Brad Stinn Sentenced – Every Choice Has A Consequence – Update by Chuck Gallagher Ethics Speaker

On of the most viewed Blog entries was the one about Brad Stinn and Friedman’s Jewelers.

Pump up those sales! We’ve got to make the quarter! How often are those command heard and how tempting is it to make the wrong choices in order to please the investing public and Wall Street?

Following six weeks of trial – Bradley Stinn, age 47, – former CEO of Freidman’s, Inc. and Crescent Jewelers, found himself being convicted of securities fraud, mail fraud and conspiracy. Likewise, in addition to Stinn’s conviction, the former CFO, Victor Suglia and form Controller, John Mauro have entered guilty pleas into what was a massive accounting fraud.

Having been found guilty, the wheels of justice in the federal system move slowly at times.  Many have wondered just what outcome would befall Brad Stinn  who some hated and others sympathized with.  Well, today the verdict has been handed down.

His sentence:

12 years in federal prison

3 years probation

$4M restitution

He should report sometime in the next 60 days

Speaking from experience, Stinn will be required to serve 85% of his active sentence, which means that he’ll serve 122.4 months – which is a long time!

US Attorney’s New Release:

Bradley Stinn, the former Chief Executive Officer of Friedman’s Inc. and its affiliate, Crescent Jewelers, was sentenced today to 12 years’ imprisonment for securities fraud, mail fraud, and conspiracy. On March 24, 2008, following a six-week trial, a federal jury in Brooklyn convicted Stinn on all counts in the indictment and returned a forfeiture verdict against him in the amount of $1,019,000. The trial and sentencing proceeding were held before Senior United States District Judge Nina Gershon.

The sentence was announced by Benton J. Campbell, United States Attorney for the Eastern District of New York.

During the period of the conspiracy, Friedman’s was a national jewelry chain whose shares were traded on the New York Stock Exchange. The evidence at trial established that Stinn led a multi-year securities fraud scheme that inflated Friedman’s reported financial performance and hid from the market the serious problems the company had collecting money owed for hundreds of millions of dollars of jewelry that it had sold on credit. As part of the scheme, Stinn and his co-conspirators repeatedly lied to shareholders and the investing public about Friedman’s financial performance, made false and fraudulent representations to Friedman’s auditors, and manipulated the company’s accounting in order to prevent auditors from discovering the falsity of Friedman’s financial statements. As found by the court at sentencing, Stinn’s fraud scheme resulted in Friedman’s shareholders and other victims of the scheme losing more than $20 million.

Several months after the announcement of the government’s investigation in November 2003, Friedman’s stock was de-listed from the New York Stock Exchange. Friedman’s ultimately filed for bankruptcy in January 2005.

As always, this blog is open for comments.

Do you think that this sentence is fair?

Would you, if you had the opportunity to serve on a jury, have given Brad – more, less or this amount a punishment for his guilty plea?

COMMENTS ARE WELCOME!

Funeral Fraud – LA Women Charged in $1 Million Fake Funeral Scam – AMAZING!

I have heard of many things, but this one ranks high in creative approaches to scamming.  The R I P button likely stands for Resides In Prison cause that’s where these two will go if the charges alleged are proven.

According to the US Attorney’s office in LA – two women – allegedly participated in a scheme to cash life insurance policies for fictitious individuals and stage  funerals to create the appearance that the individuals had died.

According to the indictment, Shilling, a phlebotomist, and Crump, an employee at a now-defunct Long Beach mortuary, defrauded multiple insurance companies over a three-year period by cashing life insurance policies for non-existent identities, whom they claimed had died. As part of the scheme, Shilling and Crump allegedly caused the preparation of bogus death certificates, purchased burial plots and staged phony funerals to lend credibility to the scheme. When staging the funerals, the women allegedly filled caskets with various materials to make it appear they contained actual corpses.

Shilling and Crump allegedly defrauded several lending companies that advance cash to cover funeral expenses in exchange for a portion of the decedent’s life insurance policy. Shilling, Crump and their accomplices allegedly filed false documents with the County of Los Angeles stating the remains of one man were cremated and scattered at sea, when in fact no corpse existed. The indictment further alleges that defendant Crump offered a medical doctor $50,000 to create records supporting the fake death certificate.

