Borodovsky started distributing an e-mailed newsletter 11 or 12 times a year. This announced such information as new chapter formations, upcoming events, news relating to the FRM certification, etc. It is still distributed today.

In 1997, Lore and Borodovsky entered an agreement with Butterworth-Heinemann publishers to edit a book entitled the Professional Handbook of Financial Risk Management. Under the agreement, the text would sell for $300, with a large portion of the proceeds going to GARP. Lore and Borodovsky solicited professionals to contribute chapters, and 27 responded. The book was published in 2000:

http://www.amazon.com/exec/obidos/ASIN/0750641118/

In 1998, Lore and Borodovsky reached an agreement with Informa Group, a publisher of trade magazines. Under the agreement, Informa would publish a monthly magazine called Risk Professional branded as a GARP publication. Informa would distribute the magazine free to GARP members in exchange for access to the GARP mailing list and some content provided by GARP members. Informa apparently retained all revenues from advertising. The first issue of Risk Professional was released in March 1999. The magazine became defunct after about 18 months of publication.

In December 2000, GARP announced a partnership with John Wiley & Sons whereby GARP will solicit authors to write financial texts to be published by Wiley. Titles will comprise a special GARP series. Profits will be split by the two organizations.

In 2000, professor Philippe Jorion prepared a 600 page instruction manual for candidates studying for the FRM exam. Much of the content comprised questions from previous FRM exams and a rehashing of material Jorion had published elsewhere. GARP sold the manual to FRM candidates for $295 plus shipping. In 2001, Jorion updated the material. It is to be published by John Wiley & Sons in July 2001 as the Financial Risk Management Handbook 2001 - 2002:

http://www.amazon.com/exec/obidos/ASIN/0471093726/

The list price is $150. The book will be a paperback that would reasonably sell for $39. Between them, Wiley, GARP and Jorion will be splitting a nice profit. For Jorion, his affiliation with GARP has been lucrative. In addition to the handbook, GARP requires FRM candidates to read his Value at Risk book, which has boosted sales of that book by perhaps 5,000 copies.

During December 2000 and January 2001, GARP asked members to respond to an on-line salary survey. GARP is selling the results of that survey for $500, or partial results for $250.

In May 2001, GARP announced a new magazine to replace the defunct Risk Professional. Called Risk Review, the magazine will be published bimonthly by GARP with articles contributed by members. The first issue was published in May 2001.

7) Professional Conferences

In the financial industry, conferences are big businesses. Between them, commercial vendors run several conferences a month focusing on various issues. They charge between $2,000 and $3,000 per attendee -- sometimes more -- for a program lasting two or three days. If a vendor can attract 100 attendees to a conference, it will easily net $150,000 for that single program.

GARP got into the conference business gradually. Initially, local chapters ran modest programs, say an after-work session with a speaker or a half-day educational program. These were usually free. GARP would solicit event Hosts and Sponsors. Event Hosts would provide the meeting facilities and refreshments. Event Sponsors would make a modest monetary contribution to help offset some of the miscellaneous cost such as producing meeting material. One member from both the Host and Sponsoring organization would be allotted five minutes at the start of the meeting to give a brief introduction. In addition, their corporate logos were displayed on the meeting announcement page on the GARP web site. They were also given special recognition in the meeting announcement e-mail correspondence.

Another initiative Lore and Borodovsky pursued was offering to endorse conferences run by commercial vendors. This entailed nothing more than placing the GARP logo on marketing material for a conference. It didn't cost either GARP or the vendor anything, but it gave both increased credibility.

By 1998, GARP had a proven ability to attract attendees to events, so Lore and Borodovsky decided to make money from events. In July 1998, they ran a Risk Management Technology Educational Seminar. Attendees were charged $50 in advance or $60 at the door. The real money came from software vendors, who would pay top dollar to have access to the audience GARP would be attracting. The program included a vendor exhibition, and 15 vendors paid to man booths. The expense of running the seminar was covered by a Sponsor. GARP earned perhaps $50,000 from the event.

