Brion Gary Randall facing prison for Financial Crimes… Choices and Consequences: Comments by Business Ethics and Fraud Prevention Speaker Chuck Gallagher

A Plano, Texas, man, who has admitted running a fraudulent investment scheme from 2004 through July 2009, will enter his guilty plea before U.S. Magistrate Judge Paul D. Stickney on May 18, 2010, to felony offenses related to that crime, announced U.S. Attorney James T. Jacks of the Northern District of Texas. Brion Gary Randall, 48, has signed documents, filed with the Court, pleading guilty to an Information charging one count of mail fraud and one count of bank fraud. Each count carries a maximum statutory sentence of 30 years in prison and a $1 million fine.

According to filed plea documents, Randall worked as an investment advisor from 2004 through July 2009. During part of that time, he operated, and owned in part, 2Randall Consulting Group, LLP and also owned part of Titan Home Theater, LLC, which designed and installed commercial and residential audio/visual systems. According to a complaint filed by the U.S. Securities and Exchange Commission against Randall and 2Randall in August 2009, the Financial Industry Regulatory Authority (FINRA) suspended and fined Randall for improperly exercising discretion in customer accounts without prior written permission. That case is currently pending.

From 2004 through July 2009, Randall raised more than $6 million from 30 investors through a scheme in which he caused persons to invest in a number of short-term loan participation programs, which in fact, did not exist. He used investors’ funds for his own benefit and not for purposes he represented.

For example, Randall represented that he was pooling money in accounts at Chase Bank and AllianceBernstein for investment in a variety of short-term loan participation programs. Randall represented that an investor’s money in 2Randall Consulting’s account at Alliance and Chase was held in a non-taxable escrow account and fully liquid, with the investor able to withdraw his money at any time. He represented that the 2Randall consulting account at AllianceBernstein had a balance ranging from $25 million to $29 million, and that he had also invested millions of dollars of his own money into the accounts.

In reality, however, the Chase Bank and AllianceBernstein accounts were nonexistent. To further the scheme, Randall created and distributed fraudulent documents to investors, including bogus Chase Bank and AllianceBernstein account statements. He also created bogus 2Randall Consulting accounting statements and portfolio summaries. In meetings with some investors, he would display a false and fictitious computer screen shot of either the Chase Bank or AllianceBernstein account which would show the investor’s money on deposit.

Randall also represented to investors that they could invest in short-term loan participations, usually lasting 45 to 90 days and returning a high rate of interest. He sold loan participation programs in 1) Small Business Administration (SBA) loans; 2) Titan Home Theater project completion loans; and 3) loans to acquire real estate in Galveston, Texas.

For the SBA loans, Randall falsely represented to investors that they could participate with 2Randall Consulting in a short-term loan to a local company seeking an SBA loan. Randall represented that the short-term loan would provide sufficient capital to enable the company to obtain the loan at a discounted rate, and once the SBA loan closed, the company would return to 2Randall Consulting and the participating investors the principal plus 10 percent. He represented that the companies receiving the loans were reputable local businesses, including 84 Lumber, General Packaging Corporation, PerotSystems Vent-A-Hood and Richardson Bike Mart, businesses where Randall’s father had an established relationship. Randall represented that participating in an SBA loan participation program was low risk and that an investor could only lose his money if the company declared bankruptcy during the 45-90 day term of the loan. Randall knew that no such SBA loan participation agreements existed.

With regard to the Titan Home Theater project completion loans, Randall represented that investors could participate in short-term loans to Titan enabling it to complete a number of commercial projects, and that upon completion of the projects, Titan would return the principal plus up to a 22% return. Randall falsely represented that Titan was a subcontractor on several commercial projects including projects at Southern Methodist University, the Bush Library and the Dallas Cowboys stadium.

Randall also represented to investors that they could participate in short-term loans enabling him to finalize the acquisition and sale of real estate in Galveston. Randall promised that on closing, he would return the investor’s principal plus a sizeable rate of interest.

As a further part of his fraud, Randall obtained loans from financial institutions by submitting forged signatures and false and fraudulent documents. The plea documents note that Randall obtained five loans, from Bank of America, Texas Capital Bank and Wells Fargo, that all defaulted, causing a total loss to these financial institutions of nearly $875,000.

COMMENTS:

The question that I often get asked in seminars I conduct is: How can someone with reasonable intelligence get caught up in such a scam?  Answer: They get caught up in the PIT.