According to a report in Connectingdirectors.com:

The US Attorney stated said the “dead” were likely fictitious people, but said identities of real people may have been stolen.

In one funeral at a Long Beach mortuary, authorities alleged that the women loaded a casket with various items to simulate the weight of a corpse they called “Jim Davis.” They purchased a plot in a Compton graveyard, had a funeral and had the casket buried.

In addition to the life insurance claims, which included a $250,000 policy, prosecutors said the women secured payments from financing companies to pay for inflated funeral costs.  We talked with representatives from American Funeral Financial (one of our sponsors) to ask about precautions for such activity.

We (at American Funeral Financial) work hard to provide service to our customers – the many funeral homes and cemeteries across the country that rely on us for funeral funding.  This story is quite amazing and not remotely normal in the standard course of business.  We make sure that we know our customers and have a comfort level of their viability before we enter into any funding transactions.  The steps we deal with to make funeral funding decisions should prevent this type of fraud from happening.  Still this is quite amazing.

Shilling and Crump were charged with mail fraud and wire fraud in connection with a scheme to defraud insurance companies and lending companies out of more than $750,000.  Two other women, Lydia Eileen Pearce, 37, owner of a mortuary in Long Beach, and Barbara Lynn, 54, a notary from Los Angeles, previously pleaded guilty in the alleged scam, said Montero, and he believed that more arrests were likely.

If convicted, they could face 20 years in prison.

YOUR COMMENTS WELCOME!

Dumb but Premeditated Fraud – Stephanie L. Mayer of Simpsonville, SC Pleads Guilty

As I leave Pittsburgh, PA from a speaking engagement on ethics and fraud, I couldn’t help but stop when I read about a 38 year old Simpsonville, SC woman and her attempt at fraud.  A “Bernie Madoff” she isn’t as her fraud lacked creativity and ended quickly.

Every choice has a consequence.  That is a statement that I speak often as I address groups nationwide.  Whether it is Bernie Madoff, his accountant (now charged with fraud), Robert Stanford, Gordon Grigg or a host of others, the reality is whether the fraud lasts for some time or is short lived – in the case of Stephanie L. Mayer – there is a consequence for choices that we make.  If those choices are unethical, then the consequences can’t be good.

According to the US Attorney’s office:

In February 2008, Meyer opened accounts at four brokerage firms including the ultimate victims, The Vanguard Group and Ameriprise Financial.  Meyer then deposited worthless checks into the accounts, which resulted in fictitious or “phantom” balances.  Meyer then withdrew $175,000 from the credited Vanguard account and $130,000 from the Ameriprise account before the fraud was detected.

Without intending to sound judgmental, the “real impact” of the current recession wasn’t felt till late summer ‘08 or certainly the fall ‘08.  Therefore, the question is – what motivated Mayer to take such radical action.  She had to know that passing worthless checks to set up brokerage accounts was a venture that had a short life.

Of course – as reported in the Greenville News – “Until June 2008, Meyer deposited $5.4 million in checks spread across the firms from bank accounts that didn’t have sufficient funds to cover the checks, according to the charges.  She also pleaded guilty to mail fraud charges for mailings to Minnesota and Pennsylvania, according to the charges.”

BACKGROUND OF A FRAUD:

Frauds, regardless of type, need three things in order to take life – (1) Need; (2) Opportunity and (3) Rationalization.  The question related to the Mayer fraud is what was her (1) need and (2) rationalization?  The obvious opportunity was the method of execution of the fraud – which was amateurish and dumb.  How Mayer effected her fraud shows her lack of experience and hopefully will be taken into account in her pre-sentence report.

Her guilty plea could result in a penalty of up to 20 years in prison and a fine of up to $250,000.00 on each of the two counts to which she pled guilty.  While, I would suspect that Stephanie L. Mayer is an amateur fraudster, in the current environment, I would not be surprised if she received a prison sentence of well over three years.

If you know Stephanie and might comment on her motivation – please know that YOUR COMMENTS ARE WELCOME.

Bernie Madoff in Jail! It’s Not “Club Fed” I Know – I’ve Been There…

There was cheering from the crowd when Madoff was immediately taken to jail.  Emotions are running high and will do so for years to come.   But this is not a joyous day.  Many victims lives have been radically transformed by the financial crime Madoff effected.  Likewise, Madoff’s life as he knew it is over.  Leaving the comfort of normal life to go to prison is a radically different experience as well.

