Frankly I don’t care whether Harry Reid keeps his political position or not.  It’s obvious that he’s stuck his foot in his mouth based on the political firestorm that seems to have erupted.  Rather, as an ethics speaker, I would like to raise the discussion about what message we are sending to our young people when it comes to truth and free speech.

Harry Reid spoke the truth.  Nothing he said had not been said by rank and file Americans as the election process proceeded.  Anyone who paid attention to the election from the primaries forward, at first, would have doubted that an inexperienced Senator (who happened to be Black or African-American – which is politically correct seems to be determined on who you speak with) could win his parties nomination.  Most would have felt that American’s were not ready for a non-white President.  Who knew…?

But, as Barack Obama put himself before the public it became clear that his articulation and young new face was just what the country wanted.  Reid said – he was a light skinned black man who did not have a “negro dialect” (unless he wanted to have one).  And, that combination made Obama electable.  Now…please tell me – was Reid inaccurate in his comment.

As a professional speaker I firmly believe that President Obama skills at oration (like those of John Kennedy) captured the imagination of the American people and dramatically contributed to his crossover appeal to the large American population instead of finding himself a divided racial wonder.

ETHICAL ISSUE:  For days now Harry Reid finds himself embroiled in this controversy.  But, he spoke the truth.  So, what message are we sending to our youth?

1.  Speak the TRUTH and find that it’s (the truth) not politically correct and lose your job?

2.  POLITICALLY CORRECT comments are more valuable than the truth?

3.  Political Correctness is the TRUTH?

For the life of me, I just don’t get what all the fuss is about.  Wouldn’t it be better to honor the truth and dismiss POLITICALLY CORRECTNESS – isn’t that the ethical high road.

It seems that we are more concerned with not offending than we are with allowing TRUTH to be spoken.

HOW DO YOU SEE THIS?

So here’s the CNN report today:  Senate Majority Leader Harry Reid apologized Saturday following reports he had privately described then-candidate Barack Obama during the presidential campaign as a black candidate who could be successful thanks in part to his “light-skinned” appearance and speaking patterns “with no Negro dialect, unless he wanted to have one.”

Apparently Mr. Reid’s comments are included in a book soon to be released in journalists Mark Halperin and John Heilemann’s new book “Game Change.”

I’m sorry, but I must admit…this political correctness thing is just becoming way too burdensome.  I expect criticism from this post, but it’s getting to the point that a person, especially in the public eye, can’t express themselves without offending someone.  Is it not possible anymore to express your opinion and allow folks to accept you for who or what you are?

LETS BE FRANK!

I’m a speaker.  Over and over I hear about what one should say and how one should say it in front of an audience.  Don’t offend.  Well, I’m becoming more and more convinced that offending is becoming easier and speaking what’s on your mind more difficult.

Reid verbalized what many American’s said about Obama before the election.  I admire Obama’s voice, speech patterns and ability to deliver a speech and inspire a crowd.  Now…here’s a fact.  If Obama spoke like a street thug – be he black or white…he would not have captured the imagination of the American people.  Straight up – Obama did not speak like stereotypical black man and that did contribute to making him electable.

If, candidate Obama, had said in a speech over and over again – “Let me axe you a question…” vs. “Let me ask you a question…” – would he have been elected by the American people?  REALLY…I’D LIKE TO KNOW WHAT YOU THINK…  But read on…

SO WHAT DO YOU DO?

Fact: I was in prison in the mid-90’s and my cellmate was a young black ma named – Buck.  Buck became one of my closest friends and taught me much…in fact, he is one of the reasons that my prison experience became such a profound learning experience.  Today, when I deliver a speech I often share a dialogue that Buck and I had on my second day in prison.  When I share this exchange…I carry on the conversation just like it happened – speaking and sounding just like Buck.  He sounded like a Black street thug – which is exactly what he was when he entered prison.

I’ve been told – “Oh, you can’t do that.  You’re degrading African-Americans.”

No.  I’m not.  I’m sharing with an audience exactly what happened – tone speech patterns and all.  The lessons I learned from Buck happened, in part, because I was able to learn from his street smarts just as he was able to learn from my education.  Speaking like Buck is real.  What Harry Reid said was real and true.  I just don’t see what all the fuss is about.

WHAT DO YOU THINK?

Two computer programmers were charged for their role in helping convicted Ponzi schemer Bernard L. Madoff cover up the fraud at Bernard L. Madoff Investment Securities LLC (BMIS) for more than 15 years.  According to the SEC investigation, Jerome O’Hara of Malverne, N.Y., and George Perez of East Brunswick, N.J.,  are alleged to have provided the technical support necessary to produce false documents and trading records, and took hush money to help keep the scheme going.

“Without the help of O’Hara and Perez, the Madoff fraud would not have been possible,” said George S. Canellos, Director of the SEC’s New York Regional Office. “They used their special computer skills to create sophisticated, credible and entirely phony trading records that were critical to the success of Madoff’s scheme for so many years.”

According to the SEC’s complaint, filed in U.S. District Court for the Southern District of New York, Madoff and his lieutenant Frank DiPascali, Jr., routinely asked O’Hara and Perez for their help in creating records that, among other things, combined actual positions and activity from BMIS’ market-making and proprietary trading businesses with the fictional balances maintained in investor accounts. O’Hara and Perez wrote programs that generated many thousands of pages of fake trade blotters, stock records, Depository Trust Corporation (DTC) reports and other phantom books and records to substantiate nonexistent trading. They assigned file names to many of these programs that began with “SPCL,” which is short for “special.”

A separate computer internally known as “House 17″ was used to process BMIS investment advisory account data at the direction of Madoff, DiPascali and others. The SEC alleges that O’Hara and Perez knew that the House 17 computer was missing a host of functioning programs necessary for actual securities trading and reporting. According to the SEC’s complaint, they recognized that the trades being entered into House 17 and the account statements and trade confirmations being sent to investors did not reflect actual trades.

So here’s the scoop according to the SEC – “O’Hara and Perez had a crisis of conscience in 2006 and tried to cover their tracks by attempting to delete approximately 218 of the 225 special programs from the House 17 computer. But they did not delete the monthly backup tapes. O’Hara and Perez then cashed out hundreds of thousands of dollars each from their personal BMIS accounts before confronting Madoff and refusing to generate any more fabricated books and records.”

AND WHAT DID THEY GET FOR THEIR EFFORTS?  A salary increase of 25% and a $60,000 bonus.  That’s right.  Now when I read that I was amazed.  A multi billion dollar scheme and the result is a pay raise and a bonus.

Further, the SEC alleges that they stated to DiPascali, a Madoff lieutenant, at the time that they did not ask for more because a greater amount might appear too suspicious. DiPascali then managed to convince O’Hara and Perez to modify computer programs so that he and other 17th floor employees could create the necessary reports themselves.

This goes beyond an ethics violation.  It is so far removed from ethical behavior that it isn’t funny.  What is now coming to light is what has been suspected for some time – Madoff wasn’t in this alone.  As an ethics and fraud prevention speaker, there is no way that one person could create and effect this fraud.  Bernie Madoff may be the point person, but the collapse in the house of cards has just begun.  More will fall as the investigation continues.

Here’s what I don’t get.  The three components of fraud are: NEED – OPPORTUNITY and RATIONALIZATION.  Now, it didn’t seem at the outset that NEED was obvious.  Unless there is something that hasn’t been reported, these fellows weren’t gaining initially from the efforts of their work.  So how did they RATIONALIZE that their behavior was legitimate, ethical or normal?  Most frauds tie their three components together, but in the case of O’Hara and Perez it seemed that they were just part of the group and became, at least initially, brainwashed into believing that what they were doing was right.

If you have a connection to either O’Hara or Perez and have some insight feel free to comment.

COMMENTS ARE WELCOME!

With a $65 Billion Ponzi scheme in play and Bernie Madoff electing to plead guilty, it is no great surprise that others will being to fall as the government widens the responsibility net for the largest Ponzi scheme in US history.

I must admit this hits home and was something I expected.  Although I wish I could say something different, I, too, was a CPA, created a Ponzi scheme and spent time in Federal prison.  It is no fun.  And, without a doubt, Friehling will spend time there himself – although my guess – his sentence will much longer than mine.

Yesterday, David G. Friehling, CPA (licensed in the State of New York) was charged with securities fraud, aiding and abetting investment adviser fraud, and  four counts of filing false audit reports with theExchange Commission (“SEC”).   Friehling is the sole practitioner at Friehling & Horowitz, CPAs, P.C. in New York.  As a point of reference, Friehling was the son-in-law of Jerome Horowitz (his former accounting partner) who didn’t live to see it all unravel.  He dided on March 12, the day Madoff plead guilty.

According to a news release issued by the US Attorney’s office:

From 1991 through 2008, F&H was the accounting firm retained by BLMIS (Bernie L. Madoff Investment Securities) purportedly to audit BLMIS’s financial statements. FRIEHLING created BLMIS’s certified and purportedly audited financial statements, including balance sheets, statements of income, statements of cash flows, and reports on internal control. FRIEHLING falsely certified that he had prepared such statements in accordance with Generally Accepted Auditing Standards (“GAAS”) and in conformity with Generally Accepted Accounting Principles (“GAAP”). Those financial  statements were filed with the SEC and sent to clients of BLMIS.   BLMIS paid FRIEHLING approximately $12,000 to $14,500 per month for his services between 2004 and 2007.

Sorry, but before going any further, one must question the payment.  $14,500 a month is a small price to pay for disgusing a fraud considering that Friehling will be facing certain loss of his license and a lot of time in Federal Prison.  But, there is more…  the news release goes on to say:

FRIEHLING failed to conduct audits that complied with GAAS and GAAP by, among other things, failing to: (a) conduct independent verification of BLMIS assets; (b) review material sources of BLMIS revenue, including commissions; (c) examine a bank account through which billions of dollars of BLMIS client funds flowed; (d) verify liabilities related to BLMIS client accounts; or (e) verify the purchase and custody of securities by BLMIS. FRIEHLING also failed to test internal controls as required under GAAP and GAAS standards. For example, FRIEHLING did not take any steps to test internal controls over areas such as BLMIS’s redemption of client funds, the payment of invoices for corporate expenses, or the purchase of securities by BLMIS on behalf of its clients. Further, commencing at least as far back as 1995, FRIEHLING did not maintain professional independence from his audit client, BLMIS.   Specifically, FRIEHLING and/or his wife had an account at BLMIS with a year-end net equity of more than $500,000 — the maximum amount that, under SEC rules, he could have invested with a broker-dealer client and still maintain his independence.