During 1999, GARP experimented with a number of conferences, partnering with for-profit firms Waters and Futures & Options World. Each program was unique, but in a number of cases, GARP contributed substantially to running the program and attracting attendees. In those cases, we may assume GARP received a large portion of the profits.

Not only did GARP earn income from these partnered conferences, but Lore and Borodovsky were learning the conference business. By 2000, they were ready to go it alone. They held a huge conference entitled GARP 2000 in New York from January 31 to February 2, 2000. There were pre-seminar workshops, multiple streams of presentations, cocktail receptions, mock casino games and "FRM Olympics". The event was a huge success, with over 55 speakers, 350 participants and 28 exhibitors. Charging between $2,000 and $3,000 per attendee, Lore and Borodovsky likely netted in excess of $800,000.

In June 2000, GARP held another huge conference in London. This one was billed as "the years largest international gathering of some of the Industry's most foremost Financial Risk Management practitioners and theoretical strategists!" Following the same business model as GARP 2000, this International Research Conference had multiple streams of presentations, a cocktail hour, gala dinner, dancing and a software exhibition.

Repeating the success of GARP 2000, Lore and Borodovsky ran GARP 2001 a year later in New York. The event was enormous, with over 500 attendees and 34 exhibitors. Net income must have exceeded $1,300,000. By this time, GARP was no longer operating as a not-for-profit, but attendees were not informed.

8) A Quiet Switch

It is not known at what point Lore and Borodovsky transitioned GARP from being a not-for-profit to a for-profit organization. Apparently, they made the decision in late 1999. The 12 months leading up to GARP 2000 had been lucrative. Estimated net income for the period is:

   $800,000 GARP 2000
   $260,000 FRM exam 1999
   $200,000 Conferences with Waters and Futures & Options World
   $100,000 Miscellaneous: corporate sponsorships, banner ads, etc.
_________
$1,360,000 Total

We can only presume Lore and Borodovsky fancied such money for themselves. There is absolutely no indication of what GARP did with all the money. The organization had no real overhead. There is no indication that they paid unrelated business income tax (UBIT) on it. A simple way for Lore and Borodovsky to take the money would be to pay it to themselves as a salary. They have never announced a salary for themselves, but they have never disclosed any financial information on GARP whatsoever.

While paying themselves a salary would have solved the immediate problem of disposing of the cash, Lore and Borodovsky were aware that this was just the tip of the iceberg. GARP was poised to become a major publishing and conference producing company. There would be multiple extravagant conferences each year, They would launch a new magazine. They could jack up the fees for the FRM exam. They would start charging membership dues of their 15,000 members. Their publishing partnership with John Wiley would generate attractive revenues. Annual net income might exceed $20,000,000 within five years. They could not remain a not-for-profit and pay that to themselves as a salary!

So, before things got out of hand, Lore and Borodovsky would close down the not-for-profit GARP and start up a for-profit GARP with themselves as (presumably) sole owners. But there was a problem. To date, their success was based upon GARP's status as a not-for-profit. There had never been anything special about GARP's products and services. Risk Professional was a shoddy magazine. Candidates complained that the FRM exam was poorly designed. GARP's conferences were no better than those offered by commercial vendors. What fired people's imagination about GARP was the fact that it was a not-for-profit. It was -- or so people thought -- their very own industry organization. This is why GARP was successful. Now, if Lore and Borodovsky announced that they were making GARP their personal for-profit firm -- essentially stealing it from all the volunteers who had worked so hard to build its success -- all that success would vanish. The potential $20,000,000 in annual net income would never materialize.

Lore and Borodovsky decided that they would convert GARP to a for-profit firm, but they would continue to act as if GARP were a not-for-profit. They would make no announcement of the switch. They would do what was necessary -- at least in their own minds -- to make the transition legal, but they would otherwise continue to behave as if GARP were a not-for-profit.

Revenues grew steadily. During the 12 months leading up to GARP 2001, estimated net income was:

$1,200,000 GARP 2001
   $400,000 International Research Conference
   $525,000 FRM exam 2000
   $100,000 Book: Professional Handbook
   $125,000 Book: FRM Instruction Manual
   $125,000 Miscellaneous: corporate sponsorships, banner ads, etc.
_________
$2,875,000 Total

It is illegal to commingle assets of for-profit and not-for-profit organizations, but this is precisely what Lore and Borodovsky did when they switched GARP's tax status. GARP's membership list, FRM certification program, publishing operations, conference business, network of local chapters, website, name and goodwill were all transferred to the for-profit entity.