I know – regretably I have been there for exactly the same crime Madoff plead guilty to today.

Every choice has a consequence.  Many were victimized by Madoff et al and both the victims and Madoff, himself, are facing the consequences of choices made.

Madoff made the following comments in court today.

“I operated a Ponzi scheme.  I thought it would end quickly, but it proved impossible.  I am ashamed for these criminal acts. I always knew this day would come.”

I was asked today on CBS radio – KRLD – by Ernie and Jay about the mentality of how something like this could happen.  Is it possible that Madoff just was out to steal from folks?  The answer is simply – NO.

While I don’t personally know Bernie Madoff, I know the thought process that ends in federal prison.  Madoff is a smart man.  In fact, I would say that he was brilliant in his ability to effect such a scheme successfully for so long.  That is rather amazing.  But, for a time, I suspect when he first got started, Madoff was legitimate.

To effect a fraud like this, there must be three components: (1) need; (2) opportunity and (3) rationalization.  My best guess is that Madoff had two needs that came together when he began this in the early 90’s – (a) emotional need – he would not admit that he was faliable; and (b) money – in that he likely lost money and was unwilling to admit that fact.  Hence, he entered into the second  part of creating such a fraud – he took advantage of his name and notariety to gain more money – more investors or more victims.

CNN reported: Madoff admitted that he never invested his clients’ money, and that he deposited the funds into a “Chase Manhattan” bank.

At that point, Madoff crossed the line of investing and became an outright fraud.  Amazingly, instead of continuing to invest clients money hoping for the big win, Madoff just deposited the money in the bank.  Of all revelations, that was the most amazing.  Effectively he just gave up, committed the crime and waiting until the house of cards fell.

TONIGHT FOR MADOFF:

As I type this I can speak first hand from experience, Madoff just entered a phase of life that is totally foreign and for which he is unprepared.  Likely, as he was removed from the court room, he went to processing where he removed his clothing and was issued prison issue clothing.  It is doubtful that he was allowed to keep much other than one set of “street” clothes that might be used for limited visiting privileges or meetings with legal counsel, etc.  He would have likely been handed his bed linens and escourted to his holding cell.   Unless because of his age he was assigned a lower bunk, he would be given the upper bunk as those with more time in the facility get the privilege of lower.  His meals would be a step above a Swanson’s TV dinner – maybe – and the routine is strict.

Counted multiple times per day, Madoff will soon find that he’s no more than anyone else incarcerated, an inmate.  Inmates will likely acknowledge him, but not consider him any more than they.  In fact, it is likely that many will avoid him fearing that what they might say to him will be used against them (they fear he’d become a snitch) in order to gain favor with the judge for a lighter sentence.

Tonight will be one of the longest nights of Madoff’s life.  He will wonder to himself – time and time again – what he has done and why.  Those thoughts will haunt him for the rest of his life, which from a free man’s perspective, has ended.

THE VICTIMS:

Now here’s where I should stop, but for whatever reason, I can’t.  I understand the anger, and desire for revenge that many feel.  It is natural as your trust has been violated.  This is no different than feeling that one has when a marriage ends with the distrust created by adultery.

Many would say that I am the least to offer advice.  Perhaps that is true, but I’m going to try.  First, from a practical perspective seek the legal help you need to recover what you can.  Know that there are possible sources for some recovery including the application of IRC Section 165(c)(2).  I am not an expert in that area, but I have a guest blog from someone who is.  Go there it might be helpful.

Beyond the legal recourse against Madoff and those involved – and I suspect that others will fall from this as well, may I say – with respect – put your loss into perspective.  We come into this world with nothing and leave that way as well.  Money – security – certainly are important, but it is afterall only material.  The longer one harbors anger or hate, the worse life becomes.  Finding the ability to recognize that Madoff will suffer and reap the consequences of his choices is significant.

Your life has changed – so has his.  No one walks away from this feeling good or whole.  The ultimate outcome, however, for you and your well being will, in large part, be a function of your ability to forgive.

IN THE LONG RUN:

Having been there, I know the pain of prison.  Some learn from their experience and others never get it.  In Madoff’s case we may never know what the true effect of his life changing experience will bring.  In my case, prison was life changing.  While I am thrilled with freedom, I understand that my time there changed my life and gave me an opportuity to do something positive today that, in fact, helps others.

