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

December 21, 2009

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

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

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

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

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

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

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

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

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

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

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

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

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


Aryeh Schottenstein and Shawn A. Griffin Plead Guilty! And the Ohio Mortgage Fraud Guilty Pleas Keep on Coming…

May 18, 2008

As a mortgage fraud speaker, I observe what’s taking place in the mortgage fraud arena, but I have to say, the legal eagles in Ohio are working the mortgage fraud angles hard…

Two more Columbus-area people indicted as part of a mortgage fraud scheme that secured more than $7 million in mortgage loans pleaded guilty in United States District Court. Aryeh Schottenstein, age 34, of Columbus, pleaded guilty to one count of conspiracy to commit wire fraud and one count of money laundering, and Shawn A. Griffin, age 38, also of Columbus, pleaded guilty to two counts of conspiracy to commit wire fraud and one count of money laundering.

Schottenstein and Griffin were indicted along with Donald F. Green, Jeffrey Lieberman and George “Terry” Jordan for a mortgage fraud scheme in central Ohio in 2003 and 2004. COMMENT: It seems that at the height of easy money for mortgages – mortgage fraud was rising as well. See what these folks did below as their crime is becoming a common pattern.

According to statements of facts filed with Schottenstein’s and Griffin’s pleas, Schottenstein and Lieberman owned a company called Parkview Bank. One of Parkview’s business purposes was to locate financing for real estate investors seeking to buy and renovate houses in Columbus. Parkview needed a source for the financing for this venture. In 2003, Schottenstein and Lieberman met with the managing partners for Stillwater Asset Backed Fund to convince them to provide the funding. They were successful.

Parkview and Stillwater entered into an agreement whereby Stillwater would provide the funding for Parkview’s deals. Rather than abide by the agreement and locate legitimate investors, Schottenstein used Griffin to recruit straw-buyers to pose as real estate investors. Using straw-buyers was quicker and easier than locating legitimate real estate investors thereby making it easier to generate more loan origination fees. The straw-buyers were told by Griffin they did not need to renovate the houses or make monthly interest payments. Griffin assured them he would take care of all the details.

COMMENT: Two things stand out – (1) impatience with legitimate business became the foundation of the fraud; and (2) the “straw buyers” were motivated by quick money in order to participate in the scam.

Griffin also recruited straw buyers in 2002 and 2003 for Jeff Pearson, now deceased. Pearson bought dozens of low-income distressed houses in Columbus for amounts at or near their fair market value. The houses were in need of renovation. Very little if any renovation was done to the houses. The houses were sold to Griffin’s straw-buyers for two to three times the amounts Pearson had paid only a few weeks or months earlier. Despite having good credit, the straw-buyers usually had little income. At the closing on the straw-buyers’ purchases of the houses, the title companies issued large checks payable to Pearson as proceeds from the sales.

Green pleaded guilty on April 11. Lieberman and Jordan pleaded guilty on April 24. All are free pending sentencing. Judge Marbley will set a date for sentencing. Conspiracy to commit wire fraud is punishable by up to five years in prison and the money laundering charges carry a maximum sentence of ten years in prison.

According to the Columbus Dispatch a scheme that investigators say bilked millions from banks, lenders and investors was so involved that there were too many fraudulent home purchases to list in the 36-page federal indictment.

Those indicted originally were:

Donald F. Green, 48, of Columbus, real-estate investor

Shawn A. Griffin, 37, of Cleveland, real-estate investor

Aryeh M. Schottenstein, 33, of Oak Park, Mich., real-estate investor

Jeffrey M. Lieberman, 56, of Bexley, real-estate investor

George T. “Terry” Jordan, 50, of Canal Winchester, real-estate agent

Dwayne L. Carter, 37, of Columbus, loan officer

Jonathan L. Boyd, 38, of Columbus, loan officer

Kenyatta Johnson, 37, of Michigan, loan officer

James Darneil Gaither, 37, appraiser

Every choice has a consequence. As a white collar crime and mortgage fraud speaker, I speak from first hand experience about the truth about consequences. Reality is – no one escapes the consequences of their choices. While Schottenstein and Griffin may have enjoyed the money for a time and avoided the consequences – they did not avoid the consequences all together. Prison is no fun and both are facing several years plus substantial restitution for this conviction. Likely they will serve time and that will prove to be a dramatic change from their prior activities. You do reap what you sow.

If you were a victim…please share your experience so other may benefit.

Mortgage Fraud Speaker – Chuck Gallagher – signing off…


Mortgage Fraud Speaker Chuck Gallagher comments: Darrius C. Alati Charged with Bank Fraud!

