Carol Oswald- Don’t judge harshly

This case is very interesting from an EIM typology point of view. It would appear that Ms Oswald is a Likeable Fraudster. All the signs are there, the unstoppable gambling, wanting the big win so that she could “payback her loan”. In addition she is remorseful and owned up immediately when confronted with evidence. An Arrogant Fraudster would never do any of these things, and when confronted would insist on his/her story (despite it being obvious that it was untrue) or re-shaping a story to engender trust

carol oswald

(Image: bbc.co.uk)

Sadly Carol Oswald is now in prison. She normally lives in Scotland, is only 53 and her chances now of getting work are negligible after being freed. She has ruined her life and she knows it. And more that highly likely cannot understand why the heck she did it. One feature of the Likeable Fraudster is that they are an honest pillar of the community until one day her world changes when a previous trauma in her life – and being female this is highly likely to be sexual abuse as a child. Something happened to her 5 years ago when the only possible solution to her problem is to take a loan from the Post Office that she was managing.

Here is the story annotated from the BBC website (http://www.bbc.com/news/uk-scotland-tayside-central-35660571)

“Carol Oswald was told to pay almost £90,000 to the Post Office and more than £8,000 to the estate of one of her victims.

Oswald is serving 40 months in jail after she admitted embezzling more than £110,000 over five years.

The sub-post office manager embezzled the money to fund a gambling habit.

Sheriff Lindsay Foulis ordered confiscation of £100,000 Oswald had made from the proceeds of crime.

Position of trust

She was ordered to pay £89,573 to the Post Office, £8,059 to the executors of Jean Johnston’s estate, and £2,367 to Letham Climate Challenge.

Oswald also stole more than £8,000 from 81-year-old Jean Johnson, who trusted her to run the Post Office.

The 53-year-old previously admitted embezzling £100,000 from Letham Post Office between 1 January 2008 and 6 December 2012.

She further admitted embezzling £2,367 from Letham Climate Challenge while she was a trustee of the charity.” She was hand-picked by the local resident’s association when they formed the Letham Climate Challenge charity to help set it up as a registered charity pursuing green initiatives for the community.

“Oswald had been asked to set up a bank account for the charity but had not done so, and kept tax payments she was due to make on its sole employee’s behalf.”

The Judge’s words about her actions were that: “They resulted in very significant sums being misappropriated by yourself. The problem with people who embezzle is that they don’t think of anyone but themselves.”

From being a possible victim she is pilloried. The Sherriff (Scotland’s sheriffs deal with the vast majority of civil and criminal cases at first instance.)  took into account a criminal justice social work report on Oswald and still jailed her for 40 months.

And where is the justice in that?

 

 

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Kong Hee, charismatic or fraudster?

Photo: Straits Times

Photo: Straits Times, Kong Hee in the middle.

There has been some ruffled feathers in the City Harvest Church after their leader and founder has been found guilty of fraud 20th Nov 2015 in Singapore. He will serve 8 years in prison and has taken with him, 5 of his trusted followers. It all boils down to the question, did he use the Church’s money to fund his wife’s singing career illegally or not? The Judge was clear, it was an illegal use of church funds and handed down a harsh prison sentence on him. A rich man to live in a Singapore prison for 8 years is certainly a challenge, I understand that there is no air-conditioning or TV neither is there exercise more than 1 hour a day, there are no beds, inmates sleep on the floor.

Now the verdict has been handed down after a 2 year trial and review of thousands of files. As noted by the ABC news:

After a two-year trial that captivated Singapore with tales of lavish spending and financial deceit, pastor Kong Hee and five aides were found guilty of diverting $Sg24 million (A$24 million) to finance his wife Sun Ho’s music career, which was portrayed as a religious mission.

The six were also found guilty of misappropriating another $Sg26m from City Harvest Church to cover their tracks, prosecutors said. (http://tinyurl.com/poyswvo)

Now is the time to consider the question: is Kong Hee an Arrogant Fraudster or a Likeable Fraudster? And a very interesting case he is too. He is certainly liked by the thousands of churchgoers, but Likeable Fraudsters upon discovery confess to their wrongdoing and never plead ‘not guilty’. They also show a deep and real remorse, so deep that they consider that they are unworthy to live and commit or attempt to commit suicide. This too is missing in the news reports.

