Sujata Sachdeva, Koss Corporation Vice President of Finance Arrested for Embezzlement and Fired!

As the year and decade draw to a close the news of unethical activity just keeps on coming.  And…as a business ethics speaker who studies ethics and ethical trends, I don’t see any end to these type of reports.  Whether we have a robust economy or an economic crisis, it seems that the personal motivation for money (or what it represents) outweighs the simple ethical choices that should be made daily.

According to a report in the New York Times, “the Koss Corporation, a maker of headphones and equipment, said it fired its vice president of finance after she was accused of embezzling more than $20 million from the company for a multiyear shopping spree of expensive clothes, jewelry and other personal items.”

Sujata Sachdeva, vice president of finance at Koss since 1992, was charged with wire fraud, said Assistant U.S. Attorney Matthew Jacobs, prosecutor in the case. She appeared in federal courtand was released on an unsecured bond, Jacobs said.

The maker of stereo headphones said in a brief statement that the request to halt trading followed its discovery of “unauthorized transactions” and fired Sachdeva following the discovery of unauthorized financial transactions.  Sachdeva served as the company’s Principal Accounting Officer. Also, two members of the company’s accounting staff who served under Sachdeva were placed on unpaid administrative leave.

The firm said its board has appointed a special committee of independent directors to internally investigate the transactions and determine their effect, if any, on Koss’ financial statements.  Preliminary estimates indicate that the amount of unauthorized transactions since fiscal year 2006 through the present may exceed $20 million.

According to a Forbes report – Sachdeva’s income was slightly in excess of $170,000 per year.

WHY – WHY – WHY?

Whenever there is such a high profile ethics breech and fraud the question that is often asked is why?  What would cause someone, who otherwise knows better, to do such a thing?  Much as I hate to admit it…that question was asked of me many years ago when my fraud scheme came to light.  And like Sachdeva…I, too, lived an illusory life style.

According to published reports, Sachdeva reportedly used much of the money to purchase luxury items, and was ballsy enough to often leave her price-tagged clothes casually strewn about her office. When confronted by authorities, Sachdeva confessed, saying she covered up her two years of embezzlement by falsifying company financial statements.  Ouch…  I can speak from experience, the comfort that she might have enjoyed from her high flying lifestyle bring no lasting joy when facing the reality of prison – a place she is most certainly headed.

QUESTIONS:

1.  For those close to the situation, is it possible that Sujata Sachdeva suffered from Oniomania. (Oniomania is the technical term for the compulsive desire to shop, more commonly referred to as compulsive shopping, compulsive buying, shopping addiction or shopaholism.)

2.  Do you believe that others were involved in the fraudulent cover up associated with Sachdeva’s scheme?

As always…YOUR COMMENTS ARE WELCOME.

R. Allen Stanford’s Court Date 2011 – Stanford Financial Group fraud case takes Years – Madoff takes Months?

According to the Dallas Business Journal – U.S. District Judge David Hittner has decreed that Stanford’s trial on charges that he led a $7 billion fraud scheme would begin in January 2011.

The Securities and Exchange Commission, on February 17, 2009, charged Robert Allen Stanford and three of his companies for orchestrating a fraudulent, multi-billion dollar investment scheme centering on an $8 billion CD program.

“As we allege in our complaint, Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement. “We are moving quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors.”

Rose Romero, Regional Director of the SEC’s Fort Worth Regional Office, added, “We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world.”

Stanford’s lawyer, Kent Schaffer, had asked Judge Hittner not to schedule the trial until the summer of 2011. If defense lawyers must prepare the case without funding from Stanford’s insurance policies, Schaffer reportedly said it could take as long as two and a half years to get ready for trial.  Meanwhile, according to documents filed with the Texas Workforce Commission confirmed earlier this year Stanford closed its facilities and effectively had to dismiss 1,022 employees across the United States. About 297 workers in Houston, the headquarters of Stanford Financial Group, lost their jobs.

Bernie Madoff knew that he was toast in December of ’08 when he admitted that the financial empire that he build was built based on fraud.  While he did wrong, at least he knew when to admit his guilt.  He saved the taxpayers millions by avoiding a long protracted trial.  In less than a year Madoff knew his fate – the rest of his life in prison.