According to the SEC’s complaint, Friehling similarly did not conduct any audit procedures with respect to BMIS internal controls, and had no basis to represent that BMIS had no material inadequacies. Afraid that his work for BMIS would be subject to peer review, as required of accountants who conduct audits, Friehling lied to the American Institute of Certified Public Accountants for years and denied that he conducted any audit work.

Articles in Forbes stated the following:

“Friehling essentially sold his license to Madoff for more than 17 years while Madoff’s Ponzi scheme went undetected,” said James Clarkson, acting director of the SEC’s New York Regional Office. “For all those years, Friehling deceived investors and regulators by declaring that Madoff’s enterprise had a clean audit record.”

Madoff has said his business didn’t become a Ponzi scheme until the early 1990s, around the time that Horowitz retired and Friehling took over. He was not accused of wrongdoing in the court complaint.

Numerous reports claim that Friehling and family had $14 million invested with Madoff two months before his confession to the largest financial fraud in US history.  Since 2000, Friehling withdrew about $5.5 million from those accounts, the SEC stated.

WHERE FROM HERE?

Bernie Madoff, while perhaps brilliant (in his own way) is not capable – in my opinion – of pulling off a fraud of this magnitude without help.  I am not suggesting that Friehling knew about the Ponzi scheme (he says he didn’t), but it is likely that he’ll be found guilty on most of the charges as there is no doubt that he’s (at a minimum) negligent.  Selling his license for money seems very clear.

But, from these headlines, I suspect there will be a demand for more “accountability” for audited financial statements and regulations placed on compliant CPA’s.  That is not the answer.  I have stated before and will again, you cannot legislate or regulate ethics or morality.  If a person elects to be dishonest…they will be dishonest regardless of the rules in place.

Friehling was a puppet for Bernard Madoff.  Most people (although most will deny it) have a price.  It appears that Friehling’s price wasn’t all that much.  Comfortable yes – rich no!  And knowing that his reputation is ruined, his license all but gone and many many years in prison facing him, I know that Friehling wishes he’d never met Bernie Madoff.  Hind sight is 20/20 and there is no doubt with all that is facing this CPA – Friehling is just beginning to face the consequences of his choices.

Every choice has a consequence!

My prediction – Friehling isn’t the only pawn is this massive fraud to fall.  There will be others so stay tuned…

FRIEHLING, 49, faces a statutory maximum sentence of 105 years in prison.

YOUR COMMENTS WELCOME!

As an international speaker, author, and radio host, I help people with “Second Chances” in life. As a Sr. VP in Sales and Marketing and speaker, I have learned the secret of transforming adversity into opportunity and then into success.

I want to make this clear – I am pro business!  I think that free enterprise is the life blood of our economic system and I fully support people making lots of money.  But, I have to question whether the payment of upwards of $165 million in bonuses to AIG employees is ethical or just insane?

QUESTION ONE:

The arguement in favor of AIG paying the bonuses is that the contracts that generated the bonuses were established before the economic meltdown and before AIG accepted government bailout money.  Employees who work(ed) for AIG therefore should be entitled to payment under the terms of their contract for services performed.

• Do you agree?
• Does the company have an ethical or moral obligation to pay regardless of circumstances?

QUESTION TWO:

AIG has accepted, according to published reports, upwards of $170 BILLION of government bailout money.  Sorry for the editoral content, but that is quite amazing by any standard that I could consider.  Nothing like that has happened in my lifetime and I’m over a half century in years.  So – here are some questions to consider:

• Should AIG be forced to void pre-existing employment and bonus contracts if they accept government bailout money?
• Should bonuses be paid?
• What basis or grounds for payment or nonpayment make sense for AIG?

QUESTION THREE:

If a homebuilder constructs a home and finds that he/she cannot sell it for the asking price and, in fact, finds that the market for his product is below the construction loan – what happens?  Most of the time, the bank will foreclose and the sub-contractors, who have mechanic leins against the property, lose their time and receivable.  In other words, they lose because circumstances have changed.

• Is AIG in the same circumstance?
• Should the employment compensation contracts be treated similar to a mechanics lien – void through forclosure?
• Is the government’s bailout of AIG in effect a forclosure to avoid bankrupcy?
• Is there any reason that AIG should be treated differently than other small businesses that are unable to honor their commitments today?

FINAL THOUGHTS:

The definition of business ethics is, in business situations, the discipline dealing with what is good and bad and with a moral duty and obligation.  The question for AIG is – what is the ethical thing to do?  As a business ethics speaker, there is no right or wrong answer to most situations, it rather is a function of doing the right thing considering all the facts and circumstances.  My opinion – the moral duty and obligation in this situation is to void the employment bonus contracts and accept that were it not for the taxpayers, AIG would not be in business!

Now is the time for AIG and any organization that accpets bailout money to make the tough decisions that honor the trust that the federal government and taxpayers have given them.  Look to Lee Iacocca’s example – when the government bailed out Chrysler, he took $1 as his compensation.  Perhaps the folks at AIG should take note.  One thing is for sure they are not winning friends and influencing people – at least not positively.

YOUR COMMENTS WELCOME!

Having begun a formal probe by the SEC in 2007, a federal grand jury has indicted Bruce Karatz.  The 20-count indictment included seven counts of mail fraud, five counts of wire fraud, three counts of securities fraud, four counts of lying in statements to the U.S. Securities and Exchange Commission and one count of lying to KB Home’s accountants.

Well…with all those indictments, if found guilty on all charges, Mr. Karatz could face up to 415 years in prison.  Seems like the alleged frauds are getting larger as are the potential sentences.

Reported by the Dallas Business Journal:

Los Angeles-based KB Home was the 21st-largest home builder in North Texas in 2008, with 239 housing starts, according to DBJ research. The company started 513 North Texas homes in 2007, and 1,216 in 2006.

Karatz, 63, is alleged to have backdated stock options over seven years, awarding himself and others millions in stock-based compensation. Karatz resigned from KB Home (NYSE: KBH) in November 2006 under pressure in the wake of an options inquiry. Other top KB executives forced out were Richard B. Hirst, executive vice president and chief legal officer, and Gary A. Ray, the head of human resources.

The Los Angeles Times reports: “Karatz, 63, served as chairman and chief executive of Westwood-based KB Home from 1986 to 2006, when he resigned under fire. Over a three-year period ending in 2005, Karatz garnered more than $232 million in compensation.”

The Times further reports:

The indictment does not say exactly how much Karatz gained as a result, but KB Home required Karatz to pay back $13 million in backdating gains when he left the company in 2006. And the SEC agreed to a settlement of $7.2 million with Karatz in 2008 to cover what it reckoned were his gains.

Karatz has long been a target of shareholder activists and labor unions, who accused him of taking more than his fair share of company profit. In 2005, the year before he stepped down, Karatz had take-home pay of $6.3 million, but he received an additional $150 million, mostly from exercising stock options.

As a business ethics speaker, it is clear that transparency is the order of the day.  Long gone are the days (or at least they should be gone) when corporate compensation is a behind closed door discussion.  I am certainly open to executive compensation that is fair and rewards those in leadership for outstanding performance.  However, any person in executive leadership in a public company must be alert to the consequences of the choices they make.

Every choice has a conseqence.  Bruce Karatz has been dealing with the consequences of his leadership at KB Home for the past several years.  It would appear that, if convicted, he will have many years ahead to review his leadership choices.

If you worked for KB Homes and have an opinion on Mr. Karatz’s leadership feel free to comment!

I never cease to be amazed at the stupidity of what people will do with social networking.  Dumb – don’t put nude pictures on your facebook account!  That most would say that is common sense, but it seems that “common sense” goes out the window with some folks when it comes to their Facebook or MySpace pages.

Perhaps someone will get a clue – these are public and can be found!

ADVICE:  Don’t put anything on Facebook, MySpace, LinkedIn or any other site that you wouldn’t want your mother or boss to see.  If you feel that you could be fired or severely scolded for your entries – don’t put it on the site.

Enough Said! 

CRIMINAL ACTIVITY:

According to SouthCoasttoday.com – Robert T. DeCampos Jr., 30, a Dartmouth resident, and computer administrator, faces charges that he illegally obtained nude and semi-nude photos of about 16 female students by hacking into their UMass e-mail accounts and Facebook files.

What did he allegedly do and how?  According to published reports:

His first step, according to court documents, was to search Facebook for female UMass Dartmouth students. Next, he checked the names with the campus Web site.

Then he would use his administrative authority to access their e-mail, where he would attempt to log into their personal Facebook accounts. When that failed because he lacked their Facebook passwords, he would have Facebook send a link for a new password back to their e-mail. The hacker would then open the e-mail to reset the password, then enter Facebook with all the privileges and access of the student.

At that point he could view all of the students’ photographs, including private ones, and do further searches for their friends.

According to The Chronicle of Higher Education:

The university fired Mr. DeCampos last fall after police searched his home and found a portable flash drive containing the photos. Mr. DeCampos, who was released on his own recognizance after the arraignment, is being charged with 13 misdemeanor counts of unauthorized access, which carries a maximum penalty of 30 days in jail and $13,000 in fines. He is also being charged with one count of felony larceny, which could mean up to a five-year jail term and a $25,000 fine.

The Boston Herald also reported:  “Robert T. DeCampos Jr. also attempted to snap “upskirt” images of shoppers at an electronics store in Dartmouth, authorities said yesterday, following a four-month probe into the alleged cyber snooping, according to the New Bedford Standard-Times.”

THOUGHTS:

It appears obvious that DeCampos (while innocent until proven guilty) is experiencing the consequences of his choices.  As an ethics speaker, there is little doubt that DeCampos will likely serve time in prison for his actions.  But there is another question that deserves attention: why would someone put nude or partially nude photos on Facebook?  Is there really a thougth that Facebook is private – that there are no consequences of the student’s actions?

