Ethics – The truth, Governor David A. Patterson and some Yankee’s tickets – This is no home run!

August 26, 2010

Funny thing about “truth” and “ethics” – the definition of both are in the eye of the beholder and neither are always black and white.  As a business ethics speaker, I find that I am called on frequently to define “business ethics” and when the presentation is over – all agree that you can’t define something that isn’t concrete.  That said, the news today is filled with stories about something that to some is not news worthy and too others is at the heart of trust – a solid component of ethical behavior.

The New York Times reports:

Gov. David A. Paterson misled investigators for the state ethics commission when he testified that he had intended to pay for free tickets he obtained to last year’s World Series, according to a report issued on Thursday by an independent counsel investigating the matter.

But the independent counsel, Judith S. Kaye, said it was up to the local district attorney in Albany, P. David Soares, to decide whether Mr. Paterson, a Democrat, should be prosecuted for perjury.

Now…as I read this story, I found myself confused.  What’s all the fuss about?  Then it became clear…it is not about the World Series or whether the Governor attended – taking his son and friends.  This story is about the truth!  This story is about whether Governor David A. Patterson has – as his moral compass – a foundation of ethical behavior when it comes to his actions and his words being congruent.  I do understand, as I had that very issue posed to me just yesterday.  Funny, but how two people perceive the truth can be very different.

The story goes on to state:

Aides to Mr. Paterson obtained five tickets to the first game of the 2009 World Series, which Mr. Paterson attended along with two aides, his son, Alex, and a friend of his son.

The tickets eventually came under the scrutiny of the state’s Commission on Public Integrity, which found that Mr. Paterson had never intended to pay for his own ticket and only paid for his son and son’s friend after the news media inquired about the matter.

The commission also concluded that Mr. Paterson had lied during his testimony about the tickets, a matter the commission referred last spring to Attorney General Andrew M. Cuomo, who in turn asked Ms. Kaye to investigate.

Now…as a business ethics speaker, it is my role to uphold the highest of ethical actions and interpretations.  But, let’s just call it like it is… with our lives effectively placed at the fingertips of technology, I wonder if this were 40 years ago, would anyone care?  And, if the answer to that is “No” – heck they wouldn’t have even known…  then why do we care today?  40 years ago – O.K. maybe 50 – the standards of society were vastly different.  JFK could have affairs and, at the time, no one was the wiser (other than his inner circle).  Now, everything is recorded and one false move and you’re toast in the media.

STOP…but I know, the issue isn’t the tickets, it is what he said about them.  He lied, so says the investigative panel.

At a minimum, portions of Mr. Paterson’s testimony “were inaccurate and misleading,” the report concluded, and “warrants consideration of possible criminal charges by the District Attorney, who will make the ultimate decision regarding whether or not charges should be brought.”

So, what was the ethical thing to do?

ANSWER ONE:  Don’t take the tickets unless the Governor could buy them just like “Joe Q Public” – Rank does not have it’s privilege.

ANSWER TWO:  Use your position as Governor to get the tickets (after all you are the Governor and rank does have it’s privilege), but pay the fair market price for them.

ANSWER THREE:  When asked about the purchase of the tickets (now here’s where it get’s dicey), tell the truth and state that you did not pay for them, but would recognizing that it looked bad to use “free” tickets to see the World Series

ANSWER FOUR:  When asked, bumble the question, state a half-truth and get your butt busted by all major media outlets.

CONCLUSION: Answer Four – is the worst of the options and shows that the Governor (as an elected politician of power) is human and subject to mistakes.  However, the unfortunate thing is – our standard of ethics and ethical behavior has swung so far to one side that we believe that privilege should provide no benefit.

Does that cause you to ponder the ethics of privilege?  One thing that stands out for me is – the truth will set you free.  Some folks don’t like the truth and others are afraid of it, but if Governor Patterson had told the truth, the outcome would likely be vastly different.


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

March 12, 2009

madoff-cp-6397978There 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 madoff_sketch_09031203this 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.


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 madoff_jail_cell03allowed 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.


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.


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!


HERE is what Madoff read to the court.

Twenty Million Dollar Mortgage Fraud Scheme – Osmond Decoteau Indicted Faces Prison – Business Ethics Speaker Chuck Gallagher Comments…

October 27, 2008

Well over a year ago, I along with others were writing profusely about mortgage fraud and the severe lack of business ethics that seemed rampant in the industry. It almost seemed like “money for nothing” and the house was free. Now, as we approach the time for our general election, things could not be worse. There is no doubt that this will be a disaster for the GOP when the election results come in.