Stanford – well he is still attempting to prove his innocence.  And, while in this country you are innocent until proven guilty, the bulk of the evidence suggests that Sir Allen Stanford will likely face a similar fate to that of Bernie.  I suspect that Stanford will, too, face the rest of his life in prison.  As a business ethics speaker I have to say, I at least respect that Madoff accepted his fate instead of making the process a circus.

DO YOU THINK THAT STANFORD IS RIGHT IN TRYING TO PROVE HIS INNOCENCE OR SHOULD HE PLEAD GUILTY AND MOVE ON?  Your comments are welcome.

Tiger Woods – The Consequences of Choice – AT&T Ends Sponsorship

Having attended several major golf tournaments, I must say that watching Tiger Woods play golf was like poetry in motion.  He was (is) awesome as a professional golfer.  Most thought he was sweaky clean as well…which is why so many major companies selected Tiger as their spokesperson.  But, as I say in every presentation I make on ethics, EVERY CHOICE HAS A CONSEQUENCE.

As the end of the year and decade draw to a close, AT&T announced that they are ending their business relationship with Tiger Woods.  This announcement adds to a growing list of sponsors who are dropping Woods after his announcement of infidelity and the media storm that has followed.

AT&T has not used Woods’ image extensively in advertising, but its logo appeared on his golf bag. The original sponsorship agreement was billed as a “multi-year” agreement when it was signed early in 2009. Woods has also been the host of the AT&T National PGA Tour event since it started in 2007 and AT&T has said it will continue to sponsor the event.

Accenture, the consulting firm, dropped Tiger several weeks ago, saying he was “no longer the right representative” of the company’s values.  Likewise, Gillette said it won’t air ads for its razors that include Woods or include him in public appearances.  Swiss watch maker Tag Heuer, who initially said they stood by Tiger, eventually stated that they would “downscale” its use of golfer Tiger Woods’ image in its advertising campaigns for the foreseeable future.

CHOICES AND CONSEQUENCES – It is said often that you reap what you sow.  Whether we like that comment reality is – it is a fact.  Tiger Woods is now facing what for him is likely the greatest challenge of his life.  No longer will he be defined by the extraordinary talent on the golf course that he has, but he is now challenged with personal life issues that will define a large part of his legacy.

While I am not proud of my past (details here), when the “card” so to speak was pulled from the “house of cards” I had created and I knew that my hidden past was soon to be brought to light – a wise man shared the following with me.  He said, “You have made a terrible mistake, but YOU are not a mistake!  The choices you make today will define the life you create in the future and the legacy you leave for your two children.  MAKE THOSE CHOICES WISELY.”

While Tiger Woods will continue to experience the consequences from the choices he has made, he has the opportunity to make different – more empowering choices – and from them he can rise from the ashes and become more than just a great golfer.

QUESTION: What advice would you give Tiger today that could help him?

Brooke Astor son convicted; case highlights elderly financial exploitation

At first glance it may be hard to imagine what lessons the case of late philanthropist Brooke Astor holds for everyday Americans. It’s not as if many of us have a $200 million fortune stashed under our mattresses, at risk of being stolen.

Equally improbable is the other person at the center of the case: Brooke Astor’s son, Anthony Marshall (left), a former U.S. ambassador and Broadway producer, who was accused — and just days ago, convicted — of looting his late mother’s fortune.

But if there was any doubt about the case’s relevance, the Probate Lawyer Blog dispels it. Money quote:

[The Brooke Astor case] marks an important victory in the battle against elder abuse.  The National Center on Elder Abuse reports that between one and five million elderly Americans have been the victim of financial exploitation each and every year.  Exact figures are hard to track because so many instances of abuse go unreported.

That’s why high profile cases like this one are important.  People who prey on the elderly and seek what seems like an unguarded pot of gold need to understand that they can be punished.  If Marshall had avoided jail time, then it wouldn’t have sent a strong message to the other would-be abusers out there.

QUESTION…

What can elder Americans do to protect themselves against financial exploitation?

Share your comments here.

