Joshua contacted me after searching for information on the Web that would help him understand what to expect in federal prison. Like most white-collar offenders, he never envisioned the possibility that he would encounter problems with the law.
“I’ve never known anyone who has even been arrested,” Joshua told me. As the chief financial officer, for a subsidiary of a business with revenues in excess of $1 billion Joshua’s social circle did not include any felons. Yet decisions he had made meant that Joshua would soon share all of his meals, his living quarters, and his showers with hundreds of convicted felons for a term of 21 months.
“Can you tell me about yourself,” I asked. “Where are you from, what is your educational background, what are your interests?” When advising offenders who contact me, I’ve found that the more they revealed about their lifestyle and interests, the better I could advise them on steps they could take to make the most of challenging predicaments. I took notes as Joshua opened up.
“I’m 45 years old and I grew up in Chicago,” Joshua said. “I come from a family of Jewish faith.”
“I’m a member of tribe too,” I said. “Were you observant?”
“We attended weekly services and observed the rituals while I was growing up, “ he told me. “I’m from an orthodox family and we were devout participants in our community. Once I began college I drifted away from the faith, and over time I became more of a secular Jew than one who practiced religion.”
“I’m the same, more secular than religious,” I said. Where did you go to school?”
“I went to Northwestern.”
“And I presume you studied accounting?”
“That’s right. I stayed on to earn an MBA, and I graduated in 1990.”
“Did you always aspire to pursue a career in business?”
“Well, my father was a lawyer. As a young man I thought about law. But during my undergraduate years I launched a small business installing home sprinkler systems. That sidetracked me. I took a few years off to run the business and I pulled down a decent income. A friend I respected advised that I should return to school and earn my degree. When I did I took up accounting and stuck with it.”
“How about after graduation,” I inquired. “Did you return to your business?”
“No, by then I wanted to pursue my CPA credentials, and to qualify I needed real world experience. I accepted a position with Arthur Anderson, which was one of the “big six” accounting firms. During the first four years of my career I honed my skills by providing auditing and tax services for large corporations.”
“Were you aspiring to build a permanent career with Arthur Anderson?”
“I’d say I was open to the possibility, but I was also open to considering other options,” Joshua told me. “I worked closely with the CFO’s of businesses I was auditing, and when one of them offered me a position as a controller, I accepted.”
“What kind of business?”
“It was a large resort, a great job with excellent perks.”
“Is that where you stayed?”
“For a few years. I was well compensated and enjoyed the laid back schedule, but I was in my early 40s and ambitious. I could see that another decade would pass before the CFO position opened, and I didn’t want to wait that long. When another company offered me a CFO position, I accepted.”
“And what kind of business was that?”
“We were government contractors, providing hospitality services.”
“What size of company was it?”
“The company’s overall revenues were $1.2 billion. I was hired with a three-year contract to serve as CFO of a subsidiary of the company, one with $60 million in revenues.”
As a government contractor, Joshua explained to me that his company bid to provide services in various parts of the world for the U.S. Government. The contracts required the company to manage food and leisure operations for the military in such remote locations as Guam, Africa, India, even Antarctica. Joshua said that he signed on to lead the subsidiary as CFO, but upon reporting, he was expected to perform as not only the CFO, but also assume duties that would ordinarily be assigned to a chief operating officer.
“What type of responsibilities did you have?” I asked.
“As CFO, my duties were to oversee and analyze cash flow, budgeting, accounting operations, and so forth. But the subsidiary was losing money, $2 million a year. In order to ensure its continuity, I would have to take action to turn things around.
“Like what?”
“Like traveling to every location around the world where we had contract. I’d have to evaluate operations, renegotiate contracts, preside over employment changes that included massive layoffs to bring down labor costs.”
“Were you compensated for those additional responsibilities?”
“My contract as CFO provided a salary of $200K, and my bonus would bump it up another $100K. That was decent money, but to earn it I’d have to implement changes that would make the company profitable. In turning the subsidiary profitable, I’d also advance my career.”
“So you knew what to expect from accepting the additional responsibilities?”
“Not exactly.”
“What do you mean?”
“I didn’t fully grasp the havoc the job would bring to my personal life.”
Joshua was in his early 40s when he accepted the CFO position. He had never been married, but he was in a committed relationship with a woman and he looked forward to starting a family with her. The couple moved in together after he accepted the new job. In accepting the CFO position, Joshua didn’t anticipate the tolls of extensive travel. Yet in order to reverse the subsidiary’s fortunes, Joshua said that he spent more than three weeks of every month traveling. Within six months, his fiancé moved on. He tried to hold the relationship together, but the separation was too much for her to bear, Joshua said, and he understood her feelings. Breaking his employment contract wasn’t a viable option to him because it would have derailed his career. The breakup brought him stress, and as I listened to Joshua tell me his story, I detected the first prong of the fraud triangle: pressure.
“So how did you respond to the stress that came with the loss of your relationship?” I asked Joshua to continue telling me his story.
