The Spanish-American philosopher George Santayana wrote that those who didn’t understand history were doomed to repeat it. Santayana taught the kinds of abstract lessons that I should have paid more attention to learning and comprehending when I studied at USC. I didn’t. Rather than truly learning valuable lessons from history and the life experiences of others, I memorized what I had to know to satisfy requirements for each course and moved on. For that myopia, and the bad judgment that followed, I continue to pay a price.
Consistent with Santayana’s written wisdom, the missed opportunities to learn from others doomed me to repeat history—and to suffer through the lasting consequences. My complicity in securities fraud took place in 2004. Yet it wasn’t until 2008 that my judicial proceedings concluded, and it wasn’t until 2009 that I walked out of prison. Leaving prison, however, would not conclude the enduring sting of the criminal justice system. Like Sisyphus rolling the boulder up the hill of Hades, only to have the rock roll down again, I would carry the burden of my conviction for a lifetime.
I was not the first person to succumb to temptations of greed and self-interest. Many people lived with similar weaknesses, but the choices others made would not excuse
my disregard for the values of good character that should have guided my decisions. Biblical writings, philosophers, and news reports provided infinite lessons I could have learned from. Despite such examples, I never envisioned the consequences for bad decisions that ensnared others as having any relationship to the privileged life I led. Many white-collar offenders I’ve since met expressed that same willful ignorance. As Shakespeare wrote some 400 years ago, it was a tangled web that we all wove.
My criminal action may have occurred in 2004, and my prison term may have ended in 2009, but I’m still caught in the web of my deceit. We live in a world where the decisions of our past—especially the bad decisions—stay with us. A Google search yields information about us that we’re incapable of burying. I’m constantly chagrined by my past. When I meet new people and they ask what I do, I won’t permit myself to hide through half-truths or lies. Instead, I brace myself for a new blow to my sense of self as I reveal my history of imprisonment and describe how I try to teach others what I learned from it; the blow may come with a look of shock, surprise, or disgust rather than a slap across the face, but the sting still feels the same.
I did not consider my gradual disregard for the importance of ethics as a conscience choice. It just happened. Despite ample evidence that was available through history and the consequences that others experienced, I couldn’t imagine my ethical slide leading to criminal actions. Since I couldn’t conceive of myself as a “criminal,” I certainly couldn’t envision the infinite numbers of collateral consequences that would accompany a felony conviction. Those were burdens that I mistakenly thought applied to others—not me.
When I returned to society after imprisonment I was in my mid-30s, eager to resume life as I had known it before my bad decisions created my mess. I quickly learned, however, that although I could learn to live with the stigma of my felony, I could never outrun it. Like a dark shadow, the felony always covered me. I’d meet a woman that I hoped to build a relationship with, and then the awkward moment would come when I’d have to reveal my criminal history, forcing her to carry the awkward burden as well. The humiliation would never end.
Besides imprisonment, my sanction required that I prostrate myself to a probation officer. I’d have to confer with him regularly, to seek his permission to travel outside of the Los Angeles area. I could not even disburse my resources in a manner that I saw fit without consulting him first. During my year away I incurred numerous expenses that only increased when I returned to society. When I received a windfall in the form of an income tax refund I hoped to pay off my debt. But I couldn’t make the decision on my own. Instead, I had an obligation to apprise my probation officer. We had a cordial relationship and when I told him of the unexpected check I received he applauded my honesty. Then he told me in no uncertain terms that he would take me back to court if I did not immediately surrender the entire check as a partial payment toward my six-figure restitution order.
Although resources were available for me to understand the consequences of an inattention to ethics, I choose to ignore them. Because of that choice I am doomed to live with the scarlet letter and ancillary effects that come with my felony conviction. I blame only myself for not paying more attention to the wisdom of history, or of learning more from others. And I don’t find any consolation in speaking with other white-collar offenders who tell me about unexpected troubles that eviscerated their lives because of their own disregard for ethical standards.