Sometimes you can actually get lemonade from lemons!

As always – COMMENTS ARE WELCOME.

HERE is what Madoff read to the court.

Bernie Madoff Will Plead Guilty! Fraud Prevention Expert Chuck Gallagher Speaks Out

In what will likely become the biggest investment fraud in US history, Bernie Madoff is set to enter a plea of guilty at a US District Court in Manhattan on Thursday.    According to Assistant U.S. Attorneys Marc Litt and Lisa Baroni a plea hearing is scheduled for March 12, 2009.

According to a CNN report:

Madoff’s attorneys Ira Sorkin and Daniel Horowitz confirmed to CNN that Madoff is waiving his right to a grand jury indictment and that there have been ongoing negotiations regarding a possible settlement.

“We obviously have talked to the government,” said Horowitz. “And we have been professional with each other.” The U.S. attorney’s office in Manhattan had no comment.

Frankly, it would make sense that Madoff would enter a plea.  Anything beyond that would likely result in a sentence or punishment that would be less favorable to Madoff.  Let me, however, say, I don’t think the punishment will be anything to laugh at.  Madoff’s alleged crime is substantial enough that it will earn him many years in federal prison.  Based on his age, I have stated on more than one ocassion that Madoff may never see freedom again.  But, that is just speculation.

PERSPECTIVE:

As many of my readers know, I have been through what Madoff is facing now.  Here’s a reality check – if you fight the federal government, you will likely end up with a substantially longer sentence.  The government (for the most part) will do whatever is necessary to gain a “win”!  The governments role is not to make the victims whole or even to discover who or how many people have been victimized.  The role of the government is to bring those who break the law to justice.  And the easier you make it for them to “win” the more likely one is to receive a moderate to light sentence.

Now, having said that, I also know that there are victims who get angry when they discover that the government doesn’t really care about their loss or their plight.  If a victim can help the government win, then the government is interested.  But, when the US Attorney has sufficient evidence to win or gets an admission of guilt on a plea agreement (which is exactly what Madoff – through his attorneys – will enter on Thursday) they are done.  The rest of victims claim will come in other legal suits that will be brought against a multitude of organizations.

In Madoff’s case – gaining a guilty plea should be easy since Madoff basically admitted guilty publically.  CNN reported:

It was “basically, a giant Ponzi scheme,” Madoff said, according to the government’s criminal complaint. “There is no innocent explanation,” Madoff told two FBI agents, according to the complaint, which states Madoff expected to go to jail.

With a statement like that – it’s an easy win for the goverment.  The issue in the plea agreement is not guilt, but what Madoff will plead guilty to and what sentence has basically been agreed to in advance.  The government will get it’s win, but will the sentence be sufficient to satisfy the victims?  By the way, starting at 10:00 a.m. victims will have a chance to be heard by the judge.  Not that it matters all that much as I would guess that it’s pretty well decided.

REALITY CHECK:

Having been through it, (wish I could say other wise) the process will likely be fairly straight forward.  Madoff pleads guilty to “securities fraud”.  The judge hears from the victims.  The judge accepts Madoff’s guilty plea.

WHAT’S NEXT:

Hum…now that’s a good question.  Thus far Madoff has been under – shall we call it – “house arrest.”  Whether he’ll be allowed to continue that form of confinement or whether the judge will require him remanded to some form of federal prison awaiting sentencing remains to be seen.  Certainly this is public outcry for Madoff to be imprisoned.

There is little chance that Madoff will be sentenced on Thursday.  If this hearing is true to form, it will only be an admission of guilty.  Once entered and accepted, Madoff will have more time to wait until his sentencing hearning.  In my case I had to wait almost six months before being sentenced and then another four months before being required to report to federal prison.

I doubt it will take that long for Madoff, but it will likely take time.

According to the New York Times:

If Mr. Madoff does plead guilty on Thursday, it could nevertheless be several months before he is sentenced, several former prosecutors said. The single count of securities fraud that he faces now carries a prison term of up to 20 years.

The one thing I do find interesting in this case if that the government is only seeking an admission of guilt on ONE count of securities fraud.  With so many victims, it would seem that the government could easily win multiple admissions of guilt on items other than just ONE count of securities fraud.  It makes one wonder if the government isn’t being cooperative due to the backlash that could come if Madoff exposed the incompetence of the SEC?