Kong Hee does say that he is sorry to his congregation, this was captured by mothership.sg on video.

I am so sorry for all the pain and the turmoil you have had to endure under my leadership, under my watch. You have had to answer questions, and criticisms from family, from friends, from colleagues. Pastor is so very sorry. So so sorry. That you have to endure through all these under my leadership. (http://mothership.sg/2015/10/here-was-how-kong-hee-said-sorry-to-the-city-harvest-church-congregation/)

But is this a real apology? Where is the admission of guilt? And what about saying sorry that the $26 million which has been spent, will be returned? Nothing. In fact, this is not a real apology. Reason why? He only apologises to the poor congregation who have been dragged through the limelight by the media. What does a real apology contain? Taking full responsibility of the wrongdoing! That it was wrong and it will never be done again.

In my view, what is happening with this apology is that the congregation was expecting a not guilty verdict and he had to do something to assuage their feelings yet stay in control. In other words, this is not the behaviour of a Likeable Fraudster. I am left with the conclusion that Kong Hee must be an Arrogant fraudster. This will be an unpopular decision with his congregation but not with the whistle-blowers, Chew Eng Han, who was the person who thought up the scheme of how to siphon off funds, and Roland Poon Swee Kay, who blew the whistle on Kong Hee’s behaviour – 12 years ago, and I gather most of the Singaporean community.

And to rub salt into the wounds of the congregation, the acting Pastor ends the apology speech with this.

Thank you Church, I just want to collect God’s tithes and offering. I want to thank you for your love for City Harvest Church… you see there is an envelope that look like this, I want you to just take it out, and put your offering inside, and you can, if you are making a cheque make it payable to ‘City Harvest Church’, I want to encourage you to fulfill your tithe, your building fund. Thank you for your giving, thank you for your love towards City Harvest Church. God loves you, let’s give with a big wide smile. Amen? Praise God. (ibid.)

Photo: Straits Times

Photo: Straits Times

Interestingly Kong Hee has put his penthouse apartment up for sale in July of this year, for Sg$10,000,000. But nothing is mentioned about where the proceeds will go. Kong Hee has been reported to have knocked back offers. It is a jointly financed deal with an Indonesian developer Wahju Hanafi.

A Likeable Fraudster would have accepted anything and repay the debt owed, even though it is far less than was misappropriated.

One thing that I have learnt from this case is that the Arrogant Fraudsters Executive Impression Management can hold tremendous power over many people and rely on their stunning image of success that has worked for them for years, to use again for the future.

Amen.

 

 

 

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Tesco’s oversight, or undersight…

Dear Mr Lewis

I am writing this blog to you and others who become victims of managerial fraud. It is yet to be decided if the Tesco £250 million profit shortfall is a fraudulent act, but financial oversight can hardly be the case with such high calibre executives. However, you with many other CEOs are at a loss as to what happened.

Assuming that you are a CEO who wants Tesco to survive and grow as a retailer, you will have a better chance of selecting good executives. From my research we can now identify, via the managers’ social interaction with co-workers: The Arrogant Fraudster, The Likeable Fraudster, the Tyrant manager and the Mediocre manager who all share a malevolent attitude to others and use organisations for their own needs. I have also discovered the Respectful manager who is consistent, benign, is self-aware, and shares a sense of equality and hard work with others.

The tried and trusted auditing Red Flags did not prevent the ‘accounting error’ as it was already used by your auditors in each audit, but Executive Impression Management could by selecting better managers who are not prone to deceit.

You already have an investigation underway to discover the culprits, I sincerely trust they will be prosecuted once they are identified as such. My research shows that fraudsters who are simply dismissed, tend to repeat their behaviour in future employments.

I have also found that co-workers to those who are guilty of this type of deceptive behaviour, have a tendency to leave their employer within 6 months of the fraud being discovered. Their confidence in management will have been severely undermined and in many cases they will have been very badly treated by those in authority. I recommend you arrange expert counselling for those who worked closely with the culprits as many will be preparing to leave. These people will have their foundation of trust blown apart and most likely need remedies to offset covert or open bullying and abuse.

Yours truly,

Terry Sheridan

P.S. You have of course protected the whistle-blower from emotional abuse and blackmail? Unfortunately because they have a moral compass and use it, whistle-blowers have difficult outcomes with losing their jobs, subsequent family dysfunction, depression and long-term unemployment.