October 23, 2008, an indictment was handed down in Brooklyn federal court charging OSMOND DECOTEAU with wire fraud for masterminding a scheme to defraud mortgage lenders and banks of more than $20 million in connection with the sale of several properties located in Brooklyn and Florida.

According to the indictment: DECOTEAU recruited straw purchasers for properties located in Brooklyn and Florida, and ensured that their mortgage applications would be approved by lenders by fraudulently misrepresenting the purchasers’ financial condition. Subsequently, at the closings on these properties, DECOTEAU presented phony payoff letters which indicated that three companies he controlled were the loan servicers for the properties. The closing attorneys then issued payoff checks to the DECOTEAU-controlled entities, instead of the actual loan servicers for the holders of the pre-existing mortgages. To conceal the fraud, DECOTEAU caused monthly payments to be made on the underlying mortgages so that those mortgages would not be declared delinquent. As a result of the defendant’s scheme, between April 2005 and January 2007, multiple fraudulent closings occurred resulting in a fraud exceeding $20 million, and each of the properties is now encumbered by two first-lien mortgages.

Mortgage Fraud has been rampant. It will take years for the majority of the crimes to be uncovered. No doubt Decoteau, if found guilty, is just one of thousands who will prosecuted for taking advantage of a system without substantial controls.

“In May of this year we announced the formation of a task force comprised of federal, state, and local law-enforcement agents and investigators to address the burgeoning problem of mortgage fraud,” stated United States Attorney Campbell. “This prosecution is one example of the results of that cooperative initiative, which includes the investigation and prosecution of mortgage fraud that has harmed investors, lenders, and homeowners across the country.” FBI Assistant Director-in-Charge Mershon stated, “Combating mortgage fraud is a priority because mortgage lending and the housing market have a significant overall effect on the nation’s economy. The FBI is committed to investigating and prosecuting criminals who exploit vulnerabilities and devise new methods or schemes to defraud.”

As a business ethics and white collar crime speaker, I understand first hand the effects of the choices we make. I served time in federal prison for poor choices I made 25 years ago and the consequences still follow to this day. If it takes three components to create a fraud: (1) need; (2) opportunity and (3) rationalization…then Decoteau had plenty of opportunity considering the lax state of oversight when it came to mortgages in the past five to eight years.

If you know Decoteau…perhaps you’ll comment on his motivation.

Your comments are welcome…

Hannah Montana and An Ethics Meltdown – Anything For Success? Ethics Speaker Chuck Gallagher Comments!

December 31, 2007

A sad story out of Garland, Texas (not far from my home in Southlake, TX). A story of Iraq, a little girl, compassion and all for Hannah Montana tickets.


The little girl was six years old who won Hannah Montana tickets to a sold out concert for the touching essay she wrote. What a special reward for a girl who touched the hearts of those who read.

The essay was a fake – the story told a lie! All done to influence the judges and win the tickets. Ethical choices gone bad and at six years old (and get this) with the knowledge (and likely help) of her mother.

The Associated Press story featured on CNN is shown below:

Here’s what took place:

  • Club Libby Lu, a store that sells clothes, accessories and games intended for young girls based out of Chicago, sponsored a contest which included airfare for four to a sold-out Hannah Montana concert on January 9th in Albany, NY.
  • The little girl who won had an essay whose first line began with: “My daddy died this year in Iraq.”
  • The story wasn’t true!
  • Priscilla Ceballos, the little girls mother, told an interviewer with KDFW (a Dallas, TX TV station), “We did whatever we could to win.”

Mary Drolet, the CEO for Club Libby Lu stated, “We regret that the original intent of the contest, which was to make a little girl’s holiday extra special, has not been realized in the way we anticipated.” The company is considering taking away the girls tickets.

What should the outcome be?

I seriously doubt that a six year old girl could come up with a deception that contrived on her own. She had to have had help and her mother has as much admitted her part in the overall deception.

If the little girl were allowed to keep the prize, including the tickets, it would send a clear message that unethical behavior (regardless of who made the decision) is alright. It’s not alright!

If the little girl had the tickets revoked, while she would likely be hurt, it would demonstrate at a very young age, something that I state to groups all over the country, that every choice has a consequence. Reality is, by your choices you determine the consequences you receive – negative consequences (loss of the tickets) or positive results (enjoyment of the prize).