“I immersed myself in work,” he said. I’ve always been a workaholic. With my expanded responsibilities—and no home life to speak of—I lived on continuous company business. Always traveling. Over the next two years I took 120 trips. My life was a whirlwind of hotels and airplanes. The work succeeded in turning the subsidiary profitable, but in the process it ruined my life.”
“How so?”
“Well, I’ve been sentenced to prison. The crime ended up costing me the loss of a $300K income, more than $200K in legal fees, and the humiliation I’m going to live with for the rest of my life.”
“I don’t want to diminish the anxiety you’re going through,” I tried to assuage Joshua’s worries, “but this setback isn’t going to ruin your life. I can help you with some strategies that will put the setback in its proper perspective, possibly even help you emerge from the experience stronger. Before we get into that, tell me what happened. What crime were you convicted of?”
“One count of mail fraud.”
“Did you even know what mail fraud was before the government notified you of this offense?” I asked.
“I didn’t ever think about it.”
I asked Joshua the question of whether he had understood what constituted mail fraud because I knew that most people didn’t. When I was a stockbroker I never thought about how my actions could bring charges for white-collar crimes. When I spoke with audiences about ethics, I always tried to show how the federal criminal code related to activities that took place every day, countless times, in every business in America. Few people understood that an act as simple as inserting a document in an envelope, sealing it and sending it through the mail could be a federal crime. Of course the criminal code would not apply to people who used the mail for lawful purposes, but if an individual used the mail to send any type of information that furthered a crime, that individual could face criminal charges under Title 18 of the United States criminal code, section 1341, for mail fraud. Such crimes carried a possible penalty of 20 years in prison for each envelope sent.
“What happened in your career that would have exposed you to charges of mail fraud,” I asked.
“It’s a long story.”
“I’m sure it is,” I said. “The people I speak to about white collar crime and the penalties that follow rarely set out to break the law. Circumstances happened. When people made bad decisions, or decisions without considering all of the consequences, criminal charges could follow unexpectedly. What were the circumstances with you?”
“I suppose I began making some questionable decisions when my fiancé and I broke up.”
“How so?”
“Every week I visited different cities. The company covered all of my travel expenses, of course, but I saw a loophole that would make my frequent traveling easier to bear. Instead of using my corporate credit card to charge my travel and expenses, I used my personal American
Express. The high monthly charges would allow me to accumulate credits like frequent flyer miles and other perks. I could redeem those credits with free airline tickets for women I met who would accompany me on trips. When my bill from American Express came, I simply had the company reimburse me.”
“And does the government say that is a crime?”
“That wasn’t the crime,” Joshua said. “You asked what the circumstances were that led to my charges for mail fraud.”
“That’s right. Okay. So go on.”
“As I saw the privileges accumulating through my AmEx account, I had an idea. Instead of using corporate credit cards to purchase items that furthered company business, I could use my own. My personal credit card didn’t have a limit, so I had several duplicate cards delivered to the office. Whenever someone needed to make a purchase for the business, I instructed them to charge the purchase to my personal AmEx.”
“Did you have authorization from your colleagues to do business this way.”
“My boss didn’t mind at all because the practice lessened reliance on the subsidiary’s credit, and when we were working to reverse the business’s losses, we welcomed anything that would cut out red tape—like having to extend corporate credit lines.”
“Well if you had authorization, I don’t see how using your personal credit card for corporate expenses related to mail fraud charges,” I said.
“As long as I retained documentation for every purchase and showed how each purchase related to corporate business, there wouldn’t have been any criminal charges. But as the months turned into years, I wasn’t as scrupulous as I should have been. We charged everything to the credit card, including computers, copiers, even vehicles. My monthly billing statement always showed hundreds of individual charges that when totaled together exceeded $100,000. I didn’t want the company to reimburse me directly because passing that much money through my checking account would have raised flags from the IRS. To avoid these complications, I instructed accounting to send corporate checks with my statement directly to American Express to pay the bill.”
“And why was that a crime?” I asked.
“The crime was discovered later, after I left the company. My successor saw the massive amounts the company paid to settle my personal credit card statements and suspected fraud. He alerted the U.S. Postal Inspector, and an official investigation began to determine whether I had allowed business to pay off personal debts as well as corporate that were charged to my credit cards.”
“Did you?”
“Although not to the extent that government alleged, I’m embarrassed to admit that I did.”
As I listened to Joshua admission, I recognized the second prong of the fraud triangle: capacity. He was the company’s chief financial officer. In that position, he had the authority to authorize his colleagues to charge expenses to his personal credit card, and Joshua’s accounting staff would not question his instruction to use a corporate credit card bill.
“What prompted you to make such decisions?” I was curious as to what would complete the third prong of the fraud triangle.
“As I said, the slide began with my breakup.” Joshua said. “In some ways I blamed the company. When I accepted the job as CFO I didn’t expect that it would have such extensive travel demands. But in order to turn the company around I had to accept a more active role in operations and cut costs. I blamed the travel that became necessary for the loss of a valuable personal relationship.”