Just a thought!

QUESTION:

1.  Assuming Madoff Pleads guilty – how much time do you feel he should serve for his crime?

2.  Should Madoff’s sentence be reduced if he helps locate available funds to help with restitution?

3.  Should charitable organizations get preferential treatment when it comes to restitution?

YOUR COMMENTS ARE WELCOME!

Bruce Karatz, former CEO of KB Homes – Indicited! Were His Choices Ethical?

Having begun a formal probe by the SEC in 2007, a federal grand jury has indicted Bruce Karatz.  The 20-count indictment included seven counts of mail fraud, five counts of wire fraud, three counts of securities fraud, four counts of lying in statements to the U.S. Securities and Exchange Commission and one count of lying to KB Home’s accountants.

Well…with all those indictments, if found guilty on all charges, Mr. Karatz could face up to 415 years in prison.  Seems like the alleged frauds are getting larger as are the potential sentences.

Reported by the Dallas Business Journal:

Los Angeles-based KB Home was the 21st-largest home builder in North Texas in 2008, with 239 housing starts, according to DBJ research. The company started 513 North Texas homes in 2007, and 1,216 in 2006.

Karatz, 63, is alleged to have backdated stock options over seven years, awarding himself and others millions in stock-based compensation. Karatz resigned from KB Home (NYSE: KBH) in November 2006 under pressure in the wake of an options inquiry. Other top KB executives forced out were Richard B. Hirst, executive vice president and chief legal officer, and Gary A. Ray, the head of human resources.

The Los Angeles Times reports: “Karatz, 63, served as chairman and chief executive of Westwood-based KB Home from 1986 to 2006, when he resigned under fire. Over a three-year period ending in 2005, Karatz garnered more than $232 million in compensation.”

The Times further reports:

The indictment does not say exactly how much Karatz gained as a result, but KB Home required Karatz to pay back $13 million in backdating gains when he left the company in 2006. And the SEC agreed to a settlement of $7.2 million with Karatz in 2008 to cover what it reckoned were his gains.

Karatz has long been a target of shareholder activists and labor unions, who accused him of taking more than his fair share of company profit. In 2005, the year before he stepped down, Karatz had take-home pay of $6.3 million, but he received an additional $150 million, mostly from exercising stock options.

As a business ethics speaker, it is clear that transparency is the order of the day.  Long gone are the days (or at least they should be gone) when corporate compensation is a behind closed door discussion.  I am certainly open to executive compensation that is fair and rewards those in leadership for outstanding performance.  However, any person in executive leadership in a public company must be alert to the consequences of the choices they make.

Every choice has a conseqence.  Bruce Karatz has been dealing with the consequences of his leadership at KB Home for the past several years.  It would appear that, if convicted, he will have many years ahead to review his leadership choices.

If you worked for KB Homes and have an opinion on Mr. Karatz’s leadership feel free to comment!

Madoff Ponzi Scheme – How Do Folks Get Defrauded? Comments by White Collar Crime Speaker Chuck Gallagher

Since the middle part of December when the Madoff scandal broke – the main question that has come up with each and every interview I’ve done is – how did these folks get defrauded?  If people can figure out how such a massive fraud was pulled off, perhaps they can begin to understand how to protect themselves.  Madoff’s victims fell into what I call the PIT.  And, once you take that first step into the slippery slop falling into the PIT it is hard to get out.

THE   P I T:

The first part of most any financial fraud starts with the PROMISE ( P ).  Fortunately I was not a Madoff investor, but from all the reports thus far the attraction was that Madoff – because of his superior mind and amazing system – could produce consistent high returns regardless of market fluctuations.  That was the PROMISE.

Now think of it, if someone told you that he/she could get you a return that practically no one else could get and get that return for you consistently year after year, wouldn’t you be interested?  Sure you would!  So POINT OF ADVICE:  If you wish to avoid being scammed, understand – if it sounds to good to be true – it LIKELY ISN’T TRUE!

The second part of the fraud triangle is the ILLUSION ( I ).  From different sources in different ways, it has been reported that when one actually examines the statements that Madoff provided his clients – one could see that what they said as compared to the actual market actions were inconsistent.  In other words, Madoff seemed to rely on ignorance of the market and complexity to create – what would seem – the perfect ILLUSION.