WHAT ARE YOUR THOUGHTS?

]]> http://chuckgallagher.wordpress.com/2009/03/05/senator-grassley-another-inquiry-what-did-pfizer-pay-to-faculty-members-at-harvard-medical-school/ Fri, 06 Mar 2009 02:50:31 +0000 chuckgallagher http://chuckgallagher.wordpress.com/2009/03/05/senator-grassley-another-inquiry-what-did-pfizer-pay-to-faculty-members-at-harvard-medical-school/

The last time I wrote about Senator Grassley was when he requested financial data from six tele-evanglists.  Looks like that went basically no where.  Too much resistance perhaps.  Now the Senator has requested information from Pfizer.    In a New York Times article it is reported that Senator Grassley asked the drug maker Pfizer to provide details of its payments to at least 149 faculty members at Harvard Medical School.

Senator Grassley’s letter is reproduced as follows:

Jeffrey B. Kindler
Chairman of the Board and Chief Executive Officer
Pfizer Inc.
235 East 42nd Street
New York, NY 10017

Dear Mr. Kindler:

The United States Senate Committee on Finance (Committee) has jurisdiction
over the Medicare and Medicaid programs.  As a senior member of the United States
Senate and as Ranking Member of the Committee, I have a special responsibility to the
more than 80 million Americans who receive health care coverage under those programs
to ensure that beneficiaries receive drugs that are both safe and effective.

For the last three years, the Committee has investigated various aspects of the
pharmaceutical industry including industry funding for Continuing Medical Education
(CME), and the failure of physicians to disclose payments from industry when applying
for grants from the National Institutes of Health (NIH).  Further, inquiries have led the
Committee to believe that physicians are failing to disclose the money they receive from
companies as required by federal regulations governing NIH grantees.

I am currently looking further into these concerns.  I was greatly disturbed to read
an article in The New York Times documenting an employee of your organization who
was taking cellphone photos of Harvard University (Harvard) medical students
demonstrating against pharmaceutical influence on campus.  I find this troubling as I
have documented several instances where pharmaceutical companies have attempted to
intimidate academic critics of drugs.  Last February, I sent a letter to the Secretary of
Health and Human Services pointing out that a pharmaceutical company hired a private
investigative firm to background an FDA public safety officer.

While I am not certain that photographing demonstrators rises to the same level, it
does raise concerns that Pfizer is attempting to intimidate young scholars from professing
their independent views on issues that they think are critical to science, medicine, and the
health and welfare of American taxpayers.

Accordingly, I request that you provide the following information:

1) A detailed account of payments and/or benefits of any kind that your company
has given to the 149 Harvard faculty members mentioned in The New York Times
article, and any other unreported Harvard doctors receiving payments.  The time
span of this request covers January 1, 2007 through the date of this letter.  For
each doctor receiving payments, please provide the following information for
each payment:

a. Name and title of doctor,
b. Date of payment,
c. Payment description (CME, honorarium, research support, etc),
d. Amount of payment, and
e. Year end or year-to-date payment.

2) Any communications to include emails, faxes, letters, and photos regarding
Harvard medical students demonstrating and/or agitating against pharmaceutical
influence in medicine.  The time span of this request covers January 1, 2008 to the
present.

In cooperating with the Committee’s review, no documents, records, data, or
other information related to these matters, either directly or indirectly, shall be destroyed,
modified, removed, or otherwise made inaccessible to the Committee.

I look forward to hearing from you by no later than March 10, 2009.  All
documents responsive to this request should be sent electronically, on a disc, in
searchable PDF format to Brian_Downey@finance-rep.senate.gov.  If you have any
questions, please do not hesitate to contact Paul Thacker or Emilia DiSanto at (202) 224-
4515.

In an article entitled: Harvard Medical School in Ethics Quandary the following was reported:

In a first-year pharmacology class at Harvard Medical School, Matt Zerden grew wary as the professor promoted the benefits of cholesterol drugs and seemed to belittle a student who asked about side effects.

Mr. Zerden later discovered something by searching online that he began sharing with his classmates. The professor was not only a full-time member of the Harvard Medical faculty, but a paid consultant to 10 drug companies, including five makers of cholesterol treatments.

“I felt really violated,” Mr. Zerden, now a fourth-year student, recently recalled. “Here we have 160 open minds trying to learn the basics in a protected space, and the information he was giving wasn’t as pure as I think it should be.”

Mr. Zerden’s minor stir four years ago has lately grown into a full-blown movement by more than 200 Harvard Medical School students and sympathetic faculty, intent on exposing and curtailing the industry influence in their classrooms and laboratories, as well as in Harvard’s 17 affiliated teaching hospitals and institutes.

As an ethics speaker, often I hear complaints about banking and finance, yet ethics extend into all areas of enterprise.  Pfizer has agreed, unlike the tele-evanglists, to cooperate fully with Grassley’s requests.  My guess is that Pfizer will be exposed for what likely has been an industry standard – shall we call it “payola”?  Harvard, without admitting guilt, of course, will find a source of funds drying up and be embarrassed by their choices or “ethics” being called into question.

What do you think?  Is it unethical for an individual or organization to take money from vendors when it has been an unspoken industry standard?

YOUR COMMENTS ARE WELCOME!

Moira Souza Shiver, expert on the application of IRC Section 165, has been asked by me to write this guest blog.  The benefits of Section 165 can be substantial, yet there are few who are qualified to understand how to effectively navigate the regulatory maze to gain maximum benefit.  As a business ethics and fraud prevention speaker, I try, through this blog, to provide a useful forum for discussing issues, and there is none more important at this time than the effective use of legal methods to recover loss.

Facts, Fiction and Future

Victims, taxpayers and citizens, in general, are experiencing an extraordinary chapter in American financial history.  Economic challenges, budget deficits and tax implications lead the list of many issues confronting citizens and legislators.  Surfacing in the midst of what appears to be mass chaos is yet another disturbing issue – victims of investment theft suffering irrecoverable losses in their life savings.  One bright spot, with the uncovering of these massive investment scams, the media is finally bringing attention to the fact that there are hundreds of thousands of people across this great country who are suffering tremendously at no fault of their own.

For the last ten years, I have been fighting for financial recovery for victims of investment theft.  There’s been a law on the books since 1954 that helps some victims, but most often it ignores the truly needy in favor of the wealthy.  Unfortunately, it also requires a monumental struggle with the IRS to get the deserved relief.  The pain and suffering these issues caused demanded I shift my focus and become an advocate for victims in three ways:

Investment Fraud Prevention Through Education
Maximize Recovery Through Legitimate Sources
Changes in the Tax Code to Carry Out the Intention of the Law

PROBLEM – LACK OF CLARITY, COUNTLESS (MIS)INTERPRETATIONS & INEXPERIENCED PROFESSIONALS

The $50 billion dollar Bernard Madoff Ponzi Scheme brought this subject to the public, but sadly, and very importantly, it also surfaced so-called experts that began advising victims on the recovery option under Internal Revenue Code Section 165 (c)(2).  Adding to the tragedy of these losses is the fact that those same experts are supplying incorrect information.  As an example: Stanford Law School and a former senior tax attorney for the IRS are both normally sources you can depend on for tax law advice.  They are both valuable sources of information, but in trying to help victims of investment fraud, they recently published information that could cause more problems than they solve.

An article, Long And Winding Path To Tax Relief For Madoff Victims, appeared on accountingweb.com dated February 19, 2009.  Stanford University provided information on the IRC 165 (c)(2) tax deduction, quoting a former IRS official.  This article is an example of a long list of experts serving up misconceptions, serious omissions, wrong answers and lost opportunities.  Add The Wall Street Journal, MSN, the New York Times and even the IRS to your list of experts providing incorrect information, and you begin to understand the seriousness of the problem.

FACTS – CURRENT TAX LAW HELPING VICTIMS OF INVESTMENT THEFT

Current law includes but is not limited to, the following facts:

IRC 165 (c)(2)
•    Law was established in 1954 to help investment fraud victims recover a portion of their losses through tax benefits (much like that of natural disaster loss victims or casualty losses such as a destroyed automobile not covered by insurance).  It was readdressed in 1984 by the Tax Reform Act, which did away with the 10% exclusion/$100 per item reduction.
•    Deduction allows qualifying victims to take their total net loss against ordinary income in a single year.
•    Deduction allows for the taxpayer to go back three years after declaring the loss in the “Year of Discovery” if a Net Operating Loss (NOL) remains, or, they can waive their right to go back, and carry the NOL forward up to 20 years.
•    Deduction allows for up to a 20 year carry forward, with the exception of when the 3 year carry back is utilized, which subsequently creates the potential for a 23 year benefit.
•    Losses in IRA and Pension Funds Do Not Qualify.
•    The taxpayer must prove the investment was made and lost by reasons of theft as defined in the state where the transaction took place.
•    Taxpayer must exhaust all reasonable means of recovery.
•    Taxpayer must be able to prove privity (Private or joint knowledge of a private matter; especially: cognizance implying concurrence (Merriam-Webster) or in practical terms, there was a first hand relationship between the thief and the victim) in order to qualify.  Ponzi scheme victims are generally not held to this requirement but that I’m aware, that exception is not written as fact.
•    (Some) IRS agents consider any form of pending legal action (individual, class action, federal indictments, bankruptcy or receivership) as potential recovery and will deny a claim until such time as that open pursuit of recovery is resolved.
•    IRS requires a victim to provide proof of cost basis (copies of checks, front and back, wire transfer confirmations, disbursements, withdrawals, recovery, etc.).
•    Taxes on phantom income are recoverable in full but are only allowed to be carried back 3 years.  The balance (NOL) can be carried forward up to 20 years.