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Peregrine crashes and Wasendorf gets 50 years

Today Russell Wasendorf Sr has been jailed for 50 years, essentially receiving a life sentence. Even with a sentence cut for good behaviour he would be at least 106 yrs old before he would be set free. He is convicted of defrauding over 13,000 customers of at least $200M through his Peregrine Financial Group, a finance brokerage based in Iowa, USA. The story about Peregrine is the oft quoted basement start and finally reaching the peaks of financial stardom with riches untold through hard work. The bare facts mark the rise of Wasendorf’s climb to the top.

Factual history

Peregrine Falcon. Image: Wikipedia

Peregrine Falcon. Image: Wikipedia

Russell Wassendorf was born in 1948 in Iowa.

In 1969 he married his first wife and had a son, Russell Wasendorf Jr., but it ended in divorce fairly quickly.

At school he loved acting and at university he developed film making skills and later produced a winning documentary film on soybeans.

He married his second wife in 1976 but this too ended in divorce.

He then worked in a local futures commodities magazine firm producing promotional videos.

1980 he established his own competing futures local commodities magazine at the rear of a barber shop in his home town of Cedar Falls, Iowa. A year later his business was growing and by 1985 he bought a small brokerage in futures trading for local farmers. He forecast the stockmarket crash of 1987 and saved clients who listened to him from ruin in doing so. By the early 1990s he had moved office into the Chicago heartland of stock trading, a short stroll from the Chicago Board of Trade. Client funds under his control were about $2 million at the time, but shortly after he opened Peregrine Financial Group (PFGBest) in 1992, the defrauding began. He created a ponzi scheme with incoming client funds paying off other clients dividends and so on. By 1993 an investigator from the Commodity Futures Trading Commission had found irregularities, he ordered 6 more audits and it put Peregrine at risk.

Wasendorf’s inevitable financial ruin was delayed by some remarkably stupid decisions of the National Futures Association by off-loading clients of one troubled brokerage to another. In doing so they turned a blind eye to the irregularities and added fresh funds into his cash flow to keep the wolves at bay. Only a year later the NFA fined Peregrine for false advertising and also for not keeping proper accounts of clients’ money. This was settled by paying a $75,000 fine to the NFA and the wolves kept quiet. So quiet that Peregrine was able to do this twice more of receiving life-saving accounts from other troubled brokerages.

In 1998 Wassndorf invited his son to join him in the Peregrine Group to implement an online trading system. His son eventually became President of PFGBest while his father tried all sorts of schemes to stay afloat. One of the schemes did pay off and brought in much needed funds. Peregrine rose to become one of the top ten of brokerages in terms of funds administered – cited at over $200M by 2006. After he had committed to building a large head quarters in his home town – Cedar Falls, Iowa, the crash happened with the impact of the Global Financial Crisis.

On the 9th July 2012, Wasendorf Sr., tried to commit suicide outside of his headquarters in Cedar Falls. He failed but his suicide note alerted authorities and the ensuing evidence led to his trial and sentence of 50 years imprisonment.

An Arrogant Fraudster?

My curiosity was raised by the conflicting reports about Russell Wasendorf Sr, he seemed to be painted as a Bernie Madoff – having the luxurious lifestyle, the jet, the flash headquarters, the fact that he joined one of the advisory boards of his regulators, -Madoff became the Chair of his regulator, a son who was in the business and genuinely shocked receiving the news about his fraudster father. Millions of dollars were spent on a lavish lifestyle, corporate contributions to charities and so on. The similarities are striking. But my intuition and research tells me otherwise.

It is my belief that Wasendorf (Sr., unless noted otherwise) is far from being an Arrogant Fraudster but a Likeable Fraudster. Madoff fits the profile of an Arrogant Fraudster, whereas Wasendorf does not.

A Very Likeable Fraudster

The Likeable Fraudster is someone who uses organisational funds for his own use to build up his image for the most important people in his life.  These people would include a spouse or a parent.

