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Why I Went to Federal Prison

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A number of people on TikTok asked me why I went to federal prison. So here it goes:

I graduated USC as a student athlete in May, 1997. Upon graduating, I built my career as a stock broker at Bear Stearns and then UBS. Six years into my career, I had several hundred million under management and more than 600 clients: things were going great. Yet despite how well things were going, I found myself making horrific criminal decisions on behalf of a client, one client who ran a hedge fund. My client’s hedge fund had six million dollars. Within a matter of months of bringing the account to us, he’d lost all six million dollars. Okay, not illegal to lose money. He then raised another six million. He lost all of that too.

Well, our experience at UBS told us, there’s no way he’s raising more money unless he’s lying to people, because no rational investor would give money to this hedge fund manager if they knew the actual performance in his hedge fund.

Our suspicions were confirmed on a Monday afternoon in Century City, when I attended a meeting with my client, the hedge fund manager, and a prospect of his. This prospect was thinking of giving five million dollars to the hedge fund manager, and I was there as the broker, the person who executed the trades at UBS.

And during this meeting, my client, the hedge fund manager, told this prospect that his hedge fund was up 27% a year. Now when I heard that, a lot of things went off in my head like, “Wow, I wish I wasn’t at this meeting. What can I do to get the hell out of here?” But also went through my mind followed, “My hedge fund client isn’t up 27% a year. He loses every penny. He just told this dude 27%, this is awful and terrible. What do I do?”

Well, I chose to do nothing. I kept my mouth shut. I turned the other way, in part because our company was earning a hundred thousand dollars a month in commissions from this one client, and I convinced myself, “Let him do his own due diligence. My client manages the money, not me.” Those are the rationalizations that are part and parcel to white collar crime. Well, in the end line, turning the other way, it all comes crashing down for me, and it did when the FBI showed up at my home in April, 2005. Of course, when I met with the FBI, I lied because I was so scared and fearful about what federal prison would be like. I lied, and in the end I chose to, after three miserable years of my own making, I chose to plead guilty to one count of conspiracy to commit fraud.

And at my sentencing hearing, Judge Wilson told me, “I am tired of salesman turning the other way for commissions. You knew that it was wrong. Most don’t get caught. You did. I’m making an example out of you and sending you to prison,” and he was right. My dumb ass deserved to go to federal prison.

So as I close, couple of thoughts. We all face pressures in life, yet the lion share people watching this are better than me, because when faced with pressures, they don’t succumb and break the law as I did. You find a different and better way. And second, much like our parents taught us in kindergarten, there are no shortcuts. I wish I remembered that. Instead, I was reminded of that lesson in federal prison. That’s why I went to prison.

Justin Paperny

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