“P” – PROMISE – The first step to falling into a scam (especially a financial scam) is the “promise”!

“I” – The second part of falling into the scam is the – ILLUSION!

“T” – In the PIT the third and last component is TRUST.

Combine the three components and you find victim investors falling into the “PIT” as I call it.  When some one promises a 22% return – that PROMISE in and of itself is a warning sign that something is amiss!  It almost makes no difference what else might take place, the unreasonable promise of a return is a clear indication that you might be a fraud victim.  Funny, however, it seems the more focused someone is on getting something that most people can’t have the greater likelihood they will fall prey to a scam artist.

Every choice has a consequence and in this case Randall will have a long time to think about his fraud and the impact it has and will have on his life and the lives of countless others.

If you’re a victim of Randall’s fraud, I’d appreciate your comments on what took place that got you hooked.  Perhaps your comments will help others avoid the consequences of the PIT!

YOUR COMMENTS ARE WELCOME!

Business Ethics Alive in Small Banks – Strong Ethics Equal Healthy Banks

It’s easy to become cynical when all you hear in the media is bad news.  But not all news is bad.  In a recent CNN article there was some refreshing comments from small, but healthy, banks.  They were making loans and, for the most part, it was business as usual.

Here are some comments from the article:

Conservative lending practices seem to be a common denominator among banks that have remained strong and stable during the current banking crisis, and those banks are still making loans.

Peoples Bank President Todd McKee, left, chats with customer Tommy McVay on Friday in Lubbock, Texas.

The failures of behemoths such as Washington Mutual and IndyMac have drawn media attention, but not all big banks are in trouble — and smaller banks are not immune.

For sometime, as a business ethics speaker, I have said that the underlying problem related to the economic crisis we’re facing today has been founded in a lack of business ethics.  For those comments I have been the brunt of criticism.  But, if ETHICS is choosing good from bad with a moral obligation and duty…then I submit that what is reported in the CNN report supports my position.

“Our underwriting standards have tightened a little bit,” said Ronald Heaton, president of the Cedar City, Utah, bank. “… Our standards haven’t changed drastically, and we’re still loaning … but we’re watching our underwriting standards closely so that people are able to repay their loans.”

Mortgages that didn’t require borrowers to prove their income or make a down payment got many lenders into trouble, but his bank never offered those: “Didn’t make sense,” he said.

Some would-be borrowers “wanted us to do everything, and we said, ‘We don’t do everything. We have standards,’ ” Heaton added.

Nonbank mortgage lenders were able to generate substandard mortgages because they were not adequately regulated by the federal government, Heaton said.

Now those bad loans have come home to roost, the nonbank lenders are out of the game, and State Bank of Southern Utah’s mortgage business is picking up, Heaton said.

Folks…that’s just plain ole good ethics.  Heaton (whom I’ve never spoken to or met) is 100% accurate.  If you have standards (founded by sound business ethics) you won’t find yourself in major financial trouble.  I contend that lending practices, that were not founded with sound ethical principles, are in large part the root cause of why we are where we are today.

Another part of the CNN report states:

In Texas, the state Department of Banking says state-chartered institutions wisely stayed out of the subprime game.

“That’s not what we do. We’re not in the subprime market whatsoever,” said Todd McKee, president of Peoples Bank in Lubbock. “Lending here is the same as it’s always been.”

The way it’s always been is up close and personal. McKee said his bank’s customers prefer to do business with tellers face-to-face rather than through the drive-up window.

“I’m president of the bank, and I sit right by the front door, so I wave at every single soul that walks in the bank. Everybody has access to me,” he said. “My partner [Larry Allen] is the CEO. … He sits at the other door. So we know everybody that comes in the door.

May sound “hokey” but that is banking the way it was meant to be.  I recall my first loan when I was 18 years old (I’m now 51) was made – not by a credit score – (funny I don’t think they existed then), but rather the loan was made on character and the fact that the bank president trusted me to repay (and knew where my mama was if I didn’t).  I paid the loan back and was proud to do business with them.

This last comment from the article states it best – “You can look at credit all day, you can look at collateral, but if they can’t make that payment, there’s no sense in making that loan. And we’ve always done that. We’re all supposed to do that.”  That is business ethics!

Business Ethics, Bank Failures and Government Bailouts – Are They Compatable?

Just last night I was having dinner with with the head of a company and two retired physicians, none of whom I knew before my wife and I were seated.  As one might expect, the conversation turned to career as we played the get to know you game.