An issue for Lore and Borodovsky was what valuation to place on the not-for-profit they were closing down. When a not-for-profit ceases operations, its assets are typically donated to another not-for-profit. However, the transition from the not-for-profit GARP to the for-profit GARP had entailed so much commingling of assets that Lore and Borodovsky probably felt justified in allocating some assets to each entity. They had to decide what assets to ascribe to the not-for-profit GARP-and what deserving not-for-profit to donate them to.

In February 2001, Lore and Borodovsky announced the formation of the GARP Foundation. Apparently, this would be the repository for the not-for-profit GARP's assets. The foundation was to grant scholarships for students studying financial risk management. It was to be funded by GARP and "private contributions." No announcement was made as to the initial funding level. There has been no news of the foundation since. Maybe Lore and Borodovsky funded it with $20,000. Whatever the amount, it seems doubtful that it was close to the millions of dollars GARP now earns annually. It could not possibly reflect the fair value of the not-for-profit GARP at the time its assets were transferred to the for-profit GARP.

The following employment advertisement, which appeared in the Dec 1999/Jan 2000 Risk Professional provides hints as to when GARP actually switched tax status:

Chief Operating Officer - GARP

GARP seeks a Chief Operating Officer and Chairman of the Executive Committee to help take the organization onto the next level in its development.

The COO would be based in Westchester, New York, USA and the start date is April 1, 2000. He or she would report to the GARP board of Directors and enjoy a package worth US$90,000 in total.

To succeed in this demanding but exciting role the candidate will need good general business management experience and experience of the financial services industry. A knowledge of risk management would be an obvious benefit.

The COO key responsibilities are:

* To arrange and chair GARP's executive committee meetings and voting procedures.
* To manage the day to day operations of GARP
* Work with the board to set the organization's overall strategic objectives
* Drive the annual budget process and allocate funds to GARP's various regional directors and sub-committees
* Hire and manage GARP's full time staff
* Develop the GARP examination
* Develop the GARP web-site
* Manage contract negotiations with third party vendors

The original GARP bylaws had mentioned an Executive Committee comprising Lore and Borodovsky. A Steering Committee reported to the Executive Committee and comprised about 10 members. The above advertisement suggests the Executive Committee was to become a Board of Directors for the for-profit GARP. To obfuscate matters, the Steering Committee was apparently to be called the Executive Committee.

GARP's first hire was announced in September 2000. Adam Davids was appointed CEO of GARP. More hires followed, and offices were established in New York and London. The November 2000 newsletter announced, among administrative news:

"GARP's Executive Committee will be meeting on a quarterly basis to provide valued input and feedback on the operations of GARP globally. In this capacity they will serve GARP as its Advisory Board and its name will be changed to represent this new role."

Apparently, this was referring to the original Executive Committee comprising Lore and Borodovsky. They were to form GARP's Board of Directors and hold quarterly meetings in that capacity. In an apparent attempt to mislead, the new board was to be called the Advisory Board.

In the early days of GARP, Lore and Borodovsky were highly visible. Their photos appeared on the GARP website, on the inside flap of the Handbook of Financial Risk Management and in almost every issue of Risk Professional. The premier issue of Risk Professional had detailed biographies of both of them. They were extensively quoted in GARP announcements and other literature.

In late 2000, this changed suddenly. The renaming of the Executive Committee was just one step. Lore and Borodovsky's photos were removed from the website. Indeed, it is now difficult to find any mention of them at all on the website. Two years ago, Lore and Borodovsky were synonymous with GARP. Now they have dropped out of sight.

Lore and Borodovsky originally formed GARP to enhance their career prospects. Being heads of an international risk management organization would give them notoriety and open doors. They wrote GARP's bylaws to ensure they would permanently be in charge. It was only when GARP started generating millions of dollars in revenue that their thinking changed. Who needs to enhance a career when you are making millions of dollars?! Lore and Borodovsky's subsequent actions have been unethical and violated US tax laws. The last thing they want at this point is notoriety.