FICTION – MISINFORMATION COMMONLY GIVEN TO THE PUBLIC

•    Before a taxpayer can claim a deduction, they must first exclude 10% of their Adjusted Gross Income and $100 per item – Wrong.  Although originally an aspect of the deduction, this exclusion was eliminated 25 years ago by the Tax Reform Act of 1984.
•    2 Year Net Operating Loss Carry Back – Common misconception.  Other than in 2002, when Congress allowed an exception allowing for 5 years, the carry back has always been 3.  The 2 year carry back does not apply to investment losses caused by theft.
•    Up to 50% recovery of loss – Misleading.  In my experience, taxpayers should expect to receive a total benefit between 10 – 20% of their loss.  Although there may be an exception out there somewhere, I’ve never seen any victims receive even close to a 50% benefit.
•    The deduction is taken in the year victims discover the money is gone – Maybe but not likely.  Convincing the IRS of the right year to take the deduction is complicated.  The big issue is the taxpayer having “exhausted all reasonable means of recovery”.  The “year of discovery” determination will vary from agent to agent.
•    The deduction is simple to obtain – Really?  It takes a knowledgeable and experienced 165 tax preparer to guide both taxpayers and the IRS agents through this process.  I promise you, you should be prepared to be fully prepared.  Taxpayers should expect to be reviewed carefully.

FUTURE – NEW PROPOSED LEGISLATION

For some time, I have been trying to get Congress to see the need for changes in the law.  The size of the Madoff ponzi scheme helped me with my mission to get congresses attention.  In doing so, they are now discovering how prevalent investment theft and ponzi schemes are in America.  Congressman Kendrick Meek of Florida’s 17th district moved quickly and proposed new legislation on February 24, 2009.  I’m thrilled to see it happen, but it did not go far enough.

Proposed changes to current tax law.

•    Will allow a 10 year carry back (or length of time in fraudulent investment, whichever is lesser) on cost basis and taxes paid on phantom income verses the current carry back of 3 years.  Given the fact that a great deal of injured investors are in the retiree/elder categories and have had little to no income over the last several years, this change will hopefully increase the chance of them reaching a year where significant taxes were paid.
•    Proposes to provide assistance to individuals who contributed to charitable organizations.  This is a new aspect to the law and it needs to be further examined in order to determine just who gets what benefits?  It’s not clear on how this will work and I’ll have to wait for more details before I can comment.
•    New legislation uses the word “estimate” verses “ascertained”.  This may be a big help in the filing of the claims in a reasonable amount of time, but it is not definitive and more work needs to be done.

FUTURE – CONTINUED – QUESTIONS NOT ADDRESSED

•    Will the complicated terms “Year of Discovery, Privity, Scienter, Cost Basis and Complete and Final Transaction” be defined in a way that makes it reasonable for the taxpayer to meet the requirements for filing?  Regardless of what legislation is proposed or passed, unless these issues are defined in a way that tax payers, their tax professionals and the IRS alike can understand, little if any of this assistance will reach the intended recipients.
•    Why is this limited to just ponzi schemes?  Although certainly less publicized, other forms of investment fraud are still investment fraud and all qualifying victims should be given the same consideration,
•    Will the new legislation actually limit the amount of time before a victim can claim the deduction and the IRS can take to approve it? The current process often takes so long that victims lose everything, including benefits, their homes and even their lives, before the help arrives.
•    Will IRA and pension savings be added to the forms of acceptable losses/victims?  A huge constituency of victims falls into this category and although technically they never paid taxes, they still worked hard for their money and would have paid them when the time arose.  The money was withdrawn, the perpetrator was enriched and he or she should owe the taxes.  Regardless of whether the IRS actually receives them, the victim should be entitled.
•    Would a uniform tax rate potentially be the better and fairer way to go?  Although the current proposed legislation goes far in trying to help, there are still a group of individuals that will be left helpless.  As many of these individuals paid on average 15 – 20 % in taxes when the money was made, it doesn’t seem quite fair that they are penalized for having grown older or now having no income.

SOLUTION

I’d start with definable (and reasonable) guidelines for tax payers and professionals.  Next would be setting up fair opportunities for recovery across the board, regardless of tax bracket or age.  And finally would be the creation of an organization, or an IRS qualifying exam, that sets the standards for professional services.  Setting these guidelines and standards, much the same as what CPAs, doctors, attorneys, etc. must adhere to or lose their standing, would help satisfy the IRS that the claims are legitimate, would provide the relief that so far is nearly impossible to receive and insure that the professionals assisting these victims are qualified and making claims in good faith.  By enacting legislation that gives the IRS authority to qualify those who represent taxpayers, they’d not only protect the victims, they’d protect all taxpayers against fraudulent or unworthy claims.

It was a breath of fresh air to finally see someone step up and try to help these people and I applaud Congressman Meek.  He’s taken the first step, and with a few additions, he could make this law something to be proud of.

Join my voice and let Congressman Meek know that these other issues are important and will make a big difference.

Congressman Meek can be contacted at:

Kendrickmeek.house.gov
Washington, DC
1039 Longworth House Office Building
Washington, DC 20515
Phone: 202-225-4506
Fax: 202-226-0777
Monday–Friday, 9 AM – 6 PM

Moira Souza Shiver
MSS Advocacy Group
mss165.com

An article on WISN.com caught my attention and the attention of CNN – as they reported on a nurse who was fired for her (ethical lapse) – choices regarding a photo and comments. 

So here’s part of the story as posted by WISN.com:

Nurses accused of photographing a patient and posting the pictures on the Internet have been fired.

The investigation started with an anonymous call from an employee at Mercy Walworth Medical Center in Lake Geneva, with the allegation that a nurse took pictures of a patient with her cell phone and posted them on her Facebook page.

Now before I continue with the story – lesson #1.  DON’T POST STUFF ON FACEBOOK that might be questionable.  A simple rule of thumb…if you think that your employer or your mama would not like your posting – DON’T PUT IT ON THE SITE (or anywhere else on the internet).  It can be found.  It will be found.  And, it will be used against you!

The story goes on to say:

Last week, the nurse told 12 News she never posted the pictures on the Internet. Investigators have since interviewed the nurse and said she offered more details.

“There were two nurses that independently took a picture each of an X-ray of a patient,” Walworth County Undersheriff Kurt Picknell said.

The patient was admitted to the emergency room with an object lodged in his rectum. Police said the nurse explained she and a co-worker snapped photos when they learned it was a sex device. Police said discussion about the incident was posted on her Facebook page, but they haven’t found anyone who actually saw the pictures.

The nurse removed her Facebook page from the Internet last week. Without more, Picknell said this conduct does not appear to violate any state laws. He has referred the case to the FBI.

“We’ve notified federal authorities of this allegation to see if there are federal violations, most notably HIPAA violations, patient rights,” he said.

OUCH!  FBI.  Those three letters are worse than the IRS.

A similar story was reported on December 29, 2008 – same story but posted to MySpace.  As a ethics speaker, I wonder (often) why people believe that their pages on MySpace – Facebook or any other free social networking site are somehow theirs and not public information?  And it’s not the adults that are the only folks with that attitude.  As I speak to University students around the country – they seem to have the same attitude.  They feel that their drunken party photos that have been posted and tagged should be off limits to employers who are considering them for a position.

That is not reality.  Reality is – what you post you are accountable for.

Every choice has a consequence.  This is not the first such example and it won’t be the last.  One thing is for sure, as social networks grow more and more people will be called to task for their postings.  Social networks are wonderful, but be cautious, be careful and avoid the FBI…!

O.K. – I’ve been a CPA.  Been is the operative word.  I am no longer a CPA due to choices I made back in the ’80’s.  Today it is clear that every choice has a consequence.

Now one would assume that those of us who chose the CPA profession would clearly understand the rules of money and laws of economics.  Yet, it never fails that, from time to time, a failure of judgment will catch the headlines of the media.  Bad choice = negative consequence.  This is true for William D. Poynter.

Poynter, age 59, operated an accounting business, W.D. Poynter & Associates, in Lanham, Maryland.  According to the US Attorney’s news release:

From November of 2005 to December of 2006, the defendant and two employees of a mortgage company conspired to launder over $127,000 in cash that they believed were the proceeds of drug dealing.

Now that was a bad choice.  I understand how easy it can be to defraud someone and rationalize that it was only a loan, but to conspire to launder money that you thought was drug money …  come on!  But, no it gets worse.

In actuality, the money was provided to them as part of an undercover money laundering investigation conducted by special agents of ICE.  The defendant and his co-conspirators accepted the cash from an ICE informant and undercover agent who posed as drug cartel members.  In exchange for payments totaling $8,000, the defendant and his co-conspirators laundered $127,400 by depositing most of that currency into bank accounts they opened in the name of a fictitious church, and by converting the remainder of the cash into United States Postal Service money orders.

I don’t get it.  108 months in prison all for $8,000.  Now that is not a good exchange by anyone’s definition!

“By agreeing to launder what he believed were the proceeds of drug trafficking, this defendant’s conduct amounted to a criminal dereliction of the esponsibility and character expected from a CPA,” said U.S. Attorney Taylor. “His conduct is a prime example of why money laundering is such a serious and complex crime, and one against which we must remain vigilant.”

The question remains – what would motivate such bad behavior?  Was Poynter motivated by money?  Beyond this poor choice how did he operate the remainder of his CPA practice?  Some insight into those questions was reported by a former employee in May of 2007:

I worked for W. D. Poynter for approximately two months. He wrote me a check, I took the check to a check cashing place. ACE cashed the check two months laters. ACE contacted me regarding the bounced check. They said they had spoke with Mr. Poynter on numerous occasions. He mentioned that he would take care of the matter and never did.

Also, I had problems getting my W-2 from him. He liared saying his computers weren’t in the building and making excuses. It took him two months to send my W-2.

Regardless of motive – one this is sure, Mr. Poynter’s life will now change.  And while he faces federal prison well over 7 years, the repercussions of his actions will have a direct effect on others close to him.  His family will have to deal with the issue, his employees either have or will likely have a change in their employment and others with whom he was connected will feel the effect.

As a business ethics and fraud prevention speaker, I am conducting research into the motivation behind the actual crime.  If you know Mr. Poynter please contact me so we can discuss the motivation behind his actions.

COMMENTS ARE WELCOME!

Reported yesterday in this ethics blog – Abdul S. Rao had resigned from his position from the University of South Florida.  Originally reported in the Chronical of Higher Education, I raised several questions and noted that every choice has a consequence.