Russ Wassendorf Sr. Photo:Linn County Jail

Russ Wassendorf Sr. Photo:Linn County Jail

Behind the eyes of a convincing executive is a severely wounded child. Possibly we will never know of the wounds, how they were incurred, or when. But there are identifying events that indicate a wounded psyche: many marriages and subsequent divorces, family breakdown, overwhelming drive to be seen to be good in his home town. A Reuters article captures the behind the scenes Wasendorf:

“Less known were the personal tensions he faced, including a split with a brother, two divorces, a last-minute mystery wedding in Las Vegas and seething resentment against establishment rivals in Chicago. His pastor says Wasendorf knew his ruse was doomed several years before it unraveled. A rift emerged with his only son, Russ Jr., who warned the Iowa shift was an expensive folly – and prepared this summer to move to Australia.”

(By P.J. Huffstutter, Ann Saphir, Tom Polansek and David Sheppard, Sep 24, 2012, Reuters)

I am always drawn to the childhood of fraudsters to see if there are any clues to what trauma the fraudster faced. Certainly his family were impoverished to the point of being homeless, as Wasendorf’s christian names are of a local Pastor and his son who took the family in and gave them an attic to live in about the time when he was born. By the time Wasendorf was 5 years old, his father, a foreman at a meatpacking company, was dead. His widowed mother Ida, had to look after the four children on her own. A church-going woman, his mother married Norval Brunkin in 1975, when Wasendorf was 27. It was unlikely that there was no apparent stepfather when he grew up. But a more telling fact is her occupation: After 15 years as  a test radio repair operator retiring in 1969, when Wasendorf was 21, she became a stockbroker, says her obituary.

Her youngest child obviously admired and emulated her by following her footsteps by using his natural gifts of persuasion and media skills into the local securities industry. There is no hint of fraud or dysfunction until much later in life. Why would a young man pursue the same occupation as his mother? It would be very likely that he would have been close to her and having no father she would have set as a role model for him. His older brother Lewis was estranged from Wasendorf, so there has to be some prior dysfunctional relationship of some sort. However, there are no reports of Wasendorf making himself superior to others, his greatest need was to be good at his profession and be the ‘home town boy’ who made good, sharing his wealth with local charities and his university. Undoubtedly the grinding poverty in the early 1950s would have been highly stressful as well as the loss of his father. There are pointers that the Wasendorfs were not a straight forward family.

  • His father being a foreman of a meat packing factory and yet homeless.
  • His brother’s blatant disaffection and expressed dissatisfaction of life choices to his wealthy younger brother.

What I have found in my research is that Likeable Fraudsters have an overwhelming need for them to look successful with all the trappings. There is an underlying drive to endure that this is the case. The motivation for fraud comes out of severe stress. His mother died in 1990 after a short illness. He loved his mother very much, he mentions her (but not his father) to his new wife in his suicide note. The grief of losing his 76 year-old mother suddenly that 1990 summer would have been overwhelming. There is no mention of any prior illness in the Death notice.  It is my intuition that it is the grief that rocked him to the core, and a business audit tipped the balance and he begins to defraud in 1992-3.

Wasendorf himself admits that a 1992 investigation  with a resulting 6 audits by the Commodity Futures Trading Commission was his crisis point:

“I had no access to additional capital and I was forced into a difficult decision: Should I go out of business or cheat?” his [suicide] letter states. “I guess my ego was too big to admit failure. So I cheated, I falsified the very core of the financial documents of PFG, the Bank Statements.”

It is that point that he was pushed into using other people’s money for his own, to keep up the image that he was building himself. Yet the facade was only his latest move creating Peregrine Financial Group. If he had stayed a small town broker it would have unlikely that the fraud would not have happened. But there again, he could NOT be a small town broker. He had to be an uptown flash broker, which he wasn’t, and he had a seething hatred for the Chicago brokers who, in his view belittled him.

Not being a psychiatrist, but used to seeing these types of profiles, it is my guess that the real hatred was against his father and other older males, including his older brother. This is more than feeling angry on missing out on a father in his childhood. He was made to feel small and useless by a living person not a dead one. Very likely there was physical abuse and certainly emotional abuse in his childhood, as his reaction later in life is typical of those who are made to feel impotent as a child.

Wasendorf shows a primitive response by blaming others for his action. His outrage by the treatment he received from the investigator and the Chicago establishment caused him, in his own mind to defraud. He states categorically in his suicide notes that he had no option.