May 18, 2008

As time passes it has become clear that many people have come to the wrong conclusion that creativity in financing is somehow legal. It is not! Just today I heard a radio show where they still talked about creative financing through means that others have found themselves on the back end of a conviction. And in this entry we have another Ohio indictment for bank or mortgage fraud.

Darrius C. Alati, age 38, who resides in Akron, Ohio was indicted. The information alleges that Darrius C. Alati committed three counts of bank fraud.

According to the indictment, Alati was a property broker who fabricated a false corporate resolution which was presented to the subject title company to obtain checks drawn on Fifth Third Bank’s escrow account related to monies flowing from the sale of homes in Akron, Ohio. Alati had the title company divide the monies in to a few checks and Alati forwarded only one of the checks to the seller, James Carter. Carter was unaware that Alati withheld these checks arising from the transactions. In the last instance of the scheme, Alati advised representatives of the title company that he would deliver a $70,000 check drawn on the Fifth Third escrow account to Carter. However, Alati deposited said check into own business account for his personal use.

COMMENTS: From time to time I have been approached at presentations I make on mortgage fraud issues by people who got caught up in a scheme unaware. Those situations are unfortunate. However, in this case, it seems clear that the actions of Alati were thought out and not the result of a simple mistake. Frankly, rarely have I found that mortgage fraud was occurred as the result of a misunderstanding.

Alati, if convicted, will likely spend time in federal prison. More and more the courts are losing patience with the proliferation of mortgage fraud. As the banking system writes off record losses due to the weakness in the subprime market, the punishment for mortgage fraud crimes will likely become more severe (within the federal sentencing guidelines).

Every choice has a consequence. As a mortgage fraud speaker, I believe that we are just at the beginning of a wave of prosecutions for mortgage fraud.


Mortgage Fraud Alive and Well in Ohio! Steven C. Gittinger Pleads Guilty to Mortgage Fraud Scheme Role

May 12, 2008

Either there is something in the water in Ohio when it comes to Mortgage Fraud – or – the US Attorney and others involved in law enforcement are serious about this wave of white collar crime. Either way, it seems that Ohio is talking a leading role in rooting out those involved in Mortgage Fraud.

Another Mortgage Fraud casualty is Steven C. Gittinger, who at age 50, pleaded guilty in United States District Court to one count of conspiracy to commit bank fraud and one count of money laundering for his participation in a mortgage fraud scheme.

According to a statement of facts filed with his guilty plea, Gittinger was a principal of Classic Title Agency, Inc. and helped close real estate sales. Between June 2003 and 2005, Gittinger received business and made money for performing closings of real estate sales. In 2003, Gittinger made various fraudulent representations on closing documents in which misrepresentations were made, then forwarded to financial institutions which funded loans for the property.

Gittinger agrees that for the purpose of the Sentencing Guidelines the amount of loss attributable to him is more than $400,000.00 but less than $1,000,000.00. Conspiracy to Commit Bank Fraud carries a maximum penalty of not more than thirty years imprisonment, a fine of up to $1,000,000 (or twice the gross gain to the defendant or loss of the victim. Money Laundering carries a maximum penalty of not more than ten years imprisonment, a fine of up to $250,000 (or twice the gross gain to the defendant or loss of the victim.

Since I jokingly mentioned Ohio as a hot spot…I decided as this was being written to verify if I was dreaming or has Ohio become a mortgage fraud “hot spot?” Interestingly enough with little effort the following was found on the FBI’s web site under mortgage fraud.

  • Analysis of available law enforcement and industry resources indicates that the top ten mortgage fraud areas are California, Florida, Georgia, Illinois, Indiana, Michigan, New York, Ohio, Texas, and Utah. Other areas significantly affected by mortgage fraud include Arizona, Colorado, Maryland, Minnesota, Missouri, Nevada, North Carolina, Tennessee, and Virginia. There is a strong correlation between mortgage fraud and loans which result in default and foreclosure.
  • Recent statistics suggest that escalating foreclosures provide criminals with the opportunity to exploit and defraud vulnerable homeowners seeking financial guidance. Perpetrators are exploiting the home equity line of credit (HELOC) application process to conduct mortgage fraud, check fraud, and potentially money laundering-related activity.
  • The FBI is proactively working with the mortgage industry in an effort to curb mortgage fraud crimes. The FBI signed a memorandum of agreement with the MBA to promote the FBI’s Mortgage Fraud Warning Notice.

Mortgage Fraud is defined as the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan.

As a mortgage fraud and white collar crime speaker, I receive many calls from people who either think they may have become involved in committing some form of mortgage fraud or who have been convicted and wonder what is next. There is a clear pattern that seems to emerge. Either, the people involved are clearly doing what they know is wrong for immediate and personal (ill gotten) gain, or they are pushing the system for the purchase of property and doing so with the help of professionals who know where the gray areas are and just how far to push it.