As of today it appears that Dr. Rao, someone who’s work has contributed to the success of the University, has rescinded his resignation.  A copy publicaly available on the internet is printed below:

From: Abdul Rao
Date: Thu, 19 Feb 2009 23:50:38 -0500
To: “Klasko, Stephen”
Cc: “Ekarius, John”
Subject: RESCIND RESIGNATION

Dear Steve:

After much contemplation and discussion with my family and legal counsel, I would like to rescind my resignation from my administrative positions at USF Health. I am convinced that the conditions under which the resignations were obtained were extremely unfavourable not giving me ample time to think through this very important decision. I was given no option to consult a lawyer or a member of my family and was informed that I either resign or else.

I also believe that I have up to three days to withdraw my decision and I am exercising that option and withdrawing my resignation.

Lastly I am convinced that the outcome is not compatible with the level of the infraction and has placed my professional and personal life in serious conundrum. I suggest that the University complete its investigation and a judgement is made which is compatible with the committed infraction. I am certain that it would not amount to a call for resignation with a severance of six weeks and a professional life totally destroyed. I plan to defend my innocence and make every effort to preserve my professional life and my integrity.

Thank you.

Sincerely,

Abdul S. Rao

Every choice does have a consequence.  As such the consequences do not have to be nearly as dramatic as resignation – especially in light of the fact that Dr. Rao has made substantial contributions to the furtherance of his profession and that of the University.

As an ethics speaker, I have several questions:

• Who had the rights to the tape that was posted on YouTube?
• Were they legally and ethically allowed to use property that was not theirs to display publically?
• What motivated Dr. Rao to assist in taking something that he had no ownership in?
• Should the University have been so quick to take Dr. Rao’s resignation?
• Pages on Dr. Rao have been removed from the University’s web site – did they want Dr. Rao gone?
• When there is an ethics lapse in judgment, what should the appropriate outcome or consequence be?

Your comments are welcome…

Every choice has a consequence.  For whatever reason, a Vice-President who helped steal a student bicycle resigned.  His choice cost him his job.

Here’s the story from The Chronicle of High Education:

Just days after someone posted security-camera footage to YouTube that showed an associate vice president at the University of South Florida helping someone steal a bicycle, the administrator, Abdul S. Rao, is resigning.

Stephen K. Klasko, dean of the university’s medical school, announced at a faculty meeting last night that Dr. Rao would step down effective this Friday. Dr. Rao, senior associate vice president for research in the university’s health division, admitted that he had helped a day laborer take a bicycle parked at a loading dock behind the university’s Byrd Institute.

He said in a statement that a “lapse of judgment” led him to give permission to a “nearly homeless man” to use the bike, which a student later reported stolen. “I have no excuse,” Dr. Rao said in the statement. “I can only say that my intention was never to bring harm, alarm, or disruption to anyone.”

The student whose bike was stolen asked the police for the security-camera footage, which the student then placed on a server that others could see, according to press accounts. Someone then posted the footage to YouTube, where it received thousands of views before it was removed because of an unspecified violation of the video-sharing site’s terms of service. Michael J. Hoad, a vice president for communications at the university, said in an interview that the leaking of the video was “a minor secondary issue” that the university had no plans to investigate.

What was Dr. Rao thinking?  Did he have such compassion for a homeless person that he lost his sense of ethics?  Often in an electronic age the assumption is out of sight out of mind.  However, not much today is out of sight – especially with internet services like YouTube.

From an ethical perspective – do you feel that Dr. Rao should have resigned?  Will the good work that Dr. Rao be lost due to a lapse of his ethical choices.

For a 51 year old former Sr. VP of Sales and Marketing, current business ethics speaker and fraud prevention consultant, I am finding web 2.0 and/or social media (or whatever title you give it) to be a vast open space for opportunity and/or disaster. And for those of us who are growing into this new frontier the pitfalls can be dramatic and costly.

One year ago I had no clue what web 2.0 was or meant. Frankly neither did most of my counterparts. Those of us in the Baby Boom generation just didn’t get it. As far as we were concerned sites like MySpace and Facebook were for kids. And, frankly, we didn’t have a clue what the fascination was all about. Just really seemed like a colossal waste of time. Either the “young” folks were texting – seemed like speed dial and a call was quicker – or they were writing in some unknown code that was designed to keep those of us with budding grey hair confused. And confused we were.

Then, for reasons I still don’t fathom, I began – like many others of my generation – to find some attraction to just what the fuss was all about. Viola…Baby Boomers connect and the world for us changes.

AMAZING FACTS:

According to site analytics reported on in compete.com for December 2008 the following amazing statistics are available:

Number of Unique Visitors:

Facebook 59,675,502

MySpace 59,544,152

LinkedIn 9,349,996

In all three cased the number of people visiting these sites increased for the month of December 2008 and increased for the year for both Facebook and LinkedIn.

IMPACT FOR ADULT SOCIAL MEDIA CONNECTIONS:

While the number of uses for MySpace (mostly high school and college aged users) has remained flat, the more adult related sites has skyrocketed. The number of unique visitors to LinkedIn over 2008 has increased 153.9% and unique visitors to Facebook has increased 85.7%. While there may be those who disagree, I submit that the great majority of the increased visitorship to these sites is coming from adult users that are beginning to learn how to tap into the value of social media connections.

The growth is incredible as I am seeing daily (yes daily) the number of people in the Baby Boom group who are beginning to figure out that they will be left behind if they don’t join the social media revolution. The message that one might share is instantaneous and the access to data is vast. The power for branding, marketing and media messaging is limited only by the narrowness of ones mind.

INTERCONNECTED – FOR BETTER OR WORSE:

First, let me say, you do have control over when and how you use these tools. That said, the reality is you are interconnected. For example I am working with a social media site called twitter. Now for those who twitter it makes perfect sense (I guess). For me, well…I’m trying to figure it out. But one thing I do know is that since my twitter postings are linked to my facebook account, every time I make a post to twitter my facebook is updated.

That interconnection can be a great benefit. But, it has to be one that is managed. As a baby boomer and professional speaker and consultant I quickly got the value of these social media site from a marketing and branding perspective. And, I promise for those who really get it, I’m no where close to truly maximizing the value that can be gained there.

Here’s an example of the power of social media at work. As I began writing this blog I posted a comment on twitter (which like Facebook and LinkedIn is growing exponentially). I stated that I was writing this article and would be open to suggestions. The request was posted on twitter – which linked to my facebook page. Just a moment ago I looked on my facebook page and has two responses, both of which were very helpful.

Here are their comments with some minor edits:

A professor from Texas writes: “Who owns my data?” Guess what – Facebook owns what you put on your profile. Not you. Take your page down? Doesn’t matter, they still have, and own, that information.

A professional speaker from Florida writes: I am amzaed how social media has taken off the way it has…. I do not like it when people think it is the perfect place to push their MLM or any other products or services.

Don’t get me wrong I think that MLMs are a great business to get into. But please first read the secret behind “Permission Marketing” as taught by Seth Godin. If you use this … (read More Strategy )it does work. I know I have people who write me and call me and I don’t really know them but they feel like I am there best friend. This is all done by “Permission Marketing” not by pushing yourself upon your friends list.

Also becareful what you post on someone’s “Wall” where everyone can read it. I will sometimes post something on their Wall and then follow-up with a direct private message to further explain the details or the private information. There are somethings you don’t want everyone to know without the permission of the other parties involved.

ETHICS, CHOICES AND CONSEQUENCES:

Every choice has a consequence. Every time you call someone or write a note, you make a choice that has a consequence. Perhaps your call or note is received with joy and the consequence is deemed positive. Likewise, many in turbulent economic times are receiving calls or notes that result in the loss of jobs and – the consequence is much different.

The same applies to every entry or contact in a social media environment. I, for example, write about ethics and fraud – white collar crime mostly. I am aware that with the touch of the keyboard, I publish data that some find helpful and refreshing and others find offensive. Believe me I have heard from those who do find my work distasteful. In any event, I understand that the way we interact on the web is much different and substantially more powerful than what we have previously been accustomed.

So here are some questions (feel free to comment below – who knows where the dialogue will take us):

• If you use social media sites such as Facebook, LinkedIn or Twitter for business promotion, are you concerned more about your privacy or the promotion of your business?
• If you had to choose between LinkedIn or Facebook – which site would you select and what motivates that selection?
• If you use Facebook, do you feel that it is ethical to look at the friends of your friends and request a connection to them?
• Would you rather expand your network of “friend” or “connections” or maintain your privacy?
• How do you feel social media networking is different than networking – say through a chamber of commerce event?

As times passes, like with anything, we will all learn and grow. Meanwhile, the issues of what, how and where to use social media and what is fondly called web 2.0 are unfolding.

One last comment before this entry is closed out… As I speak often to university students I find that they too have an amazement at this whole social media issue. This comment just came through on my facebook page. It is accurate and demonstrates just how we need to think about the balance between social, marketing and privacy. Here’s the comment:

Fascinating. I find the balance of being public and yet wanting privacy control a tight balance. Companies are using FB as an HR research/background tool.

Your comments are welcome…

Back some nine months ago I reported in my blog about a massive “white collar crime” (see Here) where investors were defrauded of $3 Billion.  Now most would have agreed – at least back then – that that was a lot of money.  Frankly, after the report I did not follow up with what was taking place at sentencing. However, since then – in the most unlikely of places – my Facebook account – a reader made a comment about one of the co-conspirators – Roger S. Faulkenberry.  That peaked my curiousity so I began looking.  The following was reported in the Columbus Dispatch by reporter Jodi Andes.  The report is as follows:

U.S. attorneys looking at federal guidelines to determine how much prison time four National Century executives should serve found that the calculations “are literally ‘off the charts,’ ” they wrote.

The numbers added up to life in prison for all four men who are to be sentenced this week for fraud that took down the Dublin-based health-care-financing company in 2002 and cost investors more than $1.9 billion.

The guidelines use a formula to calculate an appropriate penalty by taking into account things such as the amount of loss, number of victims and previous criminal history of the defendant.

At least 275 health-care companies collapsed after National Century Financial Enterprises filed bankruptcy.

The four to be sentenced are Donald H. Ayers, James E. Dierker Jr., Roger S. Faulkenberry and Randolph H. Speer.