Yet he did have an option, and that is to face the fact that he was a good salesman, but not a funds manager. His traumatic childhood had set him on a path to prove himself that he was worthy of a lifestyle of the rich and famous. Whoever or whatever instilled in him as a child that he was unworthy, poor and trash, is the real perpetrator of the fraud. Someone, somewhere, in the 1950s, set the time bomb that was later detonated in 1992-3 by the death of his mother and the investigator’s determination to find administrative errors.

What is remarkable is that his suicide attempt was in 2012, he kept up the pretence for over 20 years. He must have been strong as an ox to do that, convincing his wives and son as well as the community that he was not doing any harm to anyone.

The suicide attempt was real and he had prepared for his death over a number of weeks. He married his third wife and made a will that she would inherit everything. He wrote notes to his son and new wife explaining what he did and why. He wrote that he had done it deliberately and why, taking responsibility for falsifying bank statements and so on. He apologised for his actions, and was remorseful about what he had done.

This is exactly the pattern of the Likeable Fraudster when close to being found out, or when the tension becomes unbearable, they will give themselves up OR commit suicide.

Far from being a Bernie Madoff, Wasendorf deserves our compassion and the 50 year sentence for his folly. He has lost absolutely everything.

Whoever belittled him in his childhood

is the real criminal.

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Gary Foster: Not the only person who is blind

Gary Foster surprised the fraud investigation community when it was revealed that he had stolen in excess of $19M over a seven year period in the Treasury Department of Citi Group. He held the post of Vice President and at 35 years old was seen as a good worker having already given 11 years of service to the Group. He has pleaded guilty in September 2011, is out on bail and faces a sentence up to 30 years.

Gary is legally blind and needed a chauffeur for him to drive it was explained. The money went on lavish mansions, cars and outlandish decoration of his apartment. His now ex-wife, Joan Foster said that she did not benefit from any of the money. They have two children of unknown age, who are now experiencing a family break up which in itself must be painful, let alone knowing that their Dad is going to jail.

There are several points that come to mind. Where was the bank in assisting this individual when he had an

Blind leading the blind...

internal or family crisis that must have precipitated in 2003 when the embezzlement started? The amounts grew significantly in the last 18 months and this would have been in parallel to the exacerbation life’s stress. How can I say this with confidence?

Gary Foster’s case is a classic Likeable Fraudster. He did not start embezzling until a few years into his job. He handed himself in returning from Thailand. He could have easily disappeared from Bangkok and live a life in tropical paradises around the world, but as most Likeable Fraudsters, when they realised they are caught they return for their punishment. He pleaded guilty to the offences. There was no plea bargaining to mitigate prison sentencing, and only leniency by the judge will lower his time in prison. Foster is likely to show considerable remorse at sentencing, if not already – however this has not been reported in the media.

Likeable Fraudsters are detectable using emotive profiling techniques and Citi Group could have used this to have prevented the fraud in the first place or stop it from escalating which happened in the last 18 months when  a reported $14M was transferred into his accounts. Citi Group however relied upon internal controls and finally internal auditing. These tools are spruiked by accountants, and of course any company would be insane if these were not in place. However, they do not stop fraud from starting, especially frauds conducted by executives such as Foster. Once the embezzlement begins there is no stopping until the Likeable Fraudsters give themselves up. If an annual screening process had been in place the fraud would have most likely have been discovered when only a few thousand of dollars were missing.

Who is really the blind here? Gary Foster is legally so, Citi Group like many other corporates equally so.

They fail to understand that those key personnel with access to large sums of money are at risk. It takes great breadth and depth of character to resist the daily temptation of accessing the pool for their own gain. Of course it requires intelligence to pull off such a fraud over a long period of time, but that would be a common characteristic of these personnel to attain their executive roles.

The other warning that I would give Citi Group is that Foster’s fellow workers will feel a breakdown of trust and need – that is, should be compelled, to have counselling as a basis of continued employment as this fundamental aspect of the workplace will have repercussions far beyond the missing money. Citi Group has much more to lose than money – it will likely lose key staff with Foster’s imprisonment.

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Andy Fastow: A Smartest Arrogant Fraudster in the Room about to be released

Mr Fastow of Enron fame, jailed for 10 years and forfeiting $23.8M in assets in 2006 is about to be released from prison next month. The date is anticipated is the 17thDec 2011, after serving most of his time in a low-security prison and more recently a halfway house prior to his release.