Mind you, Madoff (and his team) was good.  Really good.  Rarely do Ponzi scheme operators provide such a grand ILLUSION that is sustained for such a long time.

This second component of being defrauded is actually the hardest to crack.  Why?  Well, think of it, if you were that good at investing you wouldn’t need someone like Madoff.  Therefore, with modern technology one can produce printed or on-line statements that can fool most any experienced auditor.  That said, a great ILLUSIONIST should be able to fool you.  Madoff’s clients were fooled and my of them were experienced investors.

That leads to the third and final component of fraud – TRUST ( T ).  In order to effectively pull a fraud off, someone has to trust the fraudster.  Now, having been a fraudster (not something I am proud of), I understand the mentality.  It is much easier to defraud someone who is close to you and trusts you than it is to defraud a stranger.  It isn’t that fraudsters want to hurt those closest to them, rather, it is just easier to convience someone who is close to you to trust you.

In Madoff’s case after his first victims invested and fell prey to the scam, they became the foundation for others to follow.  Not only was it trust in Madoff, but the trust was based on trust that others had done their homework so that investors that followed didn’t have to do theirs.

I believe in trust.  I also believe in logic when it comes to financial investments.  Therefore, RULE OF THUMB don’t invest with friends or friends of friends.  Seek your own investment resources and know that fraud comes more times than not from someone close to you.  If you do business with strangers, then you will be more careful about who you select and how you select.  The solution is simple.

SUMMARY:

Avoiding fraud is easy if you follow three simple steps:

1. If it sounds too good to be true – it likely is and you may be on your first step into the PIT.
2. If you don’t understand the investment then don’t put your money there.  How many people today would have preferred a boring but safe investment vs. taking the beating (we’ve all taken) in the market collapse of ‘08/’09?
3. Don’t invest with people you know.  If you do, expect to lose all your investment.  If that is comfortable then invest with friends.  Otherwise, follow this rule and you’d dramatically improve your odds at avoiding fraud.

Feel like you’ve been scammed…then make a comment.  Perhaps your comments will help others!

Gordon Grigg, ProTrust Financial and ProTrust Management – Fined $570,000 for (Say) Unethical Behavior?

Seemingly kicked out of one state some three years ago, it seems that action wasn’t enough for Gordon Grigg.   In a story I wrote several weeks back (read here) about an SEC investigation into the finacial actions of Gordon Grigg and ProTrust Financial, I stated that I would call him “mini-Madoff” as it seemed clear from published reports that Grigg was representing himself as a financial advisor, when it seems that all he was doing was operating a Ponzi scheme.  But, in our country all are innocent until proven guilty.  So, I began to explore whether there was any merit to what had been reported only days earlier.

Seems there is more…so here is the rest of the story – at least thus far.

On June 28, 2006 the State of North Dakota issued a Cease and Decist Order and fined Grigg, ProTrust Financial and ProTrust Management some $570,000 which, according to the State of North Dakota have not been paid to date.  Hum…seems that where there is smoke there is fire.  Let’s look further at the issues that the State of North Dakota felt warranted such a fine.

ISSUES:

• From 1990 to 2005 ProTrust Financial was registered in Tennessee as an investment advisor.  ProTrust Financial was NEVER registered in the State of North Dakota as an investment advisor.
• Likewise, ProTrust Management was NEVER registered in the State of North Dakota as an investment advisor.
• And, of course, Gordon Grigg as – you guessed it – NEVER registered in the State of North Dakota as an investment advisor.
• From June 2001 to August 2005, Grigg engaged in 30 transactions issued by ProTrust Management and affiliated with ProTrust Financial with a North Dakota resident.
• Those securities were NEVER registered with the Securities Department within the State of North Dakota.
• With respect to 13 of the securities sold, the State of North Dakota says that they were fraudulent in that they were described as CDs to the North Dakota investor.

THE OUTCOME:

Based on the investigation by the State of North Dakota, a civil penalty was assessed against Grigg, ProTrust Financial and ProTrust Management.

1. $350,000 was required to be paid into the North Dakota Investor Restitution Fund for the purpose of reimbursing the complainant for losses incurred as a result of investments with Grigg.
2. $220,000 was to be paid to the North Dakota Securities Department.

WHERE FROM HERE?