The sentencing calculation for each of them “exceeds by several levels the maximum offense level (life in prison) provided in the guidelines,” Assistant U.S. Attorneys Wes Porter and Doug Squires wrote in papers filed in U.S. District Court.

National Century agreed to buy the debt, or accounts receivable, of health-care companies and give them cash to cover expenses. The companies didn’t have to wait for insurance reimbursement, and National Century kept a fee or percentage of what was collected.

But National Century executives paid themselves lavishly, lied to investors and didn’t keep enough money in reserve to cover debts.

Federal Judge Algenon L. Marbley isn’t obligated to follow the sentencing guidelines, and defense attorneys also filed arguments, urging lighter sentences.

For example, attorneys for Dierker, 40, said his involvement was largely limited to one company that was given more money than it had accounts receivable, making his role minimal.

Prosecutors appear to agree with the attorneys, Leonard Yelsky and Angelo Lonardo, stating in court records that Dierker “had less active participation in the conspiracy and a lesser sentence for him may be appropriate.”

Marbley is to sentence Dierker and Faulkenberry, 46, on Thursday and Ayers, 72, and Speer, 58, on Wednesday. On Friday, National Century’s Chief Executive Lance K. Poulsen, 65, could be sentenced to up to 35 years in prison for witness tampering.

Poulsen and his friend Karl A. Demmler, 57, tried to coerce the government’s key witness in the fraud case to fake amnesia about company dealings. Demmler also is scheduled to be sentenced Friday, but his attorney is asking for a delay.

Demmler is becoming “increasingly paranoid” and “said he’s saving his urine and drinking it to help his problems,” a jail log filed in court says. His attorney has asked the judge to order a psychological evaluation.

Faulkenberry’s attorney, Javier Armengau, also filed papers on his behalf, arguing that the sentences should be comparable to those in similar fraud cases.

Enron CEO Jeffrey Skilling was sentenced to 24 years in prison, and WorldCom CEO Bernard Ebbers was sentenced to 25 years, Armengau noted. Attorneys for Ayers and Speer also filed motions for reduced sentences. They had the filings blocked from public view, saying the documents contain personal information about the defendants.

Well…it’s been reported on December 31, 2008 (not such a good New Years Eve for these guys) – that a federal jury has found five former executives of National Century Financial Enterprises (NCFE) guilty of conspiracy, fraud and money laundering, following a six-week trial and less than two days of deliberation, Assistant Attorney General Alice S. Fisher and U.S. Attorney Gregory G. Lockhart of the Southern District of Ohio announced today.  The Columbus, Ohio, jury returned the guilty verdict on all charges contained in a 27-count superseding indictment stemming from a scheme to deceive investors about the financial health of NCFE. The company, which was based in Dublin, Ohio, was one of the largest healthcare finance companies in the United States until it filed for bankruptcy in November 2002.

Donald H. Ayers, 71, of Fort Meyers, Fla., an NCFE vice chairman, chief operating officer, director and an owner of the company, was found guilty on charges of conspiracy, securities fraud and money laundering.

Rebecca S. Parrett, 59, of Carefree, Ariz., an NCFE vice chairman, secretary, treasurer, director and an owner of the company, was found guilty on charges of conspiracy, securities fraud, wire fraud and money laundering.

Randolph H. Speer, 58, of Peachtree City, Ga., NCFE’s chief financial officer, was found guilty on charges of conspiracy, securities fraud, wire fraud and money laundering.

Roger S. Faulkenberry, 46, of Dublin, Ohio, a senior executive responsible for raising money from investors, was found guilty on charges of conspiracy, securities fraud, wire fraud and money laundering.

James E. Dierker, 40, of Powell, Ohio, associate director of marketing and vice president of client development, was found guilty on charges of conspiracy and money laundering.

The sentences these men face are as follows:

Defendants face the following maximum penalties: Donald H. Ayers, 55 years in prison and $2.25 million in fines; Rebecca S. Parrett, 75 years in prison and $2.5 million in fines; Randolph H. Speer, 140 years in prison and $4.25 million in fines; Roger S. Faulkenberry, 85 years in prison and $2.5 million in fines; James E. Dierker, 65 years in prison and $1.75 million in fines.

Now here’s the question – if Roger S. Faulkenberry is facing up to 85 years in prison for his role… how much time is Bernie Madoff facing for masterminding a $50 BILLION fraud?

Comments are welcome!

Today – the day after the election – we, as Americans, have seen yet another historic moment in a life that has seen many. Those of us with some age have seen the end of wars and the beginning of others; we have seen space travel and a man on the moon; we have seen technology change everything about our daily lives; and we have seen a man rise up and break barriers that once were thought to be iron clad. Mr. President Elect – your election may be historic for African-Americans, but, more important, it is historic for all Americans as we see through you a change of attitude and focus – we see hope in your eyes.

With the above said, Mr. President Elect, I must caution, in the midst of celebration, that we not lose sight of what got you there and what your task at hand is. President Elect Obama – we must restore a sense of ethics to this great nation and make choices – tough choices at times – based on sound ethical and moral principles that have guided us for so long.

I, of all people, have no right to lecture you on ethics or change – after all, you are our new President elect. But, like you, I know a thing or two about adversity and obstacles. As a former convicted felon (not something I am proud of) now professional speaker, I have risen above my poor choices from the past and become a voice for CHOICE and ETHICS. Regardless of the choices made, we can moving forward make better choices that will bring about positive results.

You said, “it’s been a long time coming, but tonight, because of what we did on this date in this election at this defining moment change has come to America.” Your statement is true…we have turned for too long away from choices that empower people to achieve greatness and focused on what’s wrong and how we exercise our muscle to the detriment of others.

You, Mr. President Elect, are aware of the challenges ahead. Your words reveal it, “For even as we celebrate tonight, we know the challenges that tomorrow will bring are the greatest of our lifetime — two wars, a planet in peril, the worst financial crisis in a century.” You know, as do we all, that the only way to succeed is to do so by making choices founded on the ethical foundation of our forefathers as they founded this great Nation.

I speak on ethics today, founded on the lessons I learned from not living an ethical life. Perhaps, as a Nation, we have not made the best choices – or even ethical choices. The challenges ahead are significant and you, yes you – Mr. President Elect – will be tempted beyond belief, after all you are the most powerful man in the world. Don’t lose your sense of ethics, sir. Remember your promise! “But I will always be honest with you about the challenges we face. I will listen to you, especially when we disagree. And, above all, I will ask you to join in the work of remaking this nation, the only way it’s been done in America for 221 years — block by block, brick by brick, calloused hand by calloused hand.”

Regardless of who authored these next comments you delivered – and delivered well – they form a promise of an ethical foundation for your Presidency.

“So let us summon a new spirit of patriotism, of responsibility, where each of us resolves to pitch in and work harder and look after not only ourselves but each other.

Let us remember that, if this financial crisis taught us anything, it’s that we cannot have a thriving Wall Street while Main Street suffers.

In this country, we rise or fall as one nation, as one people. Let’s resist the temptation to fall back on the same partisanship and pettiness and immaturity that has poisoned our politics for so long.”

Mr. President Elect – we need that foundation that you have stated so well – a foundation of hope and promise and belief that as American’s we can be proud of who we are and what we stand for – that we can be proud to call ourselves American’s here and around the world. You have given us that hope and for that we say – Thank you!

Regardless of political belief, I think we are witnessing the dawn of an new age for America. We will succeed or fail based on the choices we make moving forward. If our choices are based on fear, ego and power, we may find that we will be no better than we have been and perhaps even worse. Those choices and not based on sound ethical principles. On the other hand, if we make choices that foster freedom, opportunity and a spirit of selfless cooperation we might see the dawn of the “Age of Aquarius.”

Let me end with your words…

“America, we have come so far. We have seen so much. But there is so much more to do. So tonight, let us ask ourselves — if our children should live to see the next century; if my daughters should be so lucky to live as long as Ann Nixon Cooper, what change will they see? What progress will we have made?

This is our chance to answer that call. This is our moment.”

Chuck Gallagher is a business ethics and choices speaker. He shares with audiences world wide the life lessons learned and helps empower people to move past their self-imposed limitations and take charge of their life. His new book: Take Charge – 23 Steps That Turn Negative Consequences into Positive Results is scheduled to be released in the Spring of 2009.

Let me begin by saying, this writing is 100% about law, ethics and the application of the law.  I am in no way, taking a political stand through the content of this entry.  Rather, I am amazed as what I believe is the flagrant violation of the law when it comes to influencing votes in this presidential campaign.

According to Merriam-Webster the definition of ethics is the discipline dealing with what is good and bad and with moral duty and obligation.  Now, that definition is broad and clearly subject to interpretation.  However, good and bad must also be judged in accordance with the law.  One might judge a particular action to be good and ethical, but that same action might be against the law.  Hence, regardless of opinion, the action is unethical.

So, what does this have to do with the election?  Well…it is generally presumed to be against the law for a non-profit religious organization to use their pulpit (I use that term loosly) to influence public opinion for election results or outcome.   Non-profit religious organization can lose their non-profit status if they openly work to endorse a political candidate.  This loss could be costly indeed.

So how would one know if such a thing is happening?  Funny you should ask.  But today I received information about the link I am providing.  It was sent to me raising a question as to what my opinion was related to ethics, politics and the law.  What I saw was amazing – a flagrant disregard for the law and the non-profit status at stake.

PLEASE NOTE:  The following, should you decide to watch, is anti-Obama.  The message is clear.  What is more serious is that someone would knowingly and publically risk the non-profit status with such a clear political message.

Judge for yourself.  Here’s the link.  The message is from ATLAH World Ministries and it’s steamy.  Again, I express no opinion other than the amazement as to the message and risk inherent in its delivery.

WHAT ARE OTHERS SAYING:

Americans United for Separation of Church and State has asked the IRS to investigate the Roman Catholic Diocese of Paterson, N.J. and Rock Christian Fellowship in Espanola, New Mexico.

According to AU’s letter to the IRS, Roman Catholic Bishop Arthur J. Serratelli has published a letter on Catholic Diocese of Paterson, N.J.’s website and newspaper attacking Barack Obama.”

The letter criticizes Obama for his pro-choice stance and encourages parishioners not to vote for Obama.

