When it comes to Ponzi schemes, it always amazes me how seemingly intelligent and well-educated people can fall prey to them. (At least, you’d assume that anyone who’s made a sizable chunk of money has a basic level of intelligence when it comes to how it is invested.) It’s a question I’ve thought enough about through the years that I’ve come up with a three-pronged answer: Promise. Illusion. Trust.

Or, what I like to call “the PIT.”

The PIT formula pretty much explains nearly every Ponzi scheme that hits the headlines. The recent case of Richard Monroe Harkless, a 65-year-old man from Riverside, Ca., who caused more than $39 million in losses among hundreds of investors, is no different. Let’s break it down.

Promise: Backed by the claim that he had guaranteed, government-backed contracts, Harkless promised investors returns of up to 14 percent every two to three months. Reality check: No one — absolutely no one — makes that kind of money. So, how could so many people believe that kind of promise? That brings us to: Illusion.

Illusion: At this point, the criminal creates the illusion that investors will, in fact, get what they were promised. In Harkless’s case, he created promotional literature. (Again, amazing how people can fall for something that may have been printed at a local Kinko’s.)

Trust: Ask yourself. If you got returns of 14 to 16 percent every two to three months, would you walk away?  Probably not. Neither did Harkless’s investors. In fact, as the money kept rolling in, many signed up friends and family, widening the web of trust.

An open letter to Harkless’s victims: Help us paint the picture!

Recently, Harkless was sentenced to 100 years in prison for causing, what United States District Judge Virginia A. Phillips called, “every kind of grief and loss imaginable.”

But the story isn’t over. Not for the victims. And not for future victims like them.

To help offset future stories like this, I’m making an open appeal to Harkless’s victims: Help us paint the picture. Help us understand Harkless’s motivations. What should have been the red flags in your mind? What would you tell other potential victims to watch out for?

Share your comments here.

Since I began speaking about business ethics, I’ve started to see some encouraging signs. Business schools from Harvard to Stanford have begun adding classes that examine the role that social responsibility can play in business. Some schools are now even offering a degree in it. Case in point is the New England College of Business and Finance (NECB). It now offers an online master’s degree in business ethics and compliance, which it calls a “first-of-its-kind in the nation.”

Personally, I’m all for courses that teach ethics, but a full-fledged degree? In the big scheme of things, I think business ethics should be taught as part of marketing, accounting, and economics, for example; ethics should be the strand that runs through all those disciplines. To segregate business ethics is to say it is a separate discipline. On the other hand, I applaud NECB for looking at the environment we’re currently in and determining there’s value in creating a degree like this.

What do you think of creating a degree in business ethics? Will it make today’s business recruits more marketable — and ethical? Drop me a comment here.

Here’s a question for you: If you had a service to provide — and someone asked you to provide it for free, or at a radically reduced price — would you do it?

No, right?

Now try this on for size: If you were a doctor, and someone asked you to provide a service at a rate that didn’t reimburse you for the total cost of care, would you do it?

In nearly every line of business, one maxim holds true: “If you can’t pay, we don’t play.” So, why should doctors be viewed any different?

That’s the question doctors at Kansas City Internal Medicine, the largest private group practice in Kansas City, Mo., have been asking. For now, most of these doctors, who count 65 percent of their 70,000 active patients age 65 or older, have decided to stop accepting walk-in Medicare enrollees.

Dr. David Wilt, an internist at the group, tells CNN: Medicare doesn’t reimburse physicians enough to cover the cost of care. Matters will only get worse, he adds, if a 21 percent cut in Medicare payments to physicians takes place in 2010.

Should physicians be allowed to turn away patients because their funding source is being reduced? On the flip side, does the government have the right in a free-market economy to dictate payment terms to physicians for the performance of services?

Share your comments here.

Are business schools effectively teaching ethics? That’s a good question to ask, especially now. The other day, North Dakota State University’s longtime president, Joseph Chapman (right) resigned amid growing criticism over his expensive new presidential residence. Presidential is the operative word. Cost overruns exceeded $2 million, compared with the original $900,000 that had been budgeted for the project. But the good news doesn’t stop there. The Forum, a Fargo newspaper, reports that the donation-funded NDSU Development Foundation paid $22,000 on a charter flight and hotel bills for Chapman and his family to attend President Obama’s inauguration. (By comparison: University of North Dakota reportedly spent $2,176 to send its president, Robert Kelley, to the inauguration.) No surprise, Chapman resigned the other day. “It just isn’t fun,” he told the Associated Press.