As I understand it, the SEC is busy with discovery.  The original report says that Grigg (mini-Madoff) had defrauded 27 investors of over $6.5 million.  From what I am finding there are many more than 27.   Likely the SEC (with egg on their face from the Madoff debacle) will do their do diligence – by dotting “i’s” and crossing “t’s” to bring this to an effective conclusion legally.  More than likely it will find its way into the hands of a federal criminal investigator and eventually Grigg will find himself spending time in prison.

But what about the investors?  Well, there may – I EMPHASIZE MAY – be some funds for restitution, but frankly, I doubt much.  Rarely do fraudsters keep excess funds around for a rainy day – say to make restitution.  But I suppose there is always hope.

PLEASE NOTE:  If you feel that you have been defrauded by Gordon Grigg, please contact me as I am actively working this story and would like to confidentially discuss with you how and when you were defrauded.   I can be reached at chuck@chuckgallagher.com.  Any communication will be confidential.

MORE TO COME…and your COMMENTS are welcome!

Jamal Nayfeh – Associate Dean for U. of Central Florida Faces Fraud and Theft Charges. White Collar Crime Knows No Boundaries.

One of the worst things that organizational executives face is the possibility of adverse publicity.  All manner of effort is placed on making effective decisions that produce positive results and publicity that promotes the organizations mission.  But, one thing that cannot be controlled is the choices that our employees make.  Needless to say, organizations must face the very real possibility that employees may make less than effective or ethical decisions.

In the case recently reported from the University of Central Florida – an associate dean  in the College of Engineering has been arrested and charged with grand theft.  Jamal Nayfeh is facing fraud and theft charges after he allegedly charged $40,000 worth of home electronics to a university-issued credit card and tried to conceal the purchases from the university, The Orlando Sentinel reported.

MOTIVATION:

As a white collar crime expert – speaker and fraud prevention consultant – the question always arises – what would motivate such behavior?  Nayfeh purportedly had the equipment installed in his $900,000 dollar home located in the gated and secluded community of Seminole Woods in Geneva.

There are three components of fraud:  (1) need; (2) opportunity and (3) rationalization.  I can’t speak to need or rationalization, yet, those two components are necessary parts of fraud.  Regarding “opportunity” – unfortunately the University of Central Florida created that with the all too easy issuance of a university issued credit card.  According to Fox News – UCF spokesperson Grant Heston says Nayfeh and other employees with the college credit cards had to sign an agreement promising to only purchase goods for the schools use.

PREVENTION:

Good people, people who you would never suspect, can be tempted and make choices that have very serious consequences.  A university spokesman, Grant Heston, said Mr. Nayfeh was suspended with pay this month after auditors discovered the purchases, made in December. The arrest affidavit says that Mr. Nayfeh gave the auditors an “altered receipt to make it appear that non-taggable business related items were purchased … rather than a home-entertainment system.”

But could such a purported fraud be prevented.  Yes.  While Mr. Nayfeh made the choices that would lead to his arrest, the University provided the opportunity.  This is very much like a similar situation with the Dallas Independent School District where the FBI has under investigation over 90 individuals who misused organizational credit cards.

Let me be clear  – I do not hold the University at fault nor do I hold the Dallas Independent School District responsibile for their employees fraudulent activities.  As a fraud prevention consultant, however, it is practical to observe how the fraud took place.  Had the opportunity not been in place there is a very real likelyhood that the fraud would not have occured.

COMMENTS:

According to a story on WFTV.com:

Nayfeh’s attorney had brokered a deal with UCF police to turn himself in at the Orange County jail as soon as an arrest warrant was produced. That warrant was issued Wednesday afternoon and Nayfeh turned himself in on charges of second-degree grant theft, fraud and credit card fraud greater than $100.

Among the $40,000 worth of items allegedly charged to Nayfeh’s UCF credit card were a home theatre system with an 80-inch screen, high-def projection system and surround sound, 52-inch LCD TVs in each bedroom and racks and racks of high-end audio equipment.

UCF spokesperson Grant Heston said Nayfeh made the purchases in December and had all of that equipment installed in his home. UCF auditors found the purchases after the high-dollar amount was red-flagged.”The individual has been suspended from the university. The legal process is running its course. And our intention now is to be reimbursed to the fullest extent possible,” Heston said.

Every choice has a consequence.  It is fair to be aware that though Mr. Nayfeh has been charged, he is innocent until proven guilty.