Remember, if you do anything that is inaccurate and do so for the express purpose of having a financial institution to make a loan based on your representations – you may be guilty of mortgage fraud.

If you think you’ve been a victim feel free to comment!

White Collar Crime Speaker – Chuck Gallagher – signing off…


West Virginia Dentist James E. Kirkpatrick, III Sentenced to Prison for Drug Fraud

May 10, 2008

Going to prison for drugs isn’t limited to “so called” drug dealers. An Ohio man was just sentenced to prison for his role in obtaining drugs illegally.

JAMES E. KIRKPATRICK III, DDS, 44, who resides in Belpre, Ohio, was sentenced to eight months in prison for fraudulently obtaining hydrocodone. KIRKPATRICK previously pled guilty in January 2008, to a one-count information. DR. KIRKPATRICK’S office is in Parkersburg, WV. He began practicing in West Virginia after losing his Ohio dental license.

Information related to his Ohio license is here.

The conviction is the result of an investigation conducted by the Drug Enforcement Administration and the Washington County, Ohio, Major Crimes Task Force. The investigation revealed that at least three patients received prescriptions for controlled substances from KIRKPATRICK and then gave some or all of the drugs back to KIRKPATRICK for his personal use. Pharmacy records indicate the patients received multiple prescriptions for controlled substances from KIRKPATRICK in 2006 and 2007.

At sentencing, DR. KIRKPATRICK apologized to one of the patients from whom he attempted to fraudulently obtain hydrocodone following his January 2008 plea of guilty in Federal Court.

Every choice has a consequence. Often, as a speaker, I share that statement with my audiences. But, what is also true is – behavior changes only when the consequences become so significant that you want behavior to change. While losing his Ohio license may not have been directly related to the drug charge that sent Kirkpatrick to prison, certainly prison will be another consequence that will change his life.

Perhaps upon his release, Kirkpatrick can use the experience in a positive way to benefit others.

For now, business ethics and white collar crime speaker – Chuck Gallagher – signing off…


Mortgage Fruad Nets Randall Aaron Davidson Ten Years In Federal Prison – Comments By Business Ethics Speaker Chuck Gallagher

March 30, 2008

You reap what you sow. This is a lesson I learned years ago when I stood before a judge and was sentenced to federal prison. I am not proud of my past or the choices I made to get the sentence I received, but one thing I learned clearly is – You reap what you sow.

prison-fence.jpg

Randall Aaron Davidson, age 58, of Fairborn, Ohio has now learned that as well as he was sentenced to 10 years imprisonment for his role in a conspiracy that defrauded real estate investors and banks of more than $20 million over a seven year period.

According to the US Attorney’s office, Davidson led a scheme that involved manipulating documents associated with real estate sales and closings in order to obtain excess mortgage loan proceeds generated from the property sales.

Mary J. Donaldson, Michael McWhirter, Jocelyn Hammond and others were charged along with Davidson in a 14-count indictment on September 14, 2005 with multiple felonies, including money laundering, conspiracy to commit money laundering, conspiracy to conduct fraudulent real
estate transactions, bankruptcy fraud, mail fraud, wire fraud, and falsifying loan applications. Davidson pleaded guilty on February 9, 2007 to one count of bankruptcy fraud and one count of conspiracy to commit money laundering, along with one count of income tax evasion charged in a separate bill of
information. Davidson instigated the mortgage fraud scheme in 1998, which continued until his arrest and indictment in 2005.

As is true in many federal cases, from the time of indictment and arrest to the time of sentencing, many years can pass. More about the crime from the US Attorney’s news release:

As leader of the conspiracy, Davidson owned and operated Capital Properties, Knab Mortgage, MJR Telecapital Investments, MTR Property Consultants, and Restoration, Inc. among others. Davidson recruited unsuspecting investors to purchase low income, dilapidated and depressed properties in the Dayton area at prices artificially inflated above legitimate fair-market values. The
mortgages were financed with fraudulent loans facilitated, brokered and closed by Davidson and his conspirators. The conspirators provided the down payments on the properties, paid kick backs to the loan applicants, and opened bank accounts to disguise the true nature, location, source, ownership and
control of the proceeds and profits from the transactions. Davidson also evaded payment of more than $359 thousand in taxes on his $1 million earnings in 2002. At the conclusion of his prison term, Davidson must serve five years on supervised release. He was also ordered to pay a money judgment of $13.1 million.