“What do you do,” one of the retired physicians asked?

“I speak across the country to businesses and associations on ‘ethics’,” I replied.

“Well,” the business exec at the table spoke up immediately, “you should be booked solid now.  I’ve never seen it so bad.  Seems that those guys on Wall Street and in Washington need your service desperately.”

With those comments the table broke into a sad sort of laughter, although the comment made was no laughing matter.  Rarely, if ever, in my lifetime (and I’m 51) have we seen a time in our country where the choices that have been made have had the potential for a more disastrous outcome.

Before the month of October begins in earnest the headline late on a Sunday night on CNN is: U. S. bank failures almost certain to increase in next year. Based on all that we’ve seen in the short scope of the last two months I tend to agree.  And here’s what is more baffling – people much smarter than I must have known that we would one day face this outcome.  The writing was on the wall.  You can’t extend credit to someone who can’t afford to pay you back and assume that everything will somehow work out.

Every choice has a consequence.  That is a universal law (although it seems that many people would prefer to ignor its existence).  All we heard for the past several years is how robust the US economy was.  The housing market was strong in most sectors of the nation and it would appear that we were set to continue to enjoy long term economic prosperity.  Really?  Here’s a segment of the CNN story:

Weakened by huge losses on risky home loans, the banking industry is now on the shakiest ground since the early 1990s, when more than 800 federally insured institutions failed in a three-year period. That was during the clean-up phase of a decade-long savings-and-loan meltdown that wound up costing U.S. taxpayers $170 billion to $205 billion, after adjusting for inflation.

Now, like many who read this, I was around during the Savings and Loan crisis.  It wasn’t pretty and friends, I hate to say this, but this is no savings and loan crisis.  That economic hardship pales in comparison to what we could face based on bad choices and business ethics gone awry.  The government bailout – hum, let me rephrase – the taxpayer bailout may preserve some of the “stronger” institutions, but there is a substantial belief that many more will fail, buried under the weight of their poor choices.

The following quote from the CNN article is very accurate:

“I don’t see why things will be that much different this time,” said Joseph Mason, an economist who worked for the U.S. Treasury Department in the 1990s and is now a finance professor at Louisiana State University. “We just had a big party where people and businesses overborrowed. We had a bubble and now we want to get back to normal. Is it going to be painless? No.”

I think it is interesting his choice of words, “people and businesses overborrowed.”   That statement is factual, but the more significant underlying question is how did that occur and why?  The answer to that is where – ETHICS – comes into play.

Now let me simply define ETHICS for the purpose of this discussion:  “Ethics is the discipline dealing with what is good and bad and with moral duty and obligation.”

So let me get back to the comment “people and businesses overborrowed.”  While the comment is true neither people or businesses had control of the purse strings.  People were “unethically” encouraged to overborrow.  Rarely a day would go by without the mailbox being filled with credit offers.  “Zero percent this and transfer balance that.”  We saw big burley viking men touting Capital One and God knows my college aged son received more offers for credit than he could count – even though he had no source of income.

While there is plenty of blame to go around, YOU CAN’T BLAME THE PEOPLE.  People did what people do – they responded to effective marketing campaigns and accepted offers made by many of those very banks who soon will be buried in the business grave yard of failure.  Poor business choices combined with poor business ethics will equal business failure.

We hear all too much about the mortgage crisis again with many stating that people over borrowed.  That may be true, but the bank or financial institution again controlled access to the money.  Now if a bank is so overzealous to prop up growth and earnings that they make loans to unqualified individuals or loan against property that is overvalued, I contend that is unethical.

Banks have more than a duty to earn money and grow, their greater duty is to do both of those things and (most importantly) survive!  Their moral duty and obligation (their ethical duty) is to survive while achieving success.  I agree with my dinner mates, if there is ever a time for ethical reflection it is now!

Another comment from the article that has alarming numbers attached:

Using statistics from the S&L crisis as a guide, Mason estimates total deposits in banks that fail during the current crisis at $1.1 trillion. After calculating gains from selling deposits and some of the assets of the failed banks, Mason estimates the clean-up this time will cost the FDIC $140 billion to $200 billion.

The FDIC’s fund currently has about $45 billion, a five-year low. But the agency can make up for any shortfalls by borrowing from the U.S. Treasury and eventually repaying the money by raising the premiums that it charges the healthy banks and S&Ls.

