The Biggest Frauds in U.S. History Explained by Madoff and Enron’s Fastow in Soltes’ Book

It baffles many to logically reason that despite already possess status and wealth, business executives commit financial crimes.

Some answers to this dilemma is provided by Eugene Soltes through some interesting theories in his new book, Why They Do it: Inside the Mind of the White-Collar Criminal. Many senior business people operate in a moral “gray zone”   is a notion that is included his theories.

Partly due to the fact that business executives rely on intuition, they step over the line—breaking accounting rules or making illegal insider trades, writes Soltes, an associate professor at Harvard Business School. And the instincts of these executive are just not good enough, he says.

A large audience to his book would be compellingly drawn by the author’s unusual research method which is more compelling than his analytical efforts. Four dozen convicted criminals, ranging from Ponzi scheme legend Bernard Madoff to Andrew Fastow, late of Enron Corp., to Dennis Kozlowski, once the chief executive of Tyco International Ltd. Lo and behold were written letters to by Soltes in an admirably naive eagerness and surprisingly many of them wrote back.

This provided the opportunity to Soltes to pepper his book with self-justifications of a colorful Murderers’ Row of white-collar crime and the first-person observations.

The examples he gives are extremely interesting.

I’ll pay them all back. Promise.

“It’s like a comedy of errors.To cover the losses, I decided to take in money from hedge funds. And in order for me to do that, I had to commit to a long-term strategy that I wouldn’t send the money back [to investors]. I kept taking in more money, figuring that once the market allows me to do the strategy, I will be able to fix it,” Madoff told Soltes. That’s how the supposedly well-intentioned Ponzi masters classically explain themselves: Everyone will be made whole as eventually the scam will miraculously produce profits. As he’s serving a 150-year federal prison sentence, Madoff, 78, has plenty of time for correspondence.

Oops, I forgot about right and wrong.

“If I had the character I should have had, I would have said, ‘Time out,’ … but I didn’t. The reality is, if at any point in my career I said, ‘Time out, this is [expletive]. I can’t do it,’ they would have just found another CFO. But that doesn’t excuse it. It would be like saying it’s OK to murder someone because if I didn’t do it someone else would have,” Fastow, the former Enron chief financial officer is quoted in the book as saying. For his role in setting up off-balance-sheet “special purpose entities” used to conceal Enron’s true financial condition, Fastow, 54, served six years.

Blame my ego.

“The board would give me anything I wanted. We believed our own press. … With myself and others—even the board—you become consumed a little bit by your own arrogance, and you really think you can do anything.” Kozlowski told Soltes.

Crimes related to his receiving tens of millions of dollars in unauthorized bonuses, saw Kozlowski, 69, get convicted in 2005. He served six-and-a-half years in prison.

They set me up.

“It is all part of the biggest theft caused by a U.S. government agency in U.S. history,” Robert Allen Stanford, 66, complained to the author. After being convicted of charges related to his investment company operating as a Ponzi scheme, Stanford is serving a 110-year prison sentence.

“I will win this war. Make no mistake, Eugene, I am going to win,” he added. But is appeal was turned down in October by a federal appeals court.

They did it because they thought they could get away with it is the one answer that comes into focus above all others to the author’s question of why they did it, after having read Soltes’s accounts of these and other white-collar characters.

(Adapted from Bloomberg)


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