To the outside world, GARP is offering no hint of its change in tax status. There has been no announcement, and the look and feel of the GARP website remains that of a not-for-profit. It is sheer coincidence that the authors of this document noticed that the word "not-for-profit" had disappeared from the website (we noticed on March 22, 2001). Compare the original description of GARP that used to appear on their homepage to the description that appears there now:

Original Description:

"The Global Association of Risk Professionals (GARP) is a not-for-profit, independent organization of financial risk management practitioners and researchers. GARP was founded by a group of risk managers from banks who felt that the financial risk management profession should extend beyond the risk control departments of financial institutions ... "

Current Description:

"The Global Association of Risk Professionals (GARP) is an independent organization of financial risk management practitioners and researchers. GARP was founded by a group of risk managers from banks who felt that the financial risk management profession should extend beyond the risk control departments of financial institutions ... "

A link to GARP's bylaws has been removed from the website. Also, GARP recently changed its logo.

A few web pages for local chapters have not yet been updated. The website for GARP Boston still describes GARP as a not-for-profit and has a link to the bylaws:

http://www.garp.com/us/boston/index.htm

The fact that GARP's website uses a .com as opposed to a .org domain (www.garp.com instead of www.garp.org) is unrelated to their for-profit status. They have always used the .com domain. The URL www.garp.org belongs to a different organization.

The May 2001 premier issue of Risk Review magazine makes no mention of GARP's for-profit status. It lists numerous people affiliated with GARP, but makes no mention whatsoever of Lore and Borodovsky.

9) Membership Dues

Individual "membership" in GARP has always been free, but this is set to change. In April 2001, GARP announced a tiered membership that would go into effect July 1, 2001. Five tiers of membership are to be:

* Affiliate Membership - annual fee: Free
* Individual Membership - annual fee: $200
* Fellow Membership - annual fee $250
* Academic Membership - annual fee: $100
* Student Membership - annual fee: $50

The strategy seems to be to retain all existing 15,000 members by making them Affiliate Members, but to gradually transition them to paying membership. Anyone who has the FRM certification or wishes to take the FRM exam is required to become a paying member. Only paying members will receive the new Risk Review magazine. In an attempt to promote the appearance of a not-for-profit, GARP has announced voting rights. Individual, Fellow and Academic members will have the right to vote on upcoming "advocacy and corporate governance issues." We will have to wait and see what these advocacy and corporate governance issues are.

Membership dues have the potential to generate significant revenues. Someday, there may be 15,000 paying members. If GARP has jacked up the dues to $600 by that point (not unreasonable in the financial industry) annual revenues will be $9,000,000.

10) Inside Circle

GARP has always had an inside circle of key members. This has included the original Steering Committee (now the Executive Committee) as well as key directors of local chapters. These people were hand-picked by Lore and Borodovsky. Many are personal friends. All have been loyal over the years.

Many of these people are actively supporting the changes at GARP. This may be partly out of loyalty, but it seems likely that Lore and Borodovsky are also compensating people who previously served as volunteers. Compensation may take the form of ownership interests in the new for-profit GARP. More likely, it is taking the form of a stipend or salary. A hint of such compensation appears in the employment advertisement that appeared in the December 1999/January 2000 Risk Professional. It lists as one responsibility: "Drive the annual budget process and allocate funds to GARP's various regional directors and sub-committees." Also, when new membership dues were announced in April 2001, one justification that was mentioned was a need to provide funding to local chapters. Local chapters have previously never required funding from GARP. It is hard to imagine what now motivates such a need -- other than compensation for local directors.