What have all the Ethics gone? Seems that Fraud is rampant! Business Ethics expert Chuck Gallagher comments

All too often I’m asked, especially as we review this past year on the anniversary month of the disclosure of Bernie Madoff’s fraud, whether fraud should decrease since we are more focused on ethics and ethical choices. Unfortunately, as I see it the answer is a resounding no!   Yet, the Ethics Resource Center in their new 2009 biennial National Business Ethics Survey reported a surprising conclusion:

We behave better in bad times.  “Contrary to what one might expect, misconduct declines in turbulent economic times and rises when the pressure’s off,” the report says.  When asked about specific abuses or ethical lapses – such as misusing company resources, lying to outside stakeholders or falsifying time or expenses – a smaller percentage of U.S. workers observed problems this year compared with the 2007 survey, taken before the recession began.  “Yet our research suggests that the improvements in ethical conduct will be temporary,” warned the ethics center’s CEO, Patricia Harned.

As I review ethics issues weekly I must say that I have a hard time believing in the validity of their survey.  Just look at these stories reported on here the first two weeks of this month.

Patricia Wilson, 57, of Draper, Virginia, has pleaded guilty to embezzling more than $167,000 from the Memorial Christian Church where she had served as the church bookkeeper for 9 years. Prosecutors alleged last April that Wilson diverted most of the monies from the Church’s building fund but also from it’s general fund.

Casey Jane Goebel, of Indio, California, was arrested last week for allegedly embezzling at least $250,000 from Hyde’s Air Conditioning where she had been employed as a bookkeeper. According to authorities, Goebel’s thefts ocurred between August 2007 and July 2009

Robin K. Ramey, 48, of Huntington, Ohio, pleaded guilty to charges she embezzled some $185,000 from the Huntington National Bank where she was a longtime employee, ultimately rising to the level of supervisor. Ramey caused at least 86 wire transfers in bank funds to be sent to her personal checking and saving accounts. If the plea agreement holds, Ramey will be ordered to spend two years in prison and repay the bank. She is scheduled to be sentenced on January 21, 2010.

Jessica Harmon, 32, of Lowell, Michigan, has been charged with embezzling more than $100,000 from a unnamed local law firm where she had been employed apparently in a bookkeeping position. The thefts reportedly occurred over a 3 year period. Specifically, Harmon faces charges of embezzlement of more than $20,000, uttering and publishing and using a computer to commit a crime. Harmon, who had been employed by the law firm for 10 years, allegedly made unauthorized withdrawals from firm accounts and wrote herself extra pay checks.

Capt. Michael Dung Nguyen, 28, of Beaverton, Oregon, pleaded guilty Monday to theft and money-laundering charges related to the theft of some $690,000 in cash intended for relief and reconstruction in Iraq. Nguyen was the U.S. Army battalion civil affairs officer in Muqdadiyah, Iraq and had been entrusted with cash designated for local commanders in Iraq and Afghanistan for urgent humanitarian relief and reconstruction. He was indicted last March on charges of theft of government property, structuring financial transactions and money laundering. The thefts occurred between April 2007 and February 2009, according to the indictment. He spend some of the money on luxury vehicles, among other personal items.

Three components come together when a fraud, like the ones reported above, take place.  NEED – OPPORTUNITY and RATIONALIZATION.  In the cases above – I cannot speak to the first and third component – Need and Rationalization, but in each case the fraudster exploited a weakness or put another way – found an OPPORTUNITY.

Patricia Wilson used her trusted position as church bookkeeper (9 years no less) to  exploit what was likely a weak system of internal controls for Memorial Christian Church.  Likewise, two other bookkeepers, Casey Jane Goebel and Jessica Harmon, used their positions of trust to embezzle funds from their employers.  Robin K. Ramey stated, related to her embezzlement, “Why it took so long is that (the bank) doesn’t usually check there.”  Finally, Capt. Michael Dung Nguyen had been entrusted with cash to benefit members of the US military.

What was common in each of the cases above – TRUST.  Did each of the fraudsters know better?  Sure they did!  Were they at one time ethical – I would guess so.  Yet, in each of their lives they made choices – choices that clearly reflect unethical behavior and consequences that are life changing that follow.

As a business ethics speaker, I often state to audiences – Every Choice Has A Consequence.

COMMENTS ARE ALWAYS WELCOME.  If you knew either of the individuals mentioned above – perhaps you’d be willing to share what motivated them to make the choices they made.