Joshua went on to explain that the initial motivation for charging corporate expenses to his personal credit card was to accumulate frequent flyer miles. He could use those miles to ease his travels by bringing dates with him on trips. The privileges AmEx extended for high monthly charges allowed Joshua to cover the costs for airline tickets and hotel expenses for his dates without having to spend any of his own money.
As the months passed, Joshua’s review of corporate expenditures revealed that the travel expenses of his fellow executives far exceeded his own. Those executives charged the company for thousands of dollars in liquor and dining expenses every month; in some cases they even charged for the costs of “travel companions” who accompanied then on corporate trips. Joshua said he authorized payment for those expenses, but since he wasn’t a drinker or extravagant diner, he felt that he was too entitled to a few perks of the profession.
Since other executives were receiving personal benefits with their excessive expenses, Joshua said that when he submitted his AmEx statement for payment, he began authorizing the accounting department to pay the entire bill—a bill that included both corporate and personal expenses. Rather than reigning in executives for padding their expenditures, Joshua joined them. As Joshua’s leadership steered the subsidiary from losses to profitability, it became second nature for Joshua to authorize accounting to pay the entire AmEx bill. He could rationalize the perk as compensation for the duties he performed ***that beyond the scope of the CFO role, for the excessive travel, for his serving the subsidiary as a de facto chief operating officer.
By the time the office of the U.S. Postal Inspector concluded its investigation, the government alleged that of the nearly $2 million that the subsidiary paid to settle Joshua’s American Express account, $300,000 of those expense were personal. As a consequence of Joshua’s instructions for the subsidiary’s accounting department to send the checks through the mail, the U.S. Attorney’s office notified him that the was going to face criminal charges for mail fraud.
Notification that Joshua had become the target of a criminal investigation compelled him to hire a defense attorney, and at the defense attorney’s urging, a tram of investigators who would work to dispute the amount of the fraud. When confronted with the evidence, Joshua acknowledged that he had made some bad decisions with regard to his credit card. The charges humiliated him, bringing high levels of stress, but he maintained that over the three-year period in question, the personal charges did not amount to more than $60,000.
Although Joshua worked closely with the legal team to provide documentation that would prove many of the alleged personal expenses were related to business, too much time had passed and records had been lost. The team could only persuade the government to lower the fraud to $180,000 from $300,000. Since Joshua was a certified public accountant and a CFO, prosecutors said he should have been more diligent about retaining documentation.
“My motivations were never to defraud my employer,” Joshua told me. “I know that may not matter much now because the facts speak for themselves. I was pressured in my personal life, stressed and struggling with despondency if not a mild depression. As I think back to what caused all of this, that stress led to some bad decisions that have brought a heavy price for me to pay. Besides preparing to serve a 21-month prison sentence, I’ve lost my CPA license, disgraced my career, and depleted my savings to pay more than $200,000 in legal fees. And when I walk out of prison, I’ll still have $180,000 in restitution to pay.”
As the chief financial officer of his subsidiary, Joshua told me that he had the authority to wire transfer as much as $2 million on any given day. With so much access to corporate funds, it seemed clear that Joshua did not have fraudulent intentions when he accepted his position, as a fraudulent mind might have misappropriated a much larger sum. Yet Joshua clearly understood “the rules” or the code of his profession. As I and many white collar offenders did, he knew right from wrong. Joshua had a fiduciary responsibility to look after the interests of his employer, but imbalances in his personal life prompted Joshua to neglect such duties.
Joshua didn’t make any excuses for the actions that resulted in his criminal charges, as he accepted the he should have known better. That said, he deeply regretted that he didn’t pay more attention to the consequences that could follow any deviation from rightful conduct. It didn’t matter that other executives padded expense accounts, as Joshua’s legal struggles convinced him that the behavior or practices of others wasn’t going to excuse his own conduct. Once government authorities became interested in a case, they would pursue it vigilantly, with an objective of securing convictions and sending a clear message that the government wouldn’t tolerate white collar crime. As Joshua and countless other professionals have learned, defending against such criminal charges could cost an individual everything.
When people like Joshua contacted me for advice to navigate the prison system I was happy to share what I’ve learned. As I listened to their stories, however, I stood convinced that universities and business organizations could offer real value to society by providing more information on white-collar crime. Too may well-educated people who had positions of leadership made bad decisions without realizing their actions could lead them into the grips of the criminal justice system. Continuing education courses that profiled those who lapsed in their commitment to ethics might persuade more business professionals to make values-based decisions.
Justin Paperny
Exercises for Ethics In Motion
1- How did Joshua’s actions differ from his fellow executives who charged excessive expenses to business operations?
2- Had Joshua required his fellow executives to pay for perks that they had taken for granted, how would his decisions have influence moral of company?
3- In what ways do executives in other companies make decisions that could expose them to criminal charges?