When insiders are asked about GARP's tax status, they tend to dance around the issue. Consider the following e-mail exchange with David Koenig, director of market risk management for US Bancorp Piper Jaffray and director of GARP Midwest (dkoenig@charter.net):

Hi David: I am interested in getting involved in GARP Chicago. Are you the contact person, or can you direct me to who is? Thanks, Sandra May 23, 2001

Yes, Sandra. I am. Are you aware of our upcoming event on May 30th? James Lam will be addressing our group on Enterprise Risk Management. We'll be meeting from 5:00 to 7:00 pm at the IIT Stuart Graduate School of Business, 565 W. Adams in Chicago. If you can join us during the social hour from 5:00 to 6:00, please find me and we can talk about ways in which you can be involved. Thanks! I hope to see you on the 30th. Dave May 24, 2001

Hi Dave: That's great! I met James Lam once while he was at Fidelity Investments. If I join GARP, are there membership dues? Is GARP a non-profit? Thanks so much for your help. I look forward to meeting you. Sandra May 25, 2001

[David replies] There are a couple of levels of membership. The basic membership is free. This gives you access to the free areas of www.garp.com and the ability to attend regional meetings. The next levels up are still pretty reasonable at $200 per year. This gives you a free subscription to the GARP Risk Review, access to members-only sections of the web site, the job board, ability to take the FRM exam, and a 10% discount on all GARP conferences. It's well worth it! As far as GARP's structure, I believe that we are forming both a for-profit and non-profit entity. The latter will be a foundation providing scholarships to deserving individuals. Come join us next Wednesday and you can see for yourself what we are about. Hope to see you there. Dave May 25, 2001

There appears to be internal conflict among original insiders. Some oppose the changes at GARP and are being slowly squeezed out of the organization. Consider the following e-mail exchange with Deborah Williams (dwilliams@meridien-research.com), who works for Meridian Research and is director of GARP Boston:

Hi Deborah: I am interested in becoming involved with GARP Boston. Can you please tell me when your next meeting is, and is it open to the public? Thanks, Kim Hall May 23, 2001

Kim, Thanks for your inquiry. GARP is in a bit of a transition right now and, unfortunately I don't have any meetings schedule at the present. Since we usually take the summer off, I would expect our next meeting would be in the fall. Was there anything in particular you were interested in that I could help you with in the meantime? I'll add you to our email list so you'll receive any announcements. Best regards, Debbie May 23, 2001

Hi Debbie: Yes, please add me to your mailing list, and I will plan on attending a meeting when you get going again in the Fall. Is GARP a non-profit? Are there membership dues? Thanks, Kim May 24, 2001

[Two weeks passed before Deborah replied]

Kim, Thanks for your email. I'm sorry it's taken me so long to answer. To be honest, GARP is going through a bit of turmoil at the moment over just the issues that you raise. It was recently changed to a for profit entity and introduced to membership dues of $200/year. I disagree with both of these moves rather adamantly. There is work being done in New York to work on these issues. I am not privy to any of the details so I can't tell you what's going on. All I do know is that I, myself, am not particularly happy with the shape of things at the moment. As promised, I will keep you up to date on our local chapter, assuming we still have one, and will try to let you know what's going on, to the extent New York is willing to tell me. Sorry for this answer. I know it won't be especially satisfactory, but it's the best I can do right now. Best regards, Debbie June 5, 2001

11) Implications

GARP was flawed from its beginnings. An organization can only serve the interests of those who control it. Lore and Borodovsky promoted GARP as serving the financial risk management community, but a casual reading of GARP's bylaws make it clear who controlled GARP. A true membership organization is a not-for-profit which is owned and controlled by its members. Members elect management for the organization in free and open elections. If you read the bylaws of any honest membership organization, they detail how managers are to be elected. The GARP bylaws made no mention of elections. They merely stated, in essence: "the Executive Committee exists."

Honest membership organizations attract philanthropic financing from wealthy individuals or corporations who believe in their purpose. Since the purpose of GARP was Lore and Borodovsky, such philanthropic financing was unavailable to GARP. To raise funds, Lore and Borodovsky prostituted their not-for-profit. In exchange for money, they would "recommend" vendors on the GARP website. This was just the first step on a slippery slope. GARP came to serve a second audience: anyone willing to pay.

Another currency at GARP was self-promotion. The quid-pro-quo was unstated, but obvious. Persons or organizations interested in promoting themselves could jump on the GARP bandwagon -- and in doing so, help promote GARP. It is difficult to think of a single risk management software vendor that didn't succumb. Many of the prima-donnas of risk management (you know who they are) jumped in with gusto.