“I just never thought my decisions would come back to bite me like this,” Jason said. He sat across from me at a Starbucks in Santa Monica, hair disheveled, his coffee shaking in his hand. Lines etched his face and I noticed that he had missed several spots when shaving. Personal appearance lost relevance when fortunes reversed. “Now I’m not only a convicted felon, I’m also losing all of my assets through bankruptcy, my wife and I are both going to prison, and our two children will have to move to Arizona to live with their grandparents while my wife and I serve our sentences.”
“Why didn’t your wife come with you today,” I asked. “Don’t you think learning about the system she’s going into would have helped her as well?”
“She won’t even talk to me,” Jason reached for his handkerchief, removed his glasses and dabbed his eyes. “We’re sleeping in separate rooms. We’ve been together since college, 12 years and we built our business together, as a team, but she blames me for everything.”
“What’s her name?”
“Cindy. She’s an accountant, or I should say she was an accountant. Her lawyer said that the felony conviction would result in the loss of her license. We’re both going to have to start from scratch when our prison terms end. If we serve the entire seven years, we’ll be in our 40s, without any assets. I don’t know whether our marriage is going to survive the separation and disruption. I don’t know what will become of our children.”
“Although I’ve never been married, and I don’t have any children, I know what it’s like to lose everything.” I always empathize when I meet offenders who struggle with the criminal justice system. They frequently feel alone, desperate, and hopeless. I know that an understanding ear can help. “I lost my licenses to sell securities and real estate. My own uncle disowned me—he says that my felony conviction disgraced the family and that I deserve whatever comes to me. But you know what? Despite the difficulties, I’ve learned many lessons from the experience—lessons that I should’ve learned before. It’s never too late. On account of what I’ve learned, I know that my life gets better every day. Because of the lessons, when I do find a wife, I will be a better husband, and when I do have children, I’ll be a better father.”
“That’s probably easy to say now. Your prison term is behind you. My wife and I haven’t even started to serve ours, and if nothing changes, we’ll have to stay in there for seven years. That’s a lifetime. Our kids will be in high school. How can we keep our family bonds strong with this kind of stress? We shouldn’t even be going through this.”
“Seven years is a long sentence, I know, about seven times longer than what I served. And I don’t say this to diminish the challenges ahead, but as I did when I was inside, you’re going to meet people who have served much longer terms. You’ll also meet people who have served much shorter terms. What’s going to surprise you, I think, is that the real challenge isn’t the length of your sentence—but whether you create meaning from it.”
Jason stared blankly. “What’s that?” He leaned back in the booth. “I don’t follow.”
“You’ve got choices to make. The perspective you and your wife choose will determine how both of you emerge. If the only view you allow yourself is all of the losses that you’ve suffered, I worry that only misery will accompany you on the road ahead. For prisoners who cling to such negative views, every day feels like a month. Those who choose to learn from their experience, from the experience of others who’ve overcome the struggles of their own lives, they seem to work through much more positive adjustments. It’s a lesson I learned, and a lesson that I hope both you and your wife will consider.”
“How do you expect us to think about learning or meaning at a time like this?” Jason waved his hand away. “The government is tearing our family apart. The bankruptcy trustee will auction off our home. Our children’s lives are being uprooted. In a matter of weeks both Cindy and I will surrender to prisons—we don’t even know where. These aren’t hypotheticals. I don’t see how we have too many choices to make. The courts and government prosecutors have chosen everything for us.”
“The danger, Jason, is that you don’t recognize your perceptions as the greatest threat to your possibility for a positive adjustment. And although it may be difficult for you to perceive at this moment—when your entire world seems to be imploding—a negative adjustment would only bring greater instability to you and to your family.”
“It is what it is,” Jason told me. “I don’t see how I can look at what’s happening any differently. My family and I have lost everything.”
“You haven’t lost everything.”
“What do you mean?” He removed his glasses, wiped both the lenses with his napkin, then set them on the table between us.
“You still have your life, and you have the choice of what you will make of it going forward.”
“Well, that’s kind of obvious. Isn’t it?”
