White collar criminals assume they won’t get caught

Published in the San Diego Union-Tribune, October 31, 2016

I recently perused some files from the Criminal Division of the United States Attorney’s Office for the Eastern District of New York and found this exchange from a hearing in Judge Horatio Blotzburger’s courtroom.

Prosecutor: The State alleges that you conspired to fraudulently steal over 239 million dollars and accuses you of trading on insider stock information, of running a Ponzi scheme, of penny stock manipulation, of embezzlement and of sex trafficking for personal gain. Did you do all these things?

Defendant (Mr. Usvoq): Yes.

Prosecutor: Why?

Defendant: I didn’t think I would get caught.

Prosecutor: Is that the only reason?

Defendant: No, I had a difficult childhood, my father was mean, I have low self-esteem, I am defined by my net worth, I am incapable of deep human emotion, I need to be the smartest guy in the room.

Prosecutor: Were you surprised when you were found out?

Defendant: Well, yeah. I mean I had a nice home, lovely wife, good kids, a great salary, served on multiple nonprofit boards, was held in high esteem by my peers — frankly, I was a big shot. I had the plane and the boat. And to tell the truth, I just didn’t think the laws applied to me.

Prosecutor: What about the pain you caused your victims?

Defendant: (surprised) Huh, just didn’t cross my mind.

“Why They Do It: Inside the Mind of the White-Collar Criminal,” by Eugene Soltes, Professor at Harvard Business School. This is a must-read.

Given my current interest in criminals (Defy Ventures and my sojourn inside the maximum security prison at Lancaster), I was fascinated by Soltes’ book. He interviewed four dozen prisoners — including Bernie Madoff and Allen Stanford (Ponzi schemes), Scott London and Sam Waksal (insider trading). The book dispels the idea that “most corporate crooks are masterminds who carefully calculated their illegal acts, weighing the risks and rewards.” In fact, it is exactly the opposite, they didn’t plan even one chess move ahead. They simply assumed they wouldn’t get caught.

Soltes also finds that many of his subjects exhibit “an overwhelming lack of remorse — these men are really good at rationalization.” And further, there is a disconnect in their minds between a violent crime and financial fraud.

I recently spent another full day in prison witnessing a “shark tank” business plan pitch by the EITs (entrepreneurs in training). I will spend some time on that in a future column, but what it is overwhelmingly clear is that every one of these men are fully and completely remorseful. They are working through their shame, they are deeply aware of the pain they caused and viscerally affirm that they will never do that again. I looked into some very deep and dark souls during my day in prison, and I think the contrast that Soltes paints about empathy is powerful.

Soltes tells about Steven Hoffenberg (Ponzi for $475 million) who viewed his operation “not as a deceptive criminal enterprise, but rather as a pragmatic issue.” He wanted the money. And he, like all of them, created a tight little box. He stole during the day and came home at night and kissed his wife and children. There was a complete disconnect.

The white-collar criminal can intellectually understand that he has hurt people, but it appears to not resonate emotionally. But here is the kicker. All of us are susceptible to these cognitive biases. You and I think that because we have a good moral compass, we are immune to the disease — naïve and wrong. What Soltes suggests is that all of us are capable of rationalization and compartmentalization. After all, everyone is going 20 mph over the speed limit, (everyone steals) so I will also. Easy to catch the germ, it’s blowing in the wind.

Finally, Soltes points out a partial solution — seek input from other people outside your bubble. You need someone to push back on your assessment. In his case, he usually turns to this wife (a physician), “she sees the world very differently than I do.”

Neil’s note: The first part of this column is completely made up. And for those of you who are hackers out there, who is the defendant?

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