GARP came to be controlled by -- and to serve -- three groups:

* Lore and Borodovsky,
* anyone willing to pay money, and
* self-promoters.

Thousands of honest risk managers have been taken for a ride. They volunteered at the local chapters. They studied for the FRM exam. They purchased GARP books and study materials. They contributed articles for GARP publications. They attended the overpriced GARP conferences. They thought they were building something real, but it was all a lie.

The GARP saga raises a cautionary note. Many of the publicized losses -- Orange County, Barings, Daiwa, Sumitomo, etc. -- that motivated financial risk management in the 1990's arose from lax corporate governance, self-dealing, corruption and fraud. We might hope that financial risk management professionals would be adept at recognizing warning signs of such conditions. The fact that so many were fooled by GARP suggests that the profession may not be attracting the right sort of talent.

Today, the fledgling financial risk management profession faces many challenges. Some of these could be addressed through an honest not-for-profit organization - one that actually represented risk managers. With GARP commanding center stage, no other organization has been able to take on such a role.

12) What You Should Do

At its beginnings, GARP attracted many dedicated professionals who had a true interest in serving the financial risk management community. Today, the organization is controlled by unethical, corrupt and self-promoting individuals. Directors who remain committed to their original ideals are being squeezed our or are jumping ship. GARP is like a house built on sand. Repainting the front door or replacing a few shingles won't fix the house. GARP needs to be torn down before we can hope to replace it with an honest not-for-profit. This conclusion may be painful for people who have honestly contributed to GARP or have sat for the FRM exam, but it is necessary. At its heart, GARP is just a mailing list. The people on that list will still be here after GARP is gone. But they can't build something new until GARP is shut down. Here is what you can do to help.

First and foremost, get the word out. Forward this document to as many people as you can.

Don't honor any commitments to GARP. If you owe GARP money, have agreed to speak at a GARP conference or are writing a book for GARP, do not honor the agreement. Legally, there are two different GARP's: the original not-for-profit and the new for-profit. If representatives of the for-profit GARP mislead you into believing you were dealing with the not-for-profit GARP (by what they said or by what they should have said, but didn't) then your commitment is unenforceable. If you have recently made a credit card payment to GARP, contact the credit card company and stop payment. You can cite fraud as the reason. Likewise, stop payment on any outstanding checks to GARP.

If you have registered for the FRM exam and pre-ordered the Financial Risk Management Handbook, cancel the order.

Contact organizations that advertise through GARP and complain about their support of a corrupt organization. You can also contact companies that pay GARP to list employment advertisements on the GARP website -- contact e-mails are listed with the ads. Contact John Wiley & Sons and complain about their jointly publishing books with GARP.

A) Appendix: Notes

Who are we? We are a group of financial risk managers who were formally involved with GARP, but became disillusioned by the organization's pandering to paying commercial interests. When one of us noticed that the word "not-for-profit" had been removed from the GARP website, we decided it was time to do some research. This document is the result. Because we do not want to be personally labeled as whistle-blowers, we choose to remain anonymous. Here is the reason: Everyone admires a whistle-blower, but no one wants to hire one. We would like not to harm our careers.

We have made extensive use of back issues of the GARP newsletter and back issues of Risk Professional magazine. Some material is based upon personal recollections, but we have strived to confirm such material from other sources.

There is much information that GARP does not disclose, and we have had to make inferences regarding some items. We have tried to make it clear when we have done so by using such qualifiers as "apparently", "presumably" or "it seems." Despite much care, the document may reflect some misperceptions on our part. It does not attempt to disclose all the activities in which GARP has engaged.

Estimates of net income to GARP are based upon available information as well as conservative assumptions. For example, the estimate that GARP earned $100,000 from sales of the Professional Handbook of Financial Risk Management is based upon:

* an assumption that GARP received $100 out of the sale price of $300 for each book sold, and
* a conservative assumption of just 1,000 books sold.

Estimated net income of $1,200,000 for the GARP 2001 conference is based upon the fact that over 500 people attended, each paying between $2,000 and $3,000. Also, 34 vendors exhibited. With no information on attendance at the International Research Conference in London, estimated net income of $400,000 is nothing more than a conservative guess.