Now consider this: It takes a while for a construction project to balloon over $1 million past its target budget. But it’s only now the board says it will probably — probably — ask for an audit on spending for the president’s house. All of which demonstrates this much: Even well-educated people — because we can assume the board members are — can make choices that in retrospect lacked clear direction or ethics. If this can take place in a university setting, what does this say about the education we provide business students?

Over the next several weeks, I’ll be asking educators from around the country this simple question: Are business schools effectively teaching ethics? Stay tuned.

It’s no secret, at least among certified financial planners: Most ethics courses are as boring as can be. They don’t have to be. In conjunction with my consulting group, Barclay’s has created a webinar on ethics for CFPs to get their continuing education hours. So, if you go to Barclays, and register as a CFP, you’ll have access to this webinar. Non-boring. For a change. Check it out!

More times than not, media reports tell us that government spending is rife with fraud and waste. While those stories deserve attention, it’s easy to lose sight of people in government who really are conscientious stewards of U.S. taxpayers’ money. Rear Admiral Steven J. Romano (right) is one of them. Romano is the commander and chief executive officer for the Navy Exchange Service Command in Virginia Beach, Va. He also overseas Navy Exchange System, or NEX, a Wal-Mart type store for military members. While most NEX associates are honest and trustworthy, there have been a number of fraud cases lately, and Romano is putting a stop to them.

I learned about all this recently when I was invited to speak to a group of U.S. Navy personnel in Norfolk, Va. The invitation came on the heels of a campaign, “Stop Fraud,” that Romano recently announced. I was impressed to learn the campaign is aimed at improving associate awareness and training, expanding process reviews, and using continuous process improvements to mitigate risks. That campaign, and Romano’s leadership in it, speaks volumes to the importance of leading with top down ethics. That’s a fundamental foundation for any organization.

So, here’s a question for you — and you don’t have to be in the Navy to think it over: As a business leader, would your employees say you’re leading with top down ethics? And what actions are you taking to demonstrate that?

Share your comments here.

In addition to being a professional speaker, I am also the VP of Marketing for American Funeral Financial.  This article was posted on the “Funeral News” blog and I asked permission to post it on my blog.  It’s nice when a firm performs so well that they get positive press.  The article appears below just as it was printed on “Funeral News.”

While the focus of Funeral News is to report on death-care related events, we consider our sponsor to be an important asset in the advancement of our cause.  As such, we have asked American Funeral Financial to provide this guest article to our readers.  The following was provided by the fine folks at American Funeral Financial, LLC.

You just received a first call.  The family is facing something that, for them, is unusual and, in many cases, unexpected – the death of a loved one.   Not only are they dealing with the emotion of their loss, but are soon to be faced with the costs associated with paying for – what for most is one of the most expensive single purchases of their life.

As funeral directors and/or death care providers the family comes to expect, especially in this day and age, expert service.  What the family may be unprepared for is the immediate need for payment for the goods and services that funeral professionals provide.  On the other hand, unless the family can pay with cash, a valid check or major credit card – you, the funeral service provider, are relegated to becoming a bank.

Times have changed and so have expectations.  Assume for a moment that you were to receive your paycheck on Friday and today is Tuesday.  Could you go to Walmart and purchase groceries with the promise of payment from your check on Friday?  Could secure a cell phone from Verizon with the promise of payment in the future?  The obvious answer to these, or similar questions, is a resounding – NO!  It is no longer reasonable to assume that funeral service providers should be forced to wait for their funds considering the difficulty that many face with insurance assignments today.

Due to the rising costs of goods and services, more and more funeral homes and cemeteries are requiring payment in full prior to providing funeral services or making the interment.  With the economy today, we find more and more families are relying on insurance as the funding vehicle to pay for those services.  Unfortunately, it can take weeks or even months for the insurance company to pay the claim to the beneficiary or funeral home.  In addition, the paperwork associated with funeral financing via an insurance assignment is becoming more complicated and time consuming, taking valuable time away from doing what you do best – serving families.

American Funeral Financial has created an industry leading proprietary system that takes the burden off of you and your staff and makes the process of funeral funding through insurance assignments easy.

