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Thursday, July 27, 2006

A Business of Cards

About a week ago I was driving myself to an appointment. As is typical, I was on the verge of being late. My minivan was idling nose down on a rather steep hill waiting for the light to change. When the light turned green I let go of the brakes and my engine died. It took me a second or two to realize that I was just rolling down the hill, instead of going. So, I had to hit the brakes, turn off the car and re-start it. While this isn't typical of my newish van, and I still don't know why it happened, I've had cars that had this problem in the past and I'm pretty quick about it from having plenty of practice.

However, this time was different. Somewhere in those fifteen seconds it took me to get my car started again, I heard a...

CRASH!!!

While the truck behind me stopped, the little car behind him did not. So, I pulled into the gas station on the corner and called the cops. Luckily someone involved had a cell phone, because I didn't have a whole lot of information. So, after hanging up the phone I walked back to the site of the crash and made sure everyone was alright. The truck bumper was a little worse for the wear, but the little car definitely took the brunt of the accident. Still, both vehicles were drivable and they got off the road as soon as they'd cleaned up some of the worst of the debris. Of course, they pulled over to the other side of the street, kitty corner to where the accident had taken place. I had to wait at two separate lights to get to the other drivers. By the time I had, the police officer was already there and had gotten the basic details he needed. When I arrived I told him my part it in, but he just jotted down another fact and waved me on my way. He didn't even require my name or liscense plate number.

I had known I wasn't liable, but being a stickler for the rules, I also knew I should stop. Some of my fellow bloggers call it Authoritarianism. Me, I simply consider it a matter of civil ethics to follow the rules and the rules are simple when it comes to involvement in a car accident: All participants and witnesses should stop, whether they "have time" or not.

Now, I have a friend who I shall call Joe. Joe works for a company I shall call CriminalType. Joe is usually both an ethical and moral person. Yet, there's a problem. Joe keeps telling me about the business practices of CriminalType, and I don't like what I'm hearing. Neither does Joe, but he doesn't seemed inclined to do much about it.

Briefly put, CriminalType's business practices involve forgery, blackmail, fraud, lots of fraud, and some other things less easily classified but obviously both unethical and illegal. Now, I've never had any doubt in my mind that these activities were wrong, from the first time Joe started telling me about them. However, now even with only my Accounting 101 class, as basic as that is, I'm starting to get a better idea of just how many businesses and people are being or are going to be hurt by these practices. I mean, we're not talking about Enron here, but the false information on their financial statements has led to a loan in which my mortgage, and all the other debt that weighs so heavily on me, could be dropped into it without even making a *plink*. And that's just one of the investors that's getting screwwed, or will be screwwed when this business of cards collapses in on itself.

Now, Joe does bring up the ethics of these matters to his bosses. They shrug it off and, when they do anything at all, they merely change the manner of their crime without changing the nature of it. Joe is looking for a new job, and trying to get out of there, but has no intention of blowing the whistle. And, that's where I really start having a problem with this whole situation.

As I said, I'm a stickler for the rules. As per the rules that I know and believe two things are true: 1) This company should not be allowed to continue doing business in this manner, dragging in as many businesses and people as they possibly can into their imminent destruction. 2) Joe should be the one to turn them in, because Joe has access to the necessary documentation to prove the criminal activities, and Joe has witnessed the criminal activities himself.

Not only that, while Joe has never directly instigated them, Joe has participated. He didn't forge the signature, but Joe did take the check to the bank...small consolation for the business it hurts that he was shaking his head in dismay all the while.

Also, the fraud involves a certain somebody getting paid under the table, so that he can continue to receive food stamps and medical assistance, despite making a rather high salary when it's all factored together. So, the state of Wisconsin, and the Wisconsin tax payers, are being hurt by this.

The whole mess is just...aggravating.

So, what I pose to my reader is this: What the heck should I do? Do I call it in? Do I further pressure Joe to call it in? Where do I start? I don't think I can sit back and do nothing on this. Nor do I think I should. Yet, it still comes down to this: Joe should be the one to act, and so far he's refused to do so.