B) Appendix: 1997 GARP Bylaws

Bylaws Governing the Global Association of Risk Professionals (GARP)

Global Association of Risk Professionals, Inc. (GARP(tm)) is a not-for-profit corporation incorporated in the state of New York in 1996. The purpose of the organization is to serve the community of financial risk management professionals around the world. The organization's goal is to improve the standards for risk management education, facilitate the exchange of information, and establish the basis for communication among risk professionals, regulatory authorities, and the financial community.

The following general rules will govern the organization at all times:

I. The Global Association of Risk Professionals will always maintain its not-for-profit status;

II. The Global Association of Risk Professionals will maintain its independence from any not-for-profit organization, or any agency or body which is not independent from governments or corporations;

III. The Global Association of Risk Professionals will never deny membership to professionals representing any nation or institution on the basis of its relationship (or lack of relationship) with that nation or institution.

The organizational governing structure will be as follows:

GARP Executive Committee

The Executive Committee is comprised of the GARP Executive Directors. The functions of the Executive Committee are:

1. Appointing members to the Steering Committee; 2. Assigning (removing) functional responsibilities to members of the Steering Committee; 3. Forming formal partnerships or contracts with other legal entities; 4. Approving the formation of bodies under the umbrella of GARP, including (but not limited to) local chapters, functional committees (referred to as Special Committees), etc. 5. Adopting, amending, or repealing the bylaws (by unanimous consent of the Executive Committee only).

GARP Steering Committee

The GARP Steering Committee consists of directors and executive directors of GARP. The committee's primarily concern is with global issues pertaining to the organization. The functions of the Steering Committee include:

1. Developing an agenda that would help GARP achieve its goals; 2. Forming Working Groups to focus on specific tasks; 3. Actively participating in the ongoing activities and events of the organization; 4. Interacting with GARP members; 5. Working with other institutions on joint projects with GARP; 6. Fund raising; 7. Organizing meetings and discussion groups; 8. Setting the general thrust for the Special Committees;

GARP Local Committees

The role of the Local Committee is similar to that of the Steering Committee. However the Local Committees focus on local events and projects whereas the Steering Committee is concerned with global issues. Local Committees can be formed in any geographic location or region by GARP members with the prior approval of the Executive Committee. The Local Committees report directly to the Executive Committee of GARP.

GARP Special Committees

Special Committees include the GARP Round Table, the FRM(tm) Examination Council, and the GARP Committee on Risk Management Standards (CRMS), etc. These committees operate autonomously, though the general premise of these committees is subject to approval of the GARP Steering Committee.

Officer Dismissal

Members of the Steering Committee may be dismissed from their posts by a unanimous agreement of the Executive Committee due to any of the following reasons:

1. Conflict of interest - An officer's responsibilities outside GARP make it difficult for him/her to act impartially on behalf of GARP or conflict with the goals set forth by GARP.

2. Inactivity - An officer becomes inactive in the organization and is not responsive to requests from other members of the Steering Committee over a prolonged period of time. 3. Personality conflict - An officer's behavior or a personality trait make it difficult for other members of the Steering Committee to perform their function. This item requires not only the unanimous vote of the Executive Committee, but also a verbal or written request by at least two other members of the Steering Committee.

GARP Membership Withdrawal

An individual's membership may be withdrawn if it is determined that the individual is not affiliated in any direct way with the field of financial risk management. In addition, GARP membership can be withdrawn for any reason due to a reasonable request from at least three members of the GARP Steering Committee. No written explanation is required.

Liability

* GARP does not provide financial advice or consulting services to any institution or individual.

* Neither GARP nor its officers are liable for the actions of any of the Individual Members or Corporate Members of GARP.

* GARP Individual Members, Corporate Members and officers are not liable in any case of legal action brought against the Global Association of Risk Professionals, Inc.

Definitions

* Individual Members: Individuals who choose to join GARP (irrespective of the institutions those individuals represent). * Corporate Members: Corporations or other organizations who join GARP as institutions or departments.