Category Archives: Likeable Fraudster

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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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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Kerviel: The Sorcerer’s Apprentice?

Fraudster or non fraudster?

I normally concentrate on fraud perpetrated by executives but this exceptional story needs to have some of the research findings from my doctoral work (2010) applied to make some sense of the situation with accusations flying from all quarters.

Jerome Kerviel. Photo from:http://picses.eu/image/cd35ab46/

Kerviel‘s status qualifies in being a manager of resources and not people. The argument is that Kerviel cannot be a fraudster is that he received no monetary gain out of the massive transactions, although he would have gained a good bonus that year. The French tribunal ruled that this was not a case of fraud. But despite his seemingly altruistic motives of helping the bank to make money, he nevertheless nearly brought down Societe Generale in the process.

The case analysis and verdict.

Malevolent non-fraudsters as well as fraudsters lie. It is reported that he used fictitious emails and fake trades and lied to his senior managers about his losses. But was he a fraudster in fact?

The counter accusations are: that there is scepticism in the banking community that he did this on his own (in cahoots with other fraudsters); that he was a scapegoat for the bank’s own losses of the previous quarter (attributed fraudster) and that he has received cult status for having to put his career on the line as he was only doing his job of making money in the markets (non-fraudster).

From the information that is freely available on the internet, I have come to the conclusion that most likely Kerviel was an ‘Inferior Malevolent’ fraudster-in-the-making. This conclusion is based on:

  1. Kerviel was doing this rogue trading out of a sense of trying to impress his superiors
  2. He was quiet and introverted, and it is reported that he was liked by neighbours.
  3. “His father, who taught apprentices boilermaking in a local training centre, died less than a year ago.” (Jan 2008)
  4. He lost the woman whom he was going to marry about the same time.
  5. These two losses coincide with the beginning of his fictitious emails covering the trades
  6. He lived in a fantasy world where he existed as the Master Trader, duplicating massive amount of trades every 3 days as the losses grew.
  7. It takes a fair amount of time for this type of fraudster to develop; Kerviel’s activity was cut short after one year.

Although Kerviel did not profit directly from the trading at the point he was discovered it is my belief that he fits the profile of what respondents called in their interviews as the ‘Likeable’ fraudster. This type is quiet, friendly and liked by many. However, it takes a deep family crisis to erupt to spur them into the fraudulent activity and they see that the only way out was to gamble with their company’s money to feed his image of the successful trader. His only solution was gaining money in trades to offset his extremely low self image, and he used the bank’s money to do so.

Fraud investigators note: the Likeable Fraudster is the only type that fits with the Cressy Fraud Triangle (1973 Other people’s money: A study in the social psychology of embezzlement. Montclair, N.J.: Patterson-Smith.)

As a shocked neighbour who had known Kerviel since he was a baby reported: “The two things happening at the same time must have been why everything went wrong.” (2008)

The double losses were replicated in his trading, but this was NOT his intention, he wanted to impress his bosses with large earnings. He came from a different and lower echelon of French society – possibly his managers were seen as father figures to him. That of course is up to the psychologists to say and not my area of expertise. Likeable Fraudsters, are also noted in my research for becoming suicidal upon discovery, which is exactly what happened to young Jerome Kerviel.

It was with considerable luck that Societe Generale discovered the losses when they did, as he was unstoppable and would have continued literally until there was no money left in the bank but earning on the way very large bonuses.

Sorcerer’s Apprentice. Photo from: G.B. Ward’s website:http://brainrender.com/gallery/main.php?g2_itemId=353

It is quite clear that the Guardian Angel profiling (Sheridan 2010) would have picked up Kerviel before the major losses. The bank should have completed some pre-employment screening, however he came straight from University and had no work history. These applicants are typical of ones that slip through the normal background screening cracks, and Kerviel’s case demonstrates clearly that thorough screening must take place on an annual basis with key personnel, such as traders and financiers.

Under my assessment profiling, it would have been pointed out to senior management that Kerviel was at risk, and all that was needed was some spot audits on their part to verify and the whole scam would have unravelled.

It is now up to other banks to heed the lesson that Societe Generale learnt so painfully and nearly went broke in the process of Kerviel’s frenzied activity – just like Mickey Mouse did in the Fantasia version of the tale.

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‘Delusional’ Senior Accountant, Sonya Causer Stole $20M

From News.com.au website: By Michelle Draper  From: AAP August 19, 2010

“A Melbourne mother who fancied herself as a property guru embezzled almost $20 million from white goods retailer Clive Peeters in one of the largest thefts of its kind in Australia

Sonya Causer was a senior accountant at the head office when she withdrew more than $19 million from the company’s main account between 2007 and 2009 and used it to buy 44 properties.