Originally faced with a maximum of 140 years in jail, he received lenient sentencing thanks to some good plea-bargaining based on informing on his colleagues (notably Kenneth Lay and Jeff Skilling) at Enron.

Interestingly, Fastow was the only executive fired by the Enron Board just days prior to the collapse due to the Board finding out that he made $45M for himself in his off balance sheet deals. Apparently the Board thought his financial wizardry as excessive. So not only has he been able to receive a lighter sentence he gets to keep at least $20M of his fraudulently obtained money.

From what I have researched in the media it would seem that Andy Fastow would fit the type of Arrogant Fraudster.  It was said about him long ago that his critics:

‘…labeled him ”fast Andy” and the ”Betty Crocker of cooked books.” People who grew up with him judged him as extremely ambitious and recall how he quarreled with high school teachers over his grades.

Former Enron colleagues have called him prickly and a bully. They say that during angry bouts, he was known to leave profanity-laced messages on the voice mail of colleagues.

He could also be charming and generous, former colleagues said. (reported by David Barboza, 2002). His drive for power was noted very early on in school with these comments:

”High school politics wasn’t a big deal at our school but it was a big deal to him,” said Mark Liss, a classmate at New Providence High who beat him in a race for class president. ”I remember how depressed he was; student government meant everything to him.”

A year later, Andy Fastow was elected president of the student council…. Dwight Boud, [his English teacher] described Andy Fastow as a ”wheeler-dealer” who even negotiated to get his grades changed. (Barboza, 2002). He married an heiress to a large fortune in 1985, which gave him a platform to meet wealthy and influential individuals and was head hunted by an executive recruiter (nameless unfortunately), as one of Jeff Skilling’s first recruits. He became the mastermind behind the schemes that defrauded millions of dollars out of Enron into the pockets of Enron executives, including his own.

Apparently he was able to show convincing signs of remorse to the trial judge and this assisted in his lower sentence.

From the findings of the Arrogant Fraudster type there are indeed some parallels with corporate psychopathy. Lack of remorse is seen as one of those characteristics, however I found in my research that they tended used remorse at trial to reduce their sentences. Most times the judges in the cases would see through the mitigation attempts by the fraudster and it would be remarked upon in their judgements that the ploy did not work.

So it could still be argued that Fastow demonstrated signs of being a corporate psychopath by being able to persuade an experienced trial judge such as Ken Hoyt the US District Judge in attendance at the trial, despite the remorse shown.

The ability to charm people is one of the noted characteristics of psychopaths, even fooling Robert D. Hare the well-known psychologist who has studied imprisoned psychopaths for over 30 years who admits that even he has had the wool pulled over his eyes. This uncanny ability to charm is how the individual is able to succeed in pulling off frauds of this magnitude. Anyone else would fall apart with keeping up the charm, but not Mr Fastow, he managed to beam the charm to the right quarters for 11 years at Enron and this is despite the constant cry that his efforts to keep Enron afloat went unrecognised.

Fastow was part of the Enron dream team of the smartest guys in the room, Skilling may have had the vision, but it was Fastow who admitted giving them the means to implement the vision.

Psychopaths do not change, their unrelenting behaviour is meant to be able to be harnessed (Snakes in Suits) with their immense energy put into side projects. This may happen to Andy Fastow upon his release, that he may undertake projects that he feels will be satisfying. However, generally such satisfaction is grounded in their own needs being fulfilled and with a psychopath it is the need of power over others. Certainly the Arrogant Fraudsters in my research went on to repeat their offending behaviour even while on bail, convincing new employers that they were much maligned.

The outlook for Fastow would seem to be the same pathway as before, set in his early days of seeking power, perhaps it will be moderated to some degree, but more likely that we will be hearing more about Andy Fastow after his release. As they say in the media, “Watch this space…” it will be very interesting to see how this Arrogant Fraudster develops after his stint in prison.

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Fraudster Lee Farkas gets 30 years for “doing nothing wrong”

A 30 year sentence – the maximum sentence allowed for fraud has been meted out to Lee Farkas who defrauded the US government funds of about $3.5 billion (TARP program of  $550,000 and the Federal Housing Authority of the rest).

Photo: Marion County, Fla via bloomberg.com

For those who don’t know, Farkas was Chairman of Taylor Bean and Whitaker Mortgage Corp based in Florida, US. And was one of the contributors of the GFC crisis in 2009 bringing down Colonial Bank, the 6th largest US bank in the process.