Business Ethics and Escorts – An Unlikely Combination

Abiding by strict business ethics, a London based Escort Service (V London Escorts) state they treat personal information of their customers with great care and maintain highest levels of confidentiality.

As a business ethics expert, I can understand the application of ethics in many business settings and clearly connect with why many firms would want to tout their foundation, but I must admit I have never considered promoting business ethics as a reason for selecting one escort service over another. In fact, the selection of an escort service might be, by many, a question of ethics. After all, every choice has a consequence, just look at Tiger Woods choices and the mountain of consequences that seems to have followed.

While V London Escorts promotes their professionalism, punctuality, affordability, and beauty – they might have just hit on the magic promotional ingredient that propels them to promotional success – business ethics.  Somehow I doubt that will make a difference, I must give them credit pushing the edge of the promotional envelope when they attempt to promote their services.

So here are two questions:

1. If you were going to use an escort service, would the claim of a high level “business ethics” make a difference in your service provider selection?

2. Do you think that it is ethical to use an escort service? If so, under what conditions would you think it appropriate?

Tag Heuer joins Accenture, Gilette in dropping Tiger Woods: Every choice has a consequence

Every choice has a consequence. That’s a statement I make in every presentation. How true! Tiger Woods, celebrity spokesperson and golf avatar, is now experiencing what that statement means in reality. Accenture recently severed its six-year relationship with the sports star. Now Tag Heuer has removed Woods from its advertising campaigns. Not to mention AT&T, Gilette, and Pepsico.

There is little doubt that each of these companies’ general counsel reviewed its contract with Tiger Woods as regards to his personal behavior — otherwise known as “the morals clause.” The interesting ethical question now is: How could Woods execute the endorsement contracts, knowing there was a morals clause but living a less-than-ethical life off the green?

Now there’s question that Woods’ indiscretions may not just be personal. The other day, news broke that the FBI is investigating one of Woods’ doctors, Dr. Anthony Galea, who was found with human growth hormone in his bag at the U.S.-Canada border in late October. Let’s hope those reports don’t link Woods to further indiscretion.

Whatever happens, certainly, time will heal the open wounds that Woods is now experiencing. And sports enthusiasts will want to see him play golf once again. But I predict his remaining contracts (Nike and Electronic Arts) will either be canceled or lapse over time. The big paydays are likely over.

Every choice has a consequence. For Woods — for all of us. I sure wish Woods had elected a more ethical route. For now, the best I can say is, the choices that Woods makes from this day forward will define the legacy he leaves the golf world and, more importantly, his children.  Tiger, make those choices wisely.

Do you think sponsors were right to drop Tiger Woods? Share your comments here.

Raleigh’s The Castleton Group: Two years after closing, questions remain

For Raleigh’s business community, December marks a dubious anniversary: Two years ago, this month, the human-relations outsourcing firm The Castleton Group closed shop. The move followed a ruling by the state Department of Insurance that declared the company insolvent.

This wasn’t just any company, either. In 2007, The Castleton Group had landed on Inc magazine’s list of the 5,000 fastest-growing private companies in the U.S. That same year, it was also ranked the number one woman-owned business by Triangle Business Journal. But then, everything unraveled. Within months of closing shop, James McLamb, the company’s finance chief, was charged with tax conspiracy. According to authorities, from January, 2005 to January, 2008, McLamb collected and withheld federal taxes from individual employers on behalf of employees, then prepared false and fraudulent documents to mislead the IRS.

The fall-out? Devastating. The state Department of Insurance later determined The Castleton Group’s  liabilities exceeded its assets by $6 million. Meanwhile, at least $8 million in payroll taxes from client companies were never paid to the IRS. Translated into human terms: Approximately, 3,500 employees were left without health insurance coverage, and the companies who used Castleton’s services were left on the hook for unpaid taxes.

A few months ago, McLamb was finally sentenced to 2.5 years in federal prison and $8 million in restitution. McLamb may be behind bars, but questions remain — questions that demand answers. How is that Castleton’s owner, Suzanne Clifton — an entrepreneur who’d been named Enterprising Woman of the Year in 2007 — had no knowledge of this massive defalcation taking place? (Sidenote: Clifton has been sued by the company’s bankruptcy trustee who’s seeking to repay missing creditors by recouping money: $3 million that she reportedly withdrew as the firm fell into bankruptcy.)