Sonya Causer. Photo from: http://www.connectedaustralia.com/News/BreakingNews/tabid/119/ArticleId/3925/

Causer pleaded guilty to 24 counts of theft. Today Causer, was jailed for eight years. She also splashed $110,000 on two cars and a motorbike for herself and her husband, while $17,000 was spent on jewellery. But the majority of the funds were funneled into the properties, which Causer, 39, then leased out. In her police record of interview, Causer explained that she became obsessed with buying and selling real estate. “She said it was never about the money, rather it was about the negotiations and dealing with the real estate agents,” Prosecutor Peter Kidd told an earlier hearing.

In sentencing, Justice John Forrest said he accepted Causer suffered from a delusional disorder and regarded herself as a “property wizard”. He said Causer’s job pressures, marriage problems and the stress associated with raising two young children suffering from autism contributed to her fraud. “There was an element of depression generated by your circumstances which played a part in this delusion that you were a property guru,” Justice Forrest said. He said Causer’s theft contributed to the collapse of Clive Peeters, which was placed in administration in May, but was not the primary cause. [At the time Clive Peeters said its operating loss for the three months to March 31 was expected to be $4.5 million compared with a loss of $600,000 for the same period the previous year. The company employed 1300 staff members in 44 stores across Australia and was placed in administration.]

About $16 million of the misappropriated funds have been recovered, leaving a $3 million shortfall. Causer sold the family home to repay some of the stolen funds and had been living in rental accommodation, the court heard. Justice Forrest said while Causer pleaded guilty at the earliest opportunity, cooperated with police and helped recover the stolen funds, her crimes were sophisticated and involved a degree of planning.
“The scale of your embezzlement is significant. For a period of two years, month in month out, you grossly abused the trust of your employer,” he said. “From beginning to end this was a plan of some sophistication over a lengthy period.” Justice Forrest said it was necessary to send a message to all those in a position of trust handling large or small sums of money, that dishonest dealings with those funds must be punished significantly.

She must serve five years before being eligible for parole.”

COMMENTARY

This case is unfortunately a good example of the ‘Likeable Fraudster’, so named in my research (2010), of a particular type of fraudster who has difficulties in the past. They are like timebombs, ticking away to be  set off or detonated by present pressures.

Case study questions

Q. 1. Would you hire this type of person in your accounts department?

No? Well, this will appear as bit of a shock to you as someone did, AFTER Causer had been dismissed and charged for the 24 offences:

“It appears that Causer, who applied for a position as an accountant with the medical product company ITL, used the name Sonya Dollman and omitted the details of her employment with Clive Peeters. It was less than a fortnight ago that ITL CEO Brian Andrews became aware of her background and she was dismissed. Andrews told the media that she had breached company policy by not disclosing that she had been convicted of an offence (although at the time of applying, Causer hadn’t been convicted). Andrews added that he would now review the company’s hiring process.”           By Claire Moffat, http://www.connectedaustralia.com/News/BreakingNews/tabid/119/ArticleId/3925/Sonya-Causer-hired-again-as-accountant.aspx

Q.2 Does your company pre-screen employees as they enter your firm?

Find a good investigative background screening company who can check in-depth the previous employment of a candidate. We work with ORNA (www.orna.com.au) who provide us with accurate information about a person’s past. But we also do intensive screening for senior positions, (http://www.guardianangelexecutives.com). Sadly some screeners and HR departments only go as far as what is put in front of them in terms of names etc, but a thorough check, for instance of Causer’s residence and the electoral rolls, would have exposed her disguise.

Q. 3 Did you know that almost all of the fraudsters arrested in my study worked in different companies (and continued to defraud) while they were waiting for trial?

No? Well that’s the reason for pre-screening all candidates, as they do this and do not seem perturbed that they have been charged for fraud. Take background screening seriously and this risk will be reduced substantially. Use executive profiling for key personnel.

Q. 4 Did the company fail in its duty of care with a senior manager who was for 2 years displaying ‘odd’ behaviour?

After all, are we not charged as transformational managers to influence subordinates attitudes and assumptions and build commitment to the company’s mission and strategies? (Yukl, G., 1989. Managerial leadership: A review of theory and research. Journal of Management 15 (2): 251-289)?

I am not condoning her behaviour however the context of mother with two autistic children, drug addict husband plus senior management duties surely should have called someone’s attention to her plight? To take this argument further, read Martin Parker’s provocative article (Parker, M. 1998. Organisation, Community and Utopia. Studies in Cultures, Organizations & Societies 4 (1): 71-91) where he challenges that businesses who seemingly ‘care’ are creating delusional thoughts in their workers (false consciousness) in terms of their labour being respected and valued. If they do not truly care then this: “…means being against an unarguable collective good and standing for selfishness, individualism, fragmentation and the denial of common value.”

We are left with the final unanswered question that is based on business morality: Did the company Clive Peeters get what they deserved?

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