NOTE: As a speaker on business ethics and white collar crime, I often receive calls from people who have been scammed by activities much like have been reported above. In some cases “straw buyers” are recruited in unsuspecting ways. The call I received just last week reported that he (unnamed for privacy purposes) had been recruited to help out a neighbor – after all had been said and done, his kindness was rewarded by ruining his credit as he was effectively made a straw buyer for a mortgage fraud scheme. REMEMBER: if you don’t know everything that is taking place and why, don’t do it!

Timothy Pearson was charged in a separate bill of information for his role in the conspiracy. Pearson pleaded guilty on March 12, 2007 to one count of conspiracy to commit money laundering and two counts of attempting to evade of defeat federal income tax. According to the statement of facts filed in court, Pearson participated in approximately 365 fraudulent real estate closings, helping his co-conspirators obtain in excess of $13 million in the scheme. Pearson is scheduled for sentencing in April.

Now, you have to know that he’s sweating his sentencing since Davidson got 10 years!

Serving as the closing agent for many of the fraudulent real estate transactions, Jocelyn Hammond was charged in a separate bill of information with conspiracy to commit mail fraud, wire fraud and money laundering. Hammond pleaded to the charges against her on January 29, 2008 and is
scheduled for sentencing in May.

Likewise, I’m sure there’s concern after seeing a 10 year prison sentence imposed.

The victims in the conspiracy included more than 70 financial institutions located throughout the United States that were tricked into making loans in excess of the true market value of the homes, along with over 38 real estate investors who were left with overvalued, virtually uninhabitable rental property on which they owed more than the property was worth. The conspiracy involved the fraudulent closing and sale of over 350 residential properties, 300 of which were located in Montgomery County, Ohio.

Every choice has a consequence. As a white collar crime and business ethics speaker, I speak from first hand experience about the truth about consequences. Reality is – no one escapes the consequences of their choices. While Davidson and others may have looked good for a time and avoided the consequences – they did not avoid the consequences all together. Prison is no fun and Davidson is facing 10 years plus substantial restitution for his conviction. Likely he will serve time and that will prove to be a dramatic change from his prior activities. You do reap what you sow.

If anyone reading has any background on Davidson or was defrauded by him – feel free to comment as I study the behaviors and backgrounds of those convicted of white collar crime.

White Collar Crime Speaker – Chuck Gallagher – signing off…


MySpace Agrees To “Safer Space” Measures! Great Move Says Teen Ethics Speaker Chuck Gallagher

January 15, 2008

myspace.gif

MySpace, the huge social networking site that attracts millions of users announced Monday (January 14, 2008) that it will make changes designed to help prevent sexual predators from misusing the site. This was done with the agreement of more than 45 states.

According to an article from the Associated Press, the agreement was announced by various attorney generals from New York, North Carolina, Pennsylvania, Ohio and others. The article states:

Several states’ attorneys general said in a statement that the huge social networking Web site has agreed to add several protections and participate in a working group to develop new technologies, including a way to verify the ages of users. Other social networking sites will be invited to participate.

There have been well publicised issues with fraud, fake identification and a variety of inappropriate uses by those who would prey on our children. A clear example of issues that our youth can face was the 2006 web suicide reported in an earlier blog.

“The Internet can be a dangerous place for children and young adults, with sexual predators surfing social networking sites in search of potential victims and cyber bullies sending threatening and anonymous messages,” said New Jersey Attorney General Anne Milgram.

“We thank the attorneys general for a thoughtful and constructive conversation on Internet safety,” MySpace Chief Security Officer Hemanshu Nigam said in a written statement. “This is an industrywide challenge, and we must all work together to create a safer Internet.”

MySpace, which is owned by Rupert Murdoch’s News Corp., will also accept independent monitoring and changes the structure of its site.

MySpace agreed to the following changes (to name a few):

  • Parents can submit their children’s e-mail addresses to MySpace to prevent anyone from misusing the e-mail address to set up fake profiles
  • The default setting for 16 and 17 year olds will be marked “private”
  • Strengthen the software to identify underage users
  • Add more staff and resources to classify photos and discussion groups
  • Respond to complaints about inappropriate content within 72 hours
  • Create a high school section for users under 18 years of age

Social networking sites like MySpace and Facebook have come under intense scrutiny as it has almost become a playground for sexual predators. It has been reported that New York officials created (fake) profiles as 12 to 14 year olds and were quickly contacted by others who were seeking sex. This type of behavior has created the furor over making “cyberspace” a safer place to truly social network.

As a teen ethics speaker, I often find kids who will share interesting stories about the solicitations they have received from Facebook and MySpace. And, if they will share with me, then I know that I’ve only touched the tip of the iceberg. Teens are often open and venera

ble to attack as they have yet to develop the defense in knowing what is safe. I applaud MySpace on their actions thus far…

What do you think of the actions taken my MySpace thus far? What would you suggest as additional measures that MySpace could take to improve safety?