8 Comments:

At 7/28/2006 1:10 AM, Blogger Praguetwin said...

Joe should be the one to act indeed. It is hard for me to judge since I do not know the nature of the crime.

My recommendation is to help anyone you know distance themselves from the company. If people have put their money there, it is their responsiblilty to know who they are giving their money to.

Following rules is fine, but I not a big fan of citizen police. If you or someone you love is being hurt by the actions of the company, and you have no other recourse in extracting yourselves from their grip, then you should do what you need to do.

The world is full of these types of companies (although it would be useful for me to hear what they actually do to make a better assesment). People need to be very careful who they trust.

A better course of action might be to warn people who have their money there somehow to get out before the house of cards falls.

One final point, if Joe is employed there, it seems his options are limited. Are you going to help him by turning in the company?

I tend to take care of me and mine before I worry about Jonn Q. Public who was foolish about who they gave their money to.

I'd love to hear the specifics of the scam.

 
At 7/28/2006 2:07 AM, Blogger Stephanie said...

First, thank you for stopping, Michael.

And, I do think "scam" is a bit inappropriate, since I usually associate the word "scam" with the type of business that tries to get you to divulge your PayPal account number, as if they were PayPal.

CriminalType is a merchadise/service business that is simply trying to hide it's debt-load and inflate it's sales in order to look like a more healthy business, in order to get more investmentors to compensate for the fact that they're incompetent.

And other than the fact that the federal and state governments are being defrauded by their machinations (which affects all taxpayers, including myself) I know of nobody who is investing in this company that I haven't met through Joe's association with this company.

However, I do know that through Joe's somewhat indirect, but not unaware, participation Joe could be held liable if the situation were discovered without Joe blowwing the whistle -- and that's just concerning the way the vice-president is taking money under the table in order to collect state benefits. And in that sense, I am hoping to "take care of my own." I will not describe my relationship with Joe, because Joe's boss is aware of this blog (though I don't think he's ever visited it, still this would be a heck of an unlucky first).

To my benefit, the boss in question really doesn't see himself as having done anything wrong...just helping his own.

As to specific crimes, I know he sells merchandise to companies in foreign companies, specifically South America, and under-cuts the price in order to avoid tarrifs, and then gets paid the full price under the table. How it all works..? I don't know, but Joe does.

They recently received $300,000 as a partial disbursement on a loan, and blew through that in a week, using only approximately 10% of it that could be justified honestly as an expense incurred to generate revenues. A significant portion went to pay personal debts that the president and vice-president were behind on, though this is neither a partnership nor a sole proprietorship.

They record several million dollars in inventory, and chuckle to themselves about how most of it is unsaleable scrap that they'll eventually have to dispose of.

Like I said, it's not Enron, but a much smaller scale version of some of the same tricks. If their stocks was publicly traded instead of privately held, they'd probably be much more likely to get caught...but eventually their house of cards is going to fall, because they know nothing about how to turn out a product that will produce repeat customers, and the kind of people/business that can afford their products are so prevalent that they'll be able to continue to find new fools indefinitely.

But I can assure you that you are not likely to be one of their investors.

 
At 7/28/2006 7:22 AM, Anonymous And Another Thing said...

I once worked for a large aerospace company. After years of trying to correct something within the company I started blowing a whistle. It corrected the problem and of course I no longer work there. NOBODY was my friend; co-workers, while agreeing that something needed to be done, were terrified that they might have to step up themselves. So I fell on the corporate sword and paid the price.

However, it was worth it for my own piece of mind, but at least I know that when Boeing 777's and Lockheed C-17's are flying there is a better chance that they will not crash because a small number of people were cutting corners.

Mark Twain asked the question once about why is it that physical courage is so common while moral courage is so rare? It is my belief that God places challenges in front of us sometimes, and the endings do not have the clarity you get in movies.

I agree with