COMMENTS ARE WELCOME

Dallas Theological Seminary Files Charges Against Rodney Bryant. White Collar Crime Not Limited To Wall Street. Comments by Chuck Gallagher Ethics Speaker

Every choice has a consequence and no one including the teachers of God’s principles are safe.  Fraud is not a socially defined crime or one that is limited to the rich, famous or Wall Street addressed.  Fraud can happen anywhere, at any time, to any organization.

As we begin 2009 with the worst January on record for Wall Street, I have stated over and over again in numerous interviews and in many publications, fraud will be on the rise.  You just don’t know where it will rear it’s ugly head.  But, as a fraud prevention and business ethics speaker, one thing I do know, most of the time it happens by those closest to the organization or by those who have been trusted.

Reported by the Dallas Business Journal – Rodney Bryant, former CFO for the Dallas Theological Seminary, was named in a lawsuit claiming that he embezzled $165,000 during the course of his employment.  He was employed from 2000 till October 12, 2008.

The following was included in an article published in the Dallas News:

Mark L. Bailey, president of Dallas Thehological Seminary, said in a written statement that the decision to sue Bryant — “our former employee” — was a difficult one.

“Over the last few weeks, we have found ourselves in the unpleasant position of needing to take appropriate legal action in our fiduciary duty to pursue a biblically appropriate, deliberate, and mutually protected course of action,” he said.

He instructed everyone at the seminary to refer questions about the dispute to the school’s official spokesman, saying, “As responsible Christians, it is imperative that we avoid any gossip or slander.”

Bryant claims the allegations are not true.  In the same Dallas News article the following was quoted:

He said he was working with lawyers and could not discuss specifics of the case. He added: “Everything will work out in the end, and I think I’ll be vindicated.”

You are innocent until proven guilty.  Likewise you reap what you sow.   I understand the truth in both of those statements.  While I am not proud of my past, I do believe the past can be an effective learning ground, and one thing (among many) that I’ve learned is that in fraud – especially white collar crime fraud – no matter what you might say, the truth is found in black and white on paper – cause financial crimes leave a paper trial that most folks can follow.  You don’t have to work for CSI to figure most of these crimes out.

THE ALLEGATIONS:

According to the Dallas Business Journal – “The university alleges that Bryant set up corporate entities that he himself controlled and managed to dispense thousands of dollars into bank accounts for companies that did not exist. Bryant also is accused of forging other DTS employees’ signatures, according to the lawsuit.”

The suit states that Bryant fraudulently drew checks out of DTS accounts for a purported structural engineering firm and a purported law firm.   It goes further to say that Bryant used phony North Texas addresses and phone numbers, and phony letterheads, in documents supporting the payments.  The suit alleges that neither the law firm nor its listed lawyers belong to the State Bar of Texas.  Bryant “incorporated and controlled” the firms, the suit says.

A judge has granted DTS’ request to freeze certain Bryant bank accounts. A hearing is scheduled for Feb. 10.

WHERE FROM HERE?

The truth will set you free or convict you as the case may be.  If Rodney Bryant is found innocent then my guess is there are larger issues brewing at the Dallas Theological Seminary.  Rarely does an organization of this type press public charges without the full belief that those charges will be sustained.  Rarely does a judge freeze an individuals assets without feeling that there is due cause.

If, in fact, these allegations are true, then a civil suit is likely the least of Rodney Bryant’s worries.  As I have said – having been there before, I know that civil can be resolved and still there is the issue of potential criminal prosecution.

From personal experience, if there is guilt…admit it.  Do it now and begin today making choices that will allow for better outcomes in the future.  One can never escape the consequence of past choices.  We many not know how those choices will manifest, but they will manifest.  When the truth is revealed, either through the court system or by Mr. Bryant – the process of healing can being.

FINAL THOUGHTS:

In this case there is more to come.  Meanwhile, in a down economy fraud will become more rampant.  Ethical choices become skewed when economic pressure come to bear…so it is, now more than ever, important to take precautions to protect yourself and your companies.  As a fraud prevention expert if you want to know more contact me at chuck@chuckgallagher.com for a confidential conversation.

Meanwhile – if you have thoughts on Rodney Bryant and the charges by the Dallas Theological Seminary feel free to comment.  Your comments are welcome!