AU also wants the IRS to investigate Rock Christian Fellowship in Espanola, New Mexico for posting a large display that encourages voters to support republican candidates over democratic candidates.

In my opinion, what the above mentioned organizations have done is small change in contract to the ATLAH video.

An NPR article states the following:

On Sunday, 33 ministers will take part in a nationwide effort to violate the 54-year-old ban on political preaching and endorse or oppose a candidate from the pulpit. The effort is called the Pulpit Initiative.

Two weeks ago, more than 100 pastors squeezed into a hotel meeting room in Washington, D.C., to learn about the Pulpit Initiative, a brain child of the conservative legal group, Alliance Defense Fund. Attorney Erik Stanley walked them through it.

“If the IRS chooses to come after these churches, we will sue the IRS in federal court,” Stanley said.

Stanley says pastors are fed up. In the past four years, the IRS has stepped up its investigations of clergy. It sent letters to 47 churches, including some liberal ones — not just for explicit endorsements, but also for using code words like pro-choice or pro-life in relation to candidates.

“What’s been happening is that the government has been able to go into the pulpits of America, look over the pastor’s shoulder, and parse the content of their sermon. And that’s unconstitutional,” Stanley said. “No government official should entangle itself with religion in that way.”

HERE’S THE QUESTION FOR YOU – THE READER:  Which is ethical – (1) for the church to follow the dictates of the law and avoid endorsing or disparaging a politicial candidate or (2) to make a “good” decision based on a moral duty and obligation (in the face of the law)?

If you watch the ATLAH video…come back to this site and share your opinion.  Otherwise, your comments welcome on the ethics of religion and politics.

As an ethics speaker, I have the opportunity to travel the country and meet citizens of all the states in our great nation.  Amazing what you can find when you just take the time to ask questions.  People are in many cases better connected than our leaders might think.

When it comes to Texas, as a recent resident of that great state, I can say that, overall, there is a feeling of positive prosperity.  Texans expect government to be responsive to them and, for the most part, it seems that it is working.

The report just issued came from the Better Government Assoication.  Founded in 1923, the Better Government Association is an independent, non-partisan government watchdog.  Their mission is to combat waste, fraud, and corruption in government by conducting investigative research and litigation to expose problems; researching policy solutions promoting transparency and accountability in government; and using internship programs to train the next generation of investigators and public interest lawyers.

Texas ranked 7th among all fifty states overall.  By issue area Texas ranked 17th in open records laws; 4th in whistleblower laws; 36th in campaign finance laws; 22nd in open meetings laws; and 3rd in conflict of interest laws.  Despite its number 7 overall ranking, Texas achieved a modest 60% overall score.

“Texas should be congratulated that it beat out forty-three other states” said Stewart, “however, there is clearly a lot of room for improvement.  If you look at the percentage score, Texas received 60%, the equivalent of a D letter grade, hardly a cause for celebration.”

The 2nd edition of the BGA-Alper Integrity Index relies on data compiled through 2007.  Most of the data was collected by the BGA and the BGA created the scoring system for four of the five laws.  The BGA relied on the work of the Center for Public Integrity in regard to conflict of interest laws.

Generally the BGA reviewed the relevant laws in all fifty states and created a scoring system for each law that ran on a 0 to 2 scale with half point increments or a 0 to 4 scale on whole point increments.  The better the law the higher the score.  For the BGA better was usually defined as lower limits, more transparency and higher penalties.   The BGA scored areas of each type of law that were common across all fifty states.

The BGA-Alper Integrity Index is the only tool that attempts to measure the performance of all fifty states across a number of good government laws.  As with any analytical tool, it can’t measure every variable that impact on government integrity.  However, laws are generally the reference point against which ethical behavior is measured.  By rating the quality of the laws we reviewed it at least gives an indication of how important ethics are to each state.

“We hope that legislators and leaders in Texas will use the Integrity Index as a tool to spur reform and upgrade their laws in regard to transparency, accountability and limits.  Better yet, we hope Texas comes up with a tough new standard that then becomes the measure against which other states will be judged” said Stewart.

7th out of 50 isn’t bad, but a “D” rating gives pause to reflect.  Obviously, there is substantial room for improvement in the realm of governmental ethics.

A full copy of the BGA-Alper Integrity Index is available for free on the BGA’s website at http://www.bettergov.org/.

There is nothing easy about politics – not state politics and certainly not presidential politics. Republican vice presidential nominee Sarah Palin was cited in a state investigators report today for abuse of power and a violation of state ethics law. Palin is accused of trying to get her ex-brother-in-law fired from the state police.

Now, this investigation was already on track before John McCain made his surprise announcement that Sarah Palin was his choice as running mate. Palin certainly brings spice to the election as McCain (clearly a powerful and smart man) lacks in the spice department. But what McCain does not need at the crucial time in the election is to have any part of his campaign (which appears to be dying) fail.

“Gov. Palin knowingly permitted a situation to continue where impermissible pressure was placed on several subordinates in order to advance a personal agenda,” the report states.

Now, let’s face it…Alaska is a small state when it comes to politics and perhaps without national media attention Palin could get by with attempting to exert undue pressure to influence who is hired or fired as the case may be. But, Sarah, this is the big league and every move you make will, no doubt, be under heavy scrutiny.

According to a CNN report:

Palin and her husband, Todd, have consistently denied wrongdoing, describing Wooten as a “rogue trooper” who had threatened their family — allegations Branchflower discounted.

“I conclude that such claims of fear were not bona fide and were offered to provide cover for the Palins’ real motivation: to get Trooper Wooten fired for personal family reasons,” Branchflower wrote.

The Branchflower report states Todd Palin used his wife’s office and its resources to press for Wooten’s removal, and the governor “failed to act” to stop it. But because Todd Palin is not a state employee, the report makes no finding regarding his conduct.

The bipartisan Legislative Council, which commissioned the investigation after Monegan was fired, unanimously adopted the 263-page public report after a marathon executive session Friday. About 1,000 more pages of documents compiled during the inquiry will remain confidential, the council’s chairman, state Sen. Kim Elton, said.

Here’s the question – did, in fact, Sarah Palin violate state ethics law. While she may have been vindicated of the allegation of an improper filing, that does not mean that she walks away scott free. Of course, the McCain camp says that this is a democratic ploy in a hotly contested election. Others, however, might say that the report is accurate – ethics laws were violated.

The full report can be found here.

With all that is taking place in America right now, one thing we do not need is a newly elected official being tarnished when entering office. As an ethics speaker, I am reminded daily of how easy it is to make the wrong choice in the heat of the moment – only to find that the consequences are far worse than you could every have imagined.

What do you think – Ethics Violation – or not? Your Comments are welcome!

As a business ethics speaker I tell every audience on thing which is fact:  EVERY CHOICE HAS A CONSEQUENCE!  From time to time, people share with me inspiring stories of choices and consequences – most of which I do not have time or take time to verify.

With all the bad news spreading like a cancer, when I saw this I thought – “How remarkable” assuming it is true.  If it is – I am sure that those reading can verify the accuracy.  If it is not, then, if nothing else, it makes a point that perhaps we need to hear now.

Here’s the story!

His  name was Fleming, and he was a poor Scottish farmer. One day, while trying  to make a living for his family, he heard a cry for help coming from a  nearby bog. He dropped his tools and ran to the bog.

There,  mired to his waist in black muck, was a terrified boy, screaming and  struggling to free himself. Farmer Fleming saved the lad from what could  have been a slow and terrifying death.

The next day, a fancy  carriage pulled up to the Scotsman’s sparse surroundings. An elegantly  dressed nobleman stepped out and introduced himself as the father of the  boy Farmer Fleming had saved.

‘I want to repay you,’ said the  nobleman. ‘You saved my son’s life.’

‘No, I can’t accept payment  for what I did,’ the Scottish farmer replied waving off the offer. At that  moment, the farmer’s own son came to the door of the family hovel.

‘Is that your son?’ the nobleman asked.

‘Yes,’ the farmer  replied proudly.

‘I’ll make you a deal. Let me provide him with  the level of education my own son will enjoy. If the lad is anything like  his father, he’ll no doubt grow to be a man we both will be proud of.’ And  that he did.

Farmer  Fleming’s son attended the very best schools and in time, graduated from  St. Mary’s Hospital Medical School in London, and went on to become known  throughout the world as the noted Sir Alexander Fleming, the discoverer of  Penicillin.

Years afterward, the same nobleman’s son who was saved  from the bog was stricken with pneumonia.

What  saved his life?       Penicillin.

The name of the  nobleman?  Lord Randolph Churchill .. His son’s name?

Sir  Winston Churchill.

Someone  once said: What goes around comes around.

Two great men whose lives became intertwined by the simplest choice.  So whether you say, “What goes around comes around, you reap what you sow, or every choice has a consequence,” the reality is all are right.  Perhaps it is time to refocus our business efforts into those that are founded on solid business ethics.  Simply put – let’s make decisions that will yeild the highest and best results for all.

By the way, is the story above fact or fiction?  Your comments are welcome.

$700 Billion for the banking bailout – $85 Billion for AIG (a private company) – these amounts are only a drop in the bucket of what it will truly cost before this financial fiasco is complete in the history books.  The sad thing is – in order to clean up the mess, the goverment will have to “borrow” money to correct – OVERBORROWING!

Now AIG says it needs more – almost $38 billion more!  Talking about missing a projection.  And the biggest question of all, where will it end?

Read the following according to CNN:

The New York Federal Reserve is lending up to $37.8 billion to American International Group to give the troubled insurer access to much-needed cash.

In exchange, AIG is giving the New York Fed investment-grade, fixed-income securities that it had previously lent out to other institutions for a fee. Those institutions are now returning these securities and want their money back.

The new program, announced Wednesday, is on top of the $85 billion the federal government agreed to lend to AIG last month to prevent the global company from collapsing. AIG said last Friday it had drawn down $61 billion.

To be sure none of us want to see a financial collaspe, but $38 billion on top of $85 billion – the question seems to be where will it end?  And what seems amazing is the magnitude of which the federal goverment is being the backbone of private “for profit” financial institutions.  Frankly put, if the issue were just you or I “Joe Citizen” and we were about to go under – we’d drown.  So why on the back of the taxpayers is the federal goverment backing institutions that have apparently thrown ethics to the wind when making financial desisions?