Perhaps next is the issue of Goverment Ethics.  By all accounts, Alan Greenspan reported to Congress many years back – talking in “Greenspeak” about what was likely to happen and how it could be avoided.  Did the government take action?  NO!  The concern, it seems, for most politicians is staying elected or getting elected, not making ethical decisions.  The moral duty and obligation that our elected officials have (or should have) is to represent those they govern and protect them from the disaster we are now facing.

And, not to be a cynic, but when have you known any financial projection to come in at or under the budget or estimate.  In my lifetime – never!  So by guess is the $700 billion will be more like $2 trillion when it is over.  The bailout here and proping up the FDIC there, not counting what else will arise that is undisclosed at this time.  It all adds up and is dumped on our shoulders.  In reality all we, as a nation, are doing is on a bigger scale exactly what the “people and businesses” did – borrow to pay off what we could not afford in the first place.

So back to the question – Bank Failure and Government Bailouts – are they compatable?  Neither represent good business ethics and yet both will happen.  Perhaps the comment was right at dinner, I need to camp out in Washington and NY – although now it might be too little too late.

For information about my presentations visit my web site.  Your comments, by the way, are welcome.

Student Loan Fraud – Ethics Speaker Chuck Gallagher Comments – Choices and Consequences

Every choice has a consequence.  Sometimes the consequence follows a series of choices that lead a disasterous outcome.  At other times there is no series of small simple choices that keep building, rather, the choice is like diving into a pool off the high dive – once you’ve taken the plunge there is no turning back.

Melissa Renee Heggie, Marvin R. Heggie, Travis Hunter and Derrick King, all of North Carolina were indicted for their roles in a substantial student loan fraud scheme.

According to the US Attorney’s news release: From approximately June, 2007, through March, 2008, MELISSA, her brother, MARVIN, HUNTER, and KING, conspired to obtain approximately $1.2 million in student loans from JP Morgan Chase by submitting fraudulent documents. The HEGGIES recruited individuals to provide their social security card and identification. Once the individuals supplied MELISSA and MARVIN the appropriate documents, a student loan application would be submitted to Chase Bank via the internet using the information provided by the individuals. Chase Bank would approve the application and request further documents including a Chase Loan Application/Promissory Note, copies of the social security card, and identification. The Chase Loan Application/Promissary Note requested information including address, employment, college attending, and amount of loan requested. MELISSA and/or MARVIN would complete the paperwork with the individuals correct name and social security number, but falsify other information to include school attending, employment information, and street address. MELISSA and MARVIN would sign the individuals names verifying that the information on the application was true and then faxed the Loan Application/Promissory Note along with a copy of the social security card, driver’s license, a fraudulent billing statement from ECU, and fraudulent W2 forms, and other falsified documentation to JP Morgan Chase located in Indianapolis, Indiana.

Within days a check would be sent via United States Postal Service from JP Morgan Chase and arrive at one of three addresses provided on the application. Once MELISSA and MARVIN received the check, they would contact the individuals and tell them the check arrived. They would then meet at a check cashing facility to cash the check. The individuals would keep half the proceeds and give the other half to MELISSA and/or MARVIN. The checks ranged from $10,000.00 to $28,300.00.

There is little doubt that a white collar crime was committed and that it represents premediated fraud.  While and indictment represents an allegation of a crime and one is presumed innocent till proven guilty, rarely does the US Attorneys office gain an indictment without a conviction.  In fact the US Attorney issued a statement:

“This crime hits at the heart of an important program which provides student loans and financial aid money to deserving students. This prosecution is an effort to make sure this program is handled properly and funds are made available to those truly eligible.”

As a white collar crime speaker, I find it hard to understand the mentality of how this crime was pulled off.  Generally there are three components: (1) need; (2) opportunity and (3) rationalization.  Most white collar criminals start small and rationalization is at the core of the crime.  Otherwise honest people can commit crimes if they can rationalize their actions.  In the case of MELISSA RENEE HEGGIE, 29, of Grimesland, North Carolina; MARVIN R. HEGGIE, 27, of Raleigh, North Carolina; TRAVIS S. HUNTER, 28, of Grimesland, North Carolina; and DERRICK KING, 23, of Aurora, North Carolina, how one could rationalize that this was anything other than fraud is hard to comprehend.

Based on the charges, it would appear that there are four individuals who will spend time contemplating their crimes in the confines of prison.  Yet a wise man once told me that one can make a mistake, but no one is a mistake.  Perhaps these four can learn from their choices and help others not to make the same choices in the future.

Your comments are welcome.