Either way, her mother, through national attention, has been exposed as a liar and a person who was willing, as she put it, to do “whatever we could do to win.” The likely outcome for their family will play out in many ways for time to come.

What do you think the outcome should be? Your comments are welcome.

Do you think that children and teens are taught ethics or is ethical behavior instinctive? Again, your comments are welcome.

For now, Motivational and Ethics Speaker, Chuck Gallagher signing off.

Mortgage Fraud – From NY to Texas to Tennessee – Business Ethics Speaker Chuck Gallagher Reviews the Week

December 9, 2007

It’s all over…every where you turn, mortgage fraud and other fraudulent schemes seem to be uncovered. Let’s look at a few of the cases that caught my attention in this week in review.


In a Manhattan federal court six individuals were charged with a “home foreclosure rescue” scheme which defrauded homeowners of their homes and lenders of millions of dollars in bad loans.

“The defendants charged today perpetrated a multimillion dollar fraud in which they profited by preying on the most vulnerable of homeowners,” said United States Attorney Michael J. Garcia. “While promising rescue from foreclosure, they instead stole their victims’ homes and millions of dollars in loans secured by their victims’ properties.”

“This case is yet another example of the pervasive fraud we have found in the mortgage industry,” said Attorney General Andrew Cuomo. “My office investigated the scheme charged in this case in response to complaints from individuals who had been victimized and lost their homes. I applaud U.S. Attorney Garcia and his prosecution team for their excellent work and look forward to more productive partnerships with the Southern District of New York.”

“The rise in mortgage defaults associated with sub-prime mortgage lending has created a target-rich environment for so-called foreclosure rescue schemes,” said FBI Assistant Director-in-Charge Mark J. Mershon. “We will continue to root out the predatory practices of those who would victimize distressed homeowners and unwitting lenders for a fast and easy (and illegal) buck.”

Same week, we find in Houston, TX – 37 individuals charged with mortgage fraud.

According to the Associated Press:

The charges, contained in indictments unsealed Thursday, follow a yearslong investigation by the Harris County District Attorney’s Office and the U.S. Secret Service. Police said 12 of the suspects have been jailed.

The scheme involved players including buyers, mortgage brokers and construction company owners. It’s similar to other scams uncovered in Harris County recently, said Lester Blizzard, assistant district attorney.

Then in Tennessee a woman pleads guilty to a fraud scheme where she provided fraudulent data to obtain a mortgage loan. Her guilty plea relates to bankruptcy fraud, money laundering, fraudulent use of a social security number, and identity theft.

According to the mortgage fraud blog:

At the plea hearing House admitted to providing false and fictitious statements and information to obtain mortgage loan financing to purchase 523 Tribal Land Cove, Collierville, Tennessee in 2001. The fraudulent items included a false social security number, fictitious employment income, and omitted a bankruptcy declaration. House admitted to filing a bankruptcy petition in 2003, to maintain possession of the Tribal Land Cove property and to conceal the scheme. House also admitted to providing false and fictitious statements and information to obtain mortgage loans to finance the purchase of 664 Ridge Springs, Collierville, Tennessee in 2005; and, to engaging in financial transactions with the proceeds obtained through that scheme.

The three components of most any fraud are: (1) need; (2) opportunity and (3) rationalization. As a business ethics speaker I know first hand the components and the consequences of an ethics violation.

In all three of the cased listed above there are several common threads. First, at least in two of the cases, greed and misdirection allowed “straw purchasers” to facilitate the fraud. These people, who have now had their credit ruined, likely sought better than average returns and fell prey to bogus fraudulent presentations. The “unsuspecting” participant (victim) felt they had a need and this “investment” provided an opportunity. Higher than average returns justified the risk (their rationalization).

Opportunity comes in many forms. It appears that, in the rush for increased business, lenders were less than vigilant about documentation. Perhaps internal controls weren’t there or perhaps they weren’t wanted – as often internal controls are perceived as anti-sales and anti-growth. Yet, lack of proper controls create the environment for “opportunity” and thereby aid in the advancement of the fraud.

From coast to coast as I speak to groups on business ethics, I find that simple procedures and processes could have prevented most frauds or at least not allowed them to go undetected.

As we are seemingly in the throws of a housing slow down or “recession” many say – it was predictable. Regardless of industry, when things are operating at a frenzied pace and money (lending in this case) seems easy – maybe even too good to be true – one can expect problems. Mortgage fraud isn’t new, but in the environment we have just passed through, I think we’ll see more of this for some time to come.

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Comments are welcome!