As a business ethics speaker, I am told daily that my phone should be ringing off the hook – “apparently Washington and Wall Street need your help.”  I can’t disagree with the sentiment, but they needed the help before they made poor business choices that have a clear unethical smell to them.

In a Forbes Article the following was stated:

AIG’s problems stemmed primarily from its insurance of mortgage-backed securities and other risky debt.

On Tuesday former top executives at AIG testified before the House Oversight Committee blaming everything but themselves for the company’s problems and subsequent bailout that cost taxpayers billions of dollars. (See “‘Wasn’t Us’ Former AIG Execs Say)

“Wasn’t us” my ass.  Sorry for the language, but if you’re an exec with a firm like AIG the buck stops with you.  Any person who runs a company has the power to make decisions that “should” be in the best interest of the shareholders.  With an equity decline of 95.4% – YES THAT IS 95.4% – who else to blame but the execs who set the course for the company.  Sure the market has changed, but it changed because “unethically” corporate executives have placed short term quarterly profits above common business sense.

My sense is – it will be a long cold financial winter that may practically last several seasons, if not years.  Your comments are always welcome!

The prosecutor would have us believe that O. J. is a gun slinging robber.  The defense claims that O. J. was just getting his personal belongings back.  But the truth will be decided by the jury.

According to the prosecutor, “He is the person who put these crimes together.  He is the one who recruited these individuals to help him commit the crimes.  We have so much more than a coordinated series of acts,” he said. “We have words that come out of the defendants’ mouths themselves.”

It seems that there is a belief that O. J. Simpson will once again escape what many feel is a just outcome – prison.  But the question remains, is O. J. guilty or just a prisoner to his dumb choices – none of which are crimes.

He’s a question for the blog readers:  If O. J. had never been to trial for anything else in his life.  If he were a star player for an NFL team and well loved, would public sentiment and expectation of guilt be there?  Is it possible that if the person being tried for exactly the same purported crime were, say Tony Romo, there would be an entirely different media circus calling for his acquittal?

Every choice has a consequence.  O. J. is living proof of that.  When it is all said and done, O. J. will have spent more on his defense than he would have gained from the repossession of the good he claims were his.  As a motivational speaker I keenly observe what happens in life.  My presentations are designed to go to the heart of those issues we face and find the positive and truth that can come from them.  Regardless of the outcome – there will be those who believe the outcome is wrong.  The fact is – O. J.’s choice is earning him a consequence, one that he will likely not forget.

Your comments are welcome…

The words are “urgent action” as uttered by those in financial leadership in our country.  Action needs to be taken in order to avoid a financial meltdown.  Somehow, I would suspect that words similar to that were uttered immediately before the Great Depression.  Have we learned nothing from past history?

According to CNN:

“You know, I share the outrage that people have,” said Paulson. “It’s embarrassing to look at this, and I think it’s embarrassing to the United States of America.”

“There is a lot of blame to go around – a lot of blame with big financial institutions that engaged in this irresponsible lending … blame to the people who made loans they shouldn’t have made, people who took out loans they shouldn’t have taken out,” said Paulson, who served as CEO of Wall Street giant Goldman Sachs for seven years before he became Treasury Secretary in 2006.

Now I’m confused.  Treasury Secretary Paulson is a smart man…otherwise he would not have lead Goldman Sachs and been named Treasury Secretary.  Yet, now we face one of the most significant financial crisis of our generation and times and at the heart of the issue are actions taken by aggressive financial institutions.

“Blame to the people who made loans they shouldn’t have…”  Secretary Paulson shame.  Blame to the people.  The people don’t have control over what loans are available and which loans are marketed to them.  I agree there should be blame, but to blame people who responded to sophisticated marketing campaigns that were promulgated by financial institutions who have huge profits to earn is absurd!

The “people” bought what you sold and only by the grace of the federal reserve is your former company – Goldman Sachs still in business.  The sad reality is – we are where we are due to misguided efforts and actions by those institutions (financial and government) who should have known better.

Fed Chairman Ben Bernanke is reported to have said that the central bank would prefer that the government not have to take an active role in raising capital needed by financial firms. But he said there was no alternative given current market conditions.

“Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy,” Bernanke said.

Ethics are defined as the discipline dealing with what is good and bad and with moral duty and obligation.  As an Ethics Speaker, I feel that those who lead have not only a moral duty but a supreme obligation to do what is good and in the best interest of those they serve.  At this moment the debate in Washington, DC directly relates to doing what is in the “good and best interest” of those they serve.  Sad that we had to arrive on the brink of a financial disaster in order for our leaders to take notice.

We can all make mistakes.  Leaders are not perfect.  But as I say in ever Ethics presentation I make – Every Choice Has A Consequence.  This is no different.  The self-serving profiteering choices of the past – loaning money to those who could not afford it and driving an economy on the back of those who are now blamed – is unethical and wrong.  I submit that had the same actions been made on a small scale – the government would have charged those involved with fraud and it would have been a “white collar crime” example.  But this is too big and now it is called a mistake with our top financial leaders and institutions being bailed out.

What do you think – Goldman, Merrill, Lehman, AIG, Freddie Mac and Fannie Mae – the government’s oversight – ethical or unethical?

An interesting commentary by Ron Paul can be found here…you might want to take a look.

Now let me state from the outset – I don’t claim to be a financial wizard, but I find it curious that in order for the last of our country’s investment banks to survive they must become – well – regular banks.

If somehow we haven’t gotten it thus far – AMERICA IS IN FINANCIAL CRISIS!  The scope of the crisis is truly unknown to the average citizen and while I am no doomsayer – it is not over.

The borderline unethical financial practices of these institutions are the root cause of their demise.  When you loan money to people who can’t practically pay it back in the interest of profits – you are, in my opinion, acting without sound business ethics.  But here’s the deal – if it were you or I, we would be conviced of some fraud or conspiracy.  That would mean jail time.  But when your crime (yes I said crime) is so large that it shakes the foundation of our financial markets – you get bailed out and make no mistake the Fed’s action today (on a Sunday) is a bail out.

Think about it – over the course of the past three weeks our government in one form or another has spent up to nearly 1 TRILLION of our taxpayer dollars to shore up our financial institutions so that we would not experience another GREAT DEPRESSION.  Wise or not remains to be seen.  All I report on here are the facts.

Goldman Sachs and Morgan Stanley are the remaining two investment backs surviving.  Lehman Brothers filed for bankruptcy and will be sold to Barclays and Merrill Lynch was purchased by Bank of America.  Fascinating that little NCNB (former North Carolina National Bank) became Bank of America and now is the largest bank in the US with the Merrill acquisition.  Who said the South would not rise again.  But I digress.

According to a report by CNN:

The Fed announced that it had approved the request of the two investment banks. The change in status will allow them to create commercial banks that will be able to take deposits, bolstering the resources of both institutions.

It is clear that this change of status is designed to use “deposit” as a means of leverage giving them a stable source of funding.  The question is – who would want to deposit funds into either institution.

Answer:  In the surprise announcement late Sunday, the central bank said that to provide increase funding support to Goldman (GS, Fortune 500) and Morgan (MS, Fortune 500) during the transition period, they would be allowed to get short-term loans from the Federal Reserve Bank of New York against various types of collateral.

So let me get this straight in my mind – the federal reserve is going to make loans to both Goldman and Morgan giving them cash to offset their poor loan portfolio making them appear to be safe.  To me that is like paint a rotten fence with white paint and calling it new.  This is nothing more than a disguised bail out.

According to MSNBC: After the collapse of Bear Stearns and its forced sale to JP Morgan Chase last March, the Fed used powers it had been granted during the Great Depression to extend its emergency loans to investment banks as well as commercial banks. However, that extension was granted on a temporary basis.

But as commercial banks, Goldman Sachs and Morgan Stanley will have permanent access to emergency loans from the Fed, the same privilege that other commercial banks enjoy.

So here are some questions to ponder – and feel free to respond!

Question 1: Should the Fed have taken the actions to allow Goldman and Morgan to survive by allowing “normal” banking deposits?

Question 2: Do you feel that the actions by the “investment banks” have been ethical or unethical?  Why?

Question 3: With the massive actions taken over the course of the past three or so weeks, do you feel more or less confident in our nations economy?

As a business ethics speaker, I can say that there has never been a time in my lifetime that demands more thought, focus and ethical consideration of actions taken than now.  Business is good and business done with right ethical intention can grow and prosper.  But, as I say in practically every presentation I make – Every choice has a consequence.  Now we are reaping the consequences of choices made – not so long ago.

For all our sakes let’s hope that we can weather the economic storm ahead.

Your comments are welcome!

There are times when I read of people who have been convicted and I wonder how good people got caught up in a crime and ended up with unfortunate consequences.  Often, as an ethics speaker, I have said that – Every Choice Has A Consequence.  That is a true statement.  And at times it is true that otherwise good people make bad choices and find out the hard way about the consequences that follow.  But in this case – well read for yourself.

According to the US Attorney’s office: Levander Carlton McLean, 66, and his wife, Rita Murphy McLean, 45, of Garland, Texas, were convicted by a federal jury following a three-day trial on conspiracy to unlawfully use identification documents.  They each face a maximum statutory sentence of five years in prison, a $250,000 fine and restitution. They are scheduled to be sentenced by Judge Kinkeade on December 3, 2008.

The government presented evidence at trial that in July 2001, Levander and Rita Murphy McLean were able to convince their nephew, a Texas Department of Public Safety driver’s license technician, to make them a fraudulent Texas driver’s license and a fraudulent Texas identification card in the names of two innocent people living in North Carolina and South Carolina. The McLeans used these identification documents, as well as a fraudulent Michigan driver’s license that Rita McLean obtained in the name of an innocent Texas resident, to open several fraudulent bank accounts in Dallas, Michigan, and North Carolina.

From 2002 through 2004, the McLeans deposited more than $200,000 in proceeds from more than 130 false federal income tax returns, which had been filed in the names of real taxpayers using stolen W-2s, into these fraudulent accounts.