“I don’t think so,” I said. “At least it wasn’t for me before my experience with the prison system.”
He shook his head in disbelief. “So what are you saying, prison was good for you?”
“Tell me what you think,” I said. “When I graduated from college, I thought I had the golden ticket. Within a few months I was a stockbroker overseeing millions. But the pursuit of money drove me, influencing what I became as a person. Instead of living a life of honor and respectability, the choices I made conditioned me to lie and cheat. I would say and do anything to clinch a deal. My life didn’t have direction, or at least I didn’t pay attention to the signs. Wherever I looked, I saw men who were 25 years older than I was. They were unhealthy, on third and fourth marriages, and they had bad relationships with their children. Those who had a home couldn’t make it there after work without first stopping for a few drinks. I should’ve been learning from all the unhappiness and unfilled lives around me. Instead, I was following down the same path. I gained weight, I couldn’t nurture a relationship because I was too obsessed with work, I hurt the people that I loved. Those decisions—of leading a directionless life—led to my imprisonment, and it was there where I realized I had to make some changes. How about you? What kind of life have you been leading for the last 10 years?”
“Not much different, I suppose.” Jason spoke more softly, as if sinking, breaking. “I’ve been drinking a lot. My wife and I don’t get along as well as we should. Responsibilities at work have too frequently trumped my responsibilities as a father and husband. Part of the problem, I think, has been that Cindy and I work together. Our life has become all business.”
“Didn’t you say you were in the mortgage business?”
“We started out as mortgage brokers. That led us into the real estate business, and about five years ago we opened up a warehouse line and became mortgage bankers.”
“Sounds pretty well integrated, enabling you to earn fees and commissions at every stage of the transaction.”
“We had a good run until the market collapsed.” Jason became more confident when he spoke about the business he built.
“Did you really?” I asked.
“What do you mean?”
“Have a good run, as you said. I mean, look where it got you.”
“I meant we had a good run as far as the numbers we were posting.”
“But what good were those numbers if pursuing them caused use to lose everything you set out to build, and your freedom besides?”
“Well, if the financial markets hadn’t crashed, I wouldn’t be in this mess.”
“I thought you and your wife pleaded guilty to numerous counts of wire fraud and mail fraud?”
“We pleaded guilty because if we were to take the case to trial, our attorneys told us we could face sentences of 20 years or more. We just couldn’t take that chance.”
“But were you guilty? Did you commit mail fraud and wire fraud?”
Jason shrugged his shoulders. “I was a businessman. I didn’t even know what those terms meant. As far as I was concerned, we were taking advantage of opportunities to put people into homes. That was it. The government accused us of fraud because too many of our customers defaulted and went into foreclosure.”
Some of the offices that Jason and his wife operated, he told me, specialized in servicing people with poor credit ratings. Government prosecutors accused the husband-and-wife team of creating a business culture that rewarded agents and brokers to make real estate sales and issue mortgages to people they knew would default. Over a period of two years, more than 70 percent of the mortgage loans Jason’s company issued—and then sold to the secondary market—went into default, resulting in losses exceeding $20 million. Prosecutors cited his firm as an example of “predatory lenders,” who fraudulently coaxed unqualified and unsophisticated customers into purchases they didn’t understand and couldn’t afford.
“When I was a stockbroker,” I told Jason, “I made numerous decisions that I knew were unethical. My only concern was generating higher commissions. It doesn’t sound like the decisions you were making differed much. Am I reading you right?”
“That was the market,” he shrugged again. “We were just dealing with the hand we had, doing what was necessary to compete. If I didn’t serve those customers, one of my competitors was going to take the business.”
I told Jason that what I came to acknowledge about my decisions was that they were dishonest, deceitful. People were hurt because of choices I made. I wasn’t an honest stockbroker. My lack of professional integrity brought higher commissions for a while, but then the disaster followed, and not only for me. The choices I made caused pain for those who loved me, and for those whose trust was misplaced in me.