• No longer do you have to verify the insurance assignment with the insurance company – American Funeral Financial does that for you.
• No longer do you have to due the burdensome paperwork – American Funeral Financial does that for you.
• No longer do you have to have experience waiting for your funds – American Funeral Financial pays you the next day following verification.

The process is simple.  Once you have signed on with American Funeral Financial – Your Funeral Funding Experts – you’ll have access to our simple web-based entry system.  Working with the American Funeral Financial web system is easy.  Sign in and in less than 10 minutes you will have the paperwork done and the verification process begun.  American Funeral Financial does the verification for you.  Once you have been notified that the assignment can be done, you will have the beneficiary sign the paperwork (that we prepared for you on the web) and we will fund your services.  It is that simple!  Fees to AFF are competitive and come directly from the policy assignment proceeds so funeral homes and cemeteries are paid their full fee for services rendered.  There is no cost to the funeral home or cemetery.

No waiting for your funds, no hassle, no problems!  American Funeral Financial is a full service firm that is run by professionals with years of experience in the death-care industry.  AFF knows what you need when you need it.

But there’s more!  American Funeral Financial knows that you need your money for services rendered.  You do not need to be the bank!  Likewise, so do the beneficiaries.  Therefore, as part of the process – when your firm has signed up with American Funeral Financial – the funeral funding experts – the beneficiaries of the life insurance policies being assigned are eligible to have advanced to them the remainder of the policy to take care of any short term funding needs that they may have personally.  That’s right – you are paid and they get the funds advanced to them for the remaining part of the policy (assuming they want a personal cash advance).

Our team working for your team when you need it the most – because the cash you have today can have a profound effect on the success of your business tomorrow!

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!

VERMILLION, S.D. – During troubled economic times, Chuck Gallagher isn’t afraid to share his story of success – and how he lost it all. Gallagher, a business executive and motivational speaker, will be a guest of the Beacom School of Business of The University of South Dakota on Monday, April 27 at 7 p.m. in the Wayne S. Knutson Theatre.

Gallagher, a former CPA who lost everything because of poor choices, will present the program “Choices: Negative Consequences, Positive Results” where he will discuss some of the decisions he made in his attempts to make a better life for he and his family. Gallagher eventually lost it all, spent time in federal prison, but has found success again by making the right choices – personally and professionally.

“My lecture deals with issues of business ethics, particularly the choices we make in life and the consequences that follow,” says Gallagher. “Having been a successful CPA in the 80s, spent time in federal prison in the 90s and risen to the level of senior VP in a public company in the 2000s, I can speak from experience that I’ve lived with negative consequences thanks to some very stupid choices I made. But I’ve also had some incredible positive results based on the choices I made after spending time in a federal prison.”

Gallagher’s message is sure to resonate with students who are seeking answers on what it takes to be successful in today’s business world despite the presence of poor ethics and negative consequences. Ultimately, he explains, it’s about students differentiating themselves – positively – from their peers.

“I’m the poster child of what not to do,” he admits. “Ethical issues aren’t always black and white. If you want to be successful, ask the question ‘what are you doing to differentiate yourself?’”

A professional speaker, business entrepreneur, and sales executive, Gallagher has led a $40 million sales region with 125 sales representatives and started his own training business with projects in 30 states. Gallagher currently helps employees increase their sales results and skills while realizing the ramifications of their ethical choices. In addition to addressing students and audiences at colleges and universities throughout the United States, Gallagher also shares his business ethics message with business-related and health care related organizations.

“Choices: Negative Consequences, Positive Results” is made possible by the Beacom Opportunity Fund and the Arthur A. Volk Symposium. The Beacom Opportunity Fund provides resources for initiatives that promote the Beacom School of Business’s students and programs. Funding from the Volk Symposium affords opportunities for the business school to bring together students, academicians, and business leaders for discussion of current topics of interest. For more information about “Choices: Negative Consequences, Positive Results,” please contact the Beacom School of Business at (605) 677-5455.

A photograph of Gallagher is available for download at www.usd.edu/urelations/images/Chuck_Gallagher.jpg.

About The University of South Dakota
Founded in 1862, The University of South Dakota is designated as the only public liberal arts university in the state and is home to a comprehensive College of Arts and Sciences, School of Education, the state’s only School of Law, School of Medicine, School of Health Sciences, the accredited Beacom School of Business and the College of Fine Arts. It has an enrollment of approximately 9,200 students taught by 400 faculty members. More information is available at www.usd.edu/press/news.

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!