‘Farkas used Taylor Bean as his own “personal piggy-bank” and stole more than $30 million from the company he built to buy homes, cars, airplanes, restaurants and other side businesses, said Assistant U.S. Attorney Charles Connolly during closing arguments.’

With the verdict, prosecutors were keen to seize valuable properties and cars as well as a jet. These were already hidden under friends’ names, but it will be unlikely to stop the seizure as well as the fine of $38 million that is set by the Court.

Farkas hid shortfalls by shifting money in between accounts from the end of 2007 to 2009, first of all internally then later externally to the Colonial Bank, the shortfalls spun out from half a million dollars to nearly three billion. Farkas and his co-conspirators known as Plan B also defrauded the US government of funds which were diverted elsewhere. In Project Squirrel Farkas took $50 million for his own benefit and poured money into his own separate businesses.

Interestingly, throughout the trial and in 5 hours of testimony, Farkas insisted that he did nothing wrong. There was no showing of remorse or even regret for what he had done. No statements whatsoever. This was remarked upon by the trial Judge:

I do not detect one bit of actual remorse,” Judge Leonie M. Brinkema told Mr. Farkas in a federal courtroom in Alexandria, Va., on Thursday. “You regret getting caught.”

In my research I found a type of executive fraudster which was named by respondents as Arrogant who showed no remorse. Although the Arrogant Fraudster characteristics were typical of psychopathy there was no definitive link found in the interviews with co-workers.

One of the most telling indicators of psychopathy is the lack of remorse and is used in Robert D. Hare’s list – the gold standard of detecting psychopaths. Another indicator of psychopathy is ‘grandiose sense of self’. Farkas awarded himself large bonuses and salary appears to indicate this together with the purchasing of boy’s toys such as the personal jet and expensive rare cars, plus business ventures and several homes.

Unfortunately even after a substantive amount of research, there is little evidence prior to the bankruptcy and fraud charges that is known about Farkas. The only bit of evidence that is a bit odd that strikes me as being also indicative of an Arrogant Fraudster is the fact that he hired Stuart Scott within two weeks of being fired by Microsoft. Scott was CIO of this vast corporation and then was suddenly, and very publicly fired – something that is rare in business today. Microsoft only states that he was fired due to violations of company policies. A quote at the time reveals why Scott may have been so appealing to Farkas:

“Stuart’s credentials are impressive,” Farkas said in a statement. “Having someone of his caliber join us further solidifies our ability to deliver innovative technology solutions.” It was by using these innovative technologies that Taylor Bean and Whitaker were able to do cross deals with other banks. This is not to say that Scott is a fraudster, far from it, Scott that he would have been used as a vehicle for this type of dealing.

Sweet-talking and using people are another mark of the psychopath/Arrogant Fraudster type as they use people ruthlessly to meet their own ends. Being labeled as a philanthropist in the local community for instance is no testament to the real person underneath the mask.

Tragically, Lee Farkas and his sister Terri Huber lost their parents at a very young age (WSJ June 2011), I have no other details to go by on the effect that this trauma must have had on their lives. Becoming an orphan does not mean that the individual is destined to be a fraudster, however, Post Traumatic Stress Disorder can disrupt normal behaviour patterns for the rest of his or her life. In addition, there is evidence to support that the loss of maternal attachment at a young age results in a higher proportion of adults in jails and psychiatric wards (see the adoption literature).

However, the most telling indicator is the lack of remorse. The other alternative type of Fraudster I found in my research is the Likeable Fraudster, but once their fraudulent behaviour is discovered they are extremely quick to show true and overwhelming remorse – to the point of wanting to commit suicide. On the contrary, Farkas has been sending out letters to the media via his sister protesting his innocence since he has been in jail. He sees himself as a scapegoat of the US government and nothing less than a CEO who held the reins of a successful mortgage company during the tumultuous GFC crisis. This is not the mark of a Likeable Fraudster.

In the absence of other evidence, my conclusion that Farkas, now in jail for 30 years, is very likely of the Arrogant Fraudster type and could possibly be psychopathic as well. We do know that there is a far greater proportion of psychopaths in management than in the general population and selection committees and executive recruiters like the charm and the ‘results driven’ résumé that such people would possess.

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