“How about you,” I asked. “How would you rate your truthfulness as a professional?”
“Look,” he leaned back, lifted his arms in a gesture of resignation, “I never represented myself to be a saint. I did what was required. Guy comes into one of my offices and says he wants to buy a house, my people would show him what he needed to do to close the deal. That was it. That was the service I provided.”
“May I ask a question?”
“Shoot. I’ve got nothing to hide.”
“When the government showed that your business practices contributed to losses of more than $20 million, did you feel any sense of responsibility?”
“I’m not my brother’s keeper,” he said. “A man should know what he’s getting himself into. If he can’t afford the payment, then he shouldn’t sign up for it. I don’t see why I should be held responsible for anyone else’s bad decisions. Caveat emptor.”
“But doesn’t that same principle of caveat emptor apply to business professionals? Should we also pay attention to what’s going on around us and accept responsibility for our own decisions?”
“Of course,” Jason said. “Caveat emptor applies to everyone. Let the buyer be aware.”
“Then you’re agreeing that we all bear responsibility to understand the business we’re in?”
Jason nodded his head. “That’s right.”
“Okay, then explain for me how not knowing about wire fraud or mail fraud should exempt you from responsibility?”
“I’m not a lawyer,” he said. “Those sound like legal terms.”
“Maybe you’re right,” I acknowledged. “I didn’t know what they meant before my own problems. But in your experience as a real estate professional—a money guy—did you know that your firm was helping people borrow money that they wouldn’t be able to repay?”
“Like I said, that wasn’t my concern. I was providing a service.”
“When seven out of every 10 borrowers defaulted, what did that tell you?”
“It told me that people made irresponsible decisions,” Jason admitted.
“So did you have an idea that your firm was arranging loans for a lot of people who wouldn’t be capable of repaying them?”
“Everyone was making those loans.”
“After arranging the loans, did you use the mail, the telephone, and the Internet to sell those loans to investors—even though you expected the borrowers to default?”
“You make it sound so insidious,” Jason told me. “It wasn’t as clear as all that.”
“But how would you characterize the business? Was it good, honest, and clean, or was it predicated on fraud—on loans that you didn’t expect people to repay?”
“The thing about it was that I never thought of it in terms you’re describing,” Jason said. “I didn’t set out to cheat anyone. The market existed. My wife and I built our business around it.”
“That’s exactly what I’m trying to help you see. Instead of relying upon strong ethical principles to guide our decisions, we sometimes allowed outside forces—like markets or careers—to blind us from doing what’s right. Before we know it, we’re enmeshed in deceit without even realizing the harm we cause. That’s what happened to me when I finally came to terms with my charges of securities fraud. I’m not judging you in any way. All that I’m trying to show is what I learned. The decisions we make today influence the lives we live tomorrow.”
Business people like Jason ignored the far-reaching consequences of their actions at their own peril. Although legal terms like wire fraud and mail fraud may not have been clearly understood, Jason did not dispute that the business he built with his wife was instrumental in issuing mortgage loans that that he expected to default. After collecting fees and commissions, he packaged those loans and sold them into secondary markets, knowing full well that investors would incur losses. He could appease his conscious with claims that he was only providing a service, but when the service was premised on deceit—such as creating pools of worthless debt that he would play a role in selling to investors—willful ignorance would not excuse him from the high and far-reaching costs of a criminal prosecution.
Like many white-collar offenders—including me—Jason had succumbed to temptation and greed. He didn’t fully understand the never-ending ways his actions would influence his life or the lives of others. Over the subsequent weeks that preceded his imprisonment I spent more than 20 hours with him and Cindy. Besides doing what I could to prepare them for the challenges ahead, we discussed the importance of honesty, of character, of embracing the concept that we each had a responsibility to work toward becoming better citizens. We could start by considering ethics as an essential part of our decision making process.
Chapter Fourteen Questions
- What role do ethics play in evaluating market opportunities?
- How does ethics relate to the concept of caveat emptor?
- How far should sales professionals go to apprise business partners or clients of risk?