I served 26 years in federal prisons of every security level. During that time, I made efforts to learn as much as possible from the men around me. Besides wanting to understand more about adjustment patterns and preparations for the future, I also had an interest in understanding more about the influences that led offenders into the criminal justice system.
I learned a great deal from listening to the complexities that brought former business leaders to prison.
Although many white-collar offenders set out to engage in deliberate frauds with the singular goal of self-enrichment, I spoke with countless men who served time for crimes like mail fraud, wire fraud, or securities fraud who did not consider themselves criminals at all. Many of them told plausible stories about making business decisions without any concept that they could eventually become targets of criminal investigations. Since their decisions did not begin with criminal intent, the prisoners did not believe that authorities would ever perceive them as criminals. From their perspective, they were members of the community in good standing and lived in accordance with the principles of good citizenship. I wanted to learn as much as possible from them.
John was a good example. He launched an Internet technology company from his living room. Within a few months, he had signed up several customers and had an impressive book of business. John’s polished sales presentations led to rapid growth, making his company attractive to the investment community. In the short span of three years, John went from superstar sales leader to CEO of a publicly traded technology company.
But the skill set of persuading clients to sign a purchase order differed from the skill set necessary for good corporate governance. Wall Street analysts consistently expected John’s company to exceed revenue growth targets. The pressures became overwhelming. When he learned that his company was about to miss quarterly revenue targets, John quickly began to calculate the fallout.
He expected the company’s share price would drop 30 to 40 per cent in an instant. That drop would devastate his workforce, as all employees had received equity or stock options as a component of their compensation.
John’s CFO offered a suggestion. They could barter services with one of his company’s allies that had similar problems. Both companies were publicly traded and they shared a need to book additional “revenues” during the quarter to meet Wall Street expectations.
John told me that he asked his CFO whether bartering revenues was legal. The CFO told John that securities laws permitted the bartering of revenues so long as the financial filings reflected the true nature of the transaction. When he asked the CFO what the downside would be if he were to authorise the bartering transaction, the CFO told John that the company would likely face a civil penalty.
Several years passed before authorities became aware of the deception. Then FBI agents showed their badges and began questioning John.
He denied involvement, exacerbating his troubles. Rather than accepting that he had actually committed a crime by certifying financial statements that he knew to be false, he lied to authorities upon the initial investigation. Then he lied to the lawyers whom he had retained to defend him. Never having been accused of criminal behaviour in the past, John clung to delusions that he could make the ultimate sale and persuade authorities to believe that he had acted out of ignorance rather than out of intent to deceive. In the end, that strategy failed, leading to John’s five-year sentence for securities fraud.
John is but one example of how ignorance of the criminal justice system leads many business leaders inside. Many begin with the best of intentions, but their decisions violate laws. In John’s case, he told me that he willingly signed financial statements even though he knew those filings did not disclose the true nature of his company’s revenue growth. At the time, he said that it was wrong. But he wanted to believe that his actions constituted a civil matter rather a crime. Further, he said that he could justify his decision because there wasn’t any motivation for self-enrichment and there wouldn’t be any shareholder loss in the noncash transaction. John said that he only wanted to protect the company he loved and the employees who worked with him.
Further, John’s CFO convinced him that authorities would never discover the ruse. In the “unlikely” event that anyone found out, John believed the company would simply have to pay a fine. Like many business leaders, John was ignorant of possible criminal sanctions attached to business decisions. But a lack of criminal intent would not excuse criminal behaviour. John was wrong to delude himself. As the CEO of a publicly traded corporation, he should’ve known that certifying financial statements containing inaccurate information would place him in jeopardy of a criminal prosecution.
During the decades I served, I met scores of business leaders who operated with a willful blindness that did not serve them well in the end. I’ve written extensively to help individuals understand what I learned from them. For starters, business leaders should make a better effort to understand the implications of their decisions.
Michael Santos spent more than 25 years in prison after being convicted of trafficking cocaine at the age of 23. He wrote several books while he was there. His latest book, “Earning Freedom: Conquering A 45-Year Prison Term,” can be purchased here.
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