Tuesday, October 26, 2010

Looking for An Honest Man

The Greek philosopher Diogenes is said to have walked the streets of ancient Greece with a lighted lantern in broad daylight looking for an honest man.  Clearly, thousands of years of human civilization have not produced any progress in the honesty arena--if Diogenes were alive today, he could well spend his days walking up and down the major streets of any large city, or small little hamlet for that matter, searching high and low for an honest person without success.

To illustrate my point, I have pulled some recent headlines of convictions and guilty pleas for financial crimes so outrageous that it is hard to believe that these are real life stories and not something out of the mind of Oliver Stone.

I will begin with a story from the Associated Press, which ran yesterday, October 25, about a Bend, Oregon, police captain and wife, a real estate agent of 20 years, who have been recently indicted on 21 counts of fraud including conspiracy to commit wire fraud, wire fraud, bank fraud and money laundering.  Kevin and Tami Sawyer are charged with swindling about $4.4 million dollars from investors which they used to pay for cars, credit cards and a vacation home in Cabo San Lucas, Mexico which they built and decorated.  The Sawyers approached friends and acquaintances, including their daughter's dance instructor, and persuaded them to invest in their real estate schemes, which included development of 22 acres in Greensburg, Indiana near the proposed construction site of a Honda Plant.  From 2004 to 2009, the Sawyers are said to have owned or been involved with at least 10 companies, bought and sold dozens of properties and taken out millions of dollars in mortgages.  County records indicate that the Sawyers and their companies still own 18 properties in the Bend, Oregon area.  Although Kevin Sawyer and his attorneys were unavailable for comment after news of the indictment was handed down, Tami did give the following statement to the local television station, "How funny.  It's news to me.  I had no earthly idea."  Since the Sawyers have been under federal investigation for two years, I think perhaps they should consider hiring a new attorney who will keep them better informed of the status of the investigation.

Moving across the country now, we come to the case of Florida money manager Arthur Nadel.  An October 22, Bloomberg News story reports that the 77 year old Nadel was sentenced to fourteen years in prison last Thursday for defrauding 390 investors out of $168 million dollars.  Nadel was charged with, and convicted of, wire fraud, mail fraud and securities fraud.  The prosecutors had asked for 19 and a half years, but in light of Nadel's advanced age, the judge gave him a sentence that provides him with some hope of release before he dies.  Nadel pled guilty to operating a 10 year Ponzi scheme in which he invented net asset values for hedge funds and then transferred money from them.  He reportedly told investors that the funds were valued at more than $360 million and that his funds yielded 11 % to 55% per year, but in reality there often were no yields, and he pocketed $63.9 million in trading fees and profits, including $45 million from 2005 to 2007 which paid for a luxurious lifestyle for himself, a flower shop for his wife, and a real estate project in North Carolina.  At his sentencing hearing on Thursday, Bloomberg reports that Nadel stated that he has had time during his incarceration since January 2009 to think about the victims of his crimes and to read the letters they sent to the court.  He reportedly told the judge, "Recently, I read their letters over and over again until their anger and outrage became my own against myself."  With a 15 year prison sentences in front of him, plus three years of supervised release, Nadel will have plenty more time to reflect on his crimes and their victims.

Next we have the case of Frank Castaldi,  who on Sepember 16 was given a 23 year prison sentence--the maximum possible under the law--for running a 20 year Ponzi scheme which stole millions from the  mostly working class Italian American community in Chicago where he lived. The 57 year old accountant earned the trust of the members of the community by preparing their tax returns.  He was personal friends with the victims in his community and attended birthday parties and weddings while stealing their life savings. A 72 year old Italian American immigrant testified that Castaldi took his life savings in the Ponzi scheme; a widow read a statement that shortly after her husband died Castaldi convinced her to invest $300,000 with him.  He promised the investors 11 to 15% returns on their money and stole from a total of about $77 million from 473 investors.  When the economy began to falter, some investors began to demand their money back.  Apparently, Castaldi decided he would be safer in prison, so in January 2008 he turned himself in to federal authorities and pled guilty.  The prosecutors asked for a 12 and a half year sentence in light of his cooperation, but the judge rejected their request because of the lives that Frank Castaldi has ruined.

But in my opinion the most colorful criminal is Indiana money manager Marcus Shrenker who was just sentenced to 10 years in prison for his fraud schemes which stole millions from 9 clients including a friend of ten years and Shrenker's own aunt.  According to the October 25 Associated Press story, the 39 year old Shrenker pleaded guilty to securities fraud charges and agreed to pay $600,000 in restitution.  Unfortunately, after liquidating his bank accounts and auctioning off his assets, the court-appointed receiver came up with only $556,000 in cash against the $3.9 million dollars that Shrenker owes his investors and the additional $9 million that he owes creditors.  Apparently, Shrenker's assets were heavily leveraged, and he had used his ill gotten gains to secure loans to purchase a 10,000 square foot home, planes, and luxury cars.  The victims were told that they were investing in a foreign currency fund which turned out to be non existent.  When the scheme began to unravel, Shrenker set his small private plane on auto pilot and jumped out with a parachute in January of 2009.  The plane crashed into the Florida panhandle--Shrenker said he was aiming for the Gulf of Mexico, but the plan ran out of fuel before it got there.  Shrenker was arrested two days later at a Florida campground where he had cut his own wrists. (On top of the 10 year fraud sentence, Shrenker will also serve four years for faking his own death.)

Although investors will receive about 7 cents on the dollar from the court appointed receiver, Shrenker had written to his estranged wife that he had over $1 million dollars in an offshore bank account.  He also told her that he had book and movie deals pending.  And in the strangest footnote of all, Shrenker claimed that he jumped out of the plan with a 90 pound bag of gold worth about $1.9 million dollars which is now at the bottom of an Alabama river.  When asked if he had made any effort to recover the gold, Shrenker answered that he had not, but he was sure that treasure seekers would be looking for it.  He claimed that the decision to fake his death was necessary in order for his wife and children to receive millions of dollars in life insurance and to spare them the financial consequences of his going to prison.  Unfortunately for the Shrenker family, their father now has no money to pay child support.

What do all of these people have in common, other than a long-term residence at a facility run by the federal government?  Each of them knew that their actions were both morally wrong and criminal.  They stole money from friends, neighbors and even relatives, and took the life savings of people in their own communities. They violated not only legal precepts, but the most basic and agreed upon moral principles.  And they did it all for money.

This weekend, the White House urged voters to consider their choices carefully next week because if Republicans are elected, the Wall Street Financial Reform Act will be repealed.  Ignoring the fact that the Republicans will not have a large enough majority to override a promised presidential veto, the President stated that, "Our economy depends on a financial system in which everyone competes on a level playing field, and everyone is held to the same rules...And, as we saw, without sound oversight and common-sense protections for consumers, the whole economy is put in jeopardy."  But as we have seen, laws do not stop criminals--they merely provide authorities with tools to prosecute after the criminal actions have taken place.  The Wall Street Reform Act contains thousands of pages of rules and calls for hundreds of new studies, but nothing in it is going to stop the lying, cheating and stealing which costs families their life savings. In fact, by cutting off legitimate options for loans and investing, laws such as the Wall Street Reform Act actually make vulnerable consumers more susceptible to lies and overblown promises from crooks who are out scouting for victims. After all, there is no law anywhere that can change the heart of a con artist.

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