I’m not saying Clifton knew anything about McLamb’s actions. But if you’re the CEO and president of a company don’t you at least have an ethical responsibility to have your finger on the pulse of your own company? With the two-year anniversary of The Castleton Group’s closing upon us, a moment of reflection wouldn’t hurt.

The repackaging of MIT Marilee Jones: A second chance that’s come a little too soon

I’m all for second chances — so much so I even started a foundation to encourage others to find theirs. So when I read that Marilee Jones had started a new life as an admissions consultant, I really wanted to cheer her on — especially given all she’s had to overcome, even if as a result of her own poor choices.

A little over two years ago, Jones resigned as dean of admissions at the Massachusetts Institute of Technology (MIT) after it was discovered she lied about her academic credentials nearly 30 years before. Still, everyone deserves a second chance — right? — and, today, Jones has reemerged as an admissions consultant who delivers this message to parents: Academic glory isn’t the be all-end all; it’s your relationship with your child that matters most.

So far, so good. But here’s something that raised my eyebrow: Jones hired a public-relations consultant, Rose Marie Terenzio, to help with her comeback. Terenzio’s first order of business was getting Jones to volunteer at Columbia Presbyterian Hospital, where she could help teenage cancer survivors move on to college. However well-intentioned, these steps seem just a little too manufactured.

Here’s hoping I’m wrong. The fact is, facing the truth and operating with honesty, integrity and ethics will serve Jones well — she doesn’t need a PR firm for that. Based upon her own choices, she can now be true to herself and use her experience as a positive framework for helping others. Through that she will receive her SECOND CHANCE!

What do you think of Marilee Jones’ comeback? Too soon? Or just in time? Share your comments here.

Charles Ponzi Created the Scheme, but Bernie Madoff with All the Money! A Look Back by Business Ethics Speaker Chuck Gallagher

One year ago today, Bernie Madoff made headlines. His investment firm was nothing more than a big (minor understatement) Ponzi scheme. One year ago today most people didn’t know what a Ponzi scheme was and, frankly, most had not heard of Bernie Madoff. My, what a difference a year makes!

Bernie Madoff, in record time, admitted his guilt in what is now known as the largest Ponzi scheme or fraud in history and was sentenced to 150 years in prison. Today, he is safely tucked away in Federal prison in Butner, NC. Having observed this type of activity for years I must admit I am amazed at the speed of the investigation, guilty plea and sentencing. But then again, Madoff set a standard of fraud at a time when the nation was beginning to feel the real impact of the economic recession, so it would stand to reason that if the outcome of his transgressions was delayed…there would be a public outcry.

Looking back the victims of Madoffs massive fraud had many common characteristics and today, in this blog, I’d like to review them. Maybe, just maybe, those who read will connect the dots and use this new found wisdom as a way to avoid being caught like so many of Madoff’s victims.

The victims seemingly all fell into what I have referred to as the PIT.

First, victims were PROMISED (that’s the “P”) something out of the ordinary. They were promised extraordinary returns – returns that the average “Joe” could not receive or would not have access to. NOTE: The first sign of a scam or fraud is the PROMISE that you’re getting something not readily available to others.

The second component of the scam is the ILLUSION (“I” in the slippery slope of the PIT). Madoff, like other Ponzi scheme fraudsters, created the ILLUSION that everything was as it should be. From fake statements to bogus reports from his puppet CPA firm, Madoff was able to convince even the SEC that what he was doing was legitimate. In retrospect…even some of the victims have said that something seemed a miss – yet with the kinds of returns they were receiving they were unwilling to investigate further. I guess we often don’t want to believe the truth -even when it is starring us in the face – especially if the truth is unfavorable to our position.

Lastly, Madoff relied on TRUST. As most of the victims know – they were lured into his fraudulent web – either by Madoff himself, or in later years by those who were trusted friends or investors in his fund. Madoff was brilliant in his approach to acquiring victims – he sought his friends first knowing that if he treated them “right” they would send others based on TRUST.

ON THE ONE YEAR ANNIVERSARY – here are some questions:

What have we learned?

If you’re a Madoff victim – looking back what would you do differently?

How has the Madoff fraud changed, if any, the way you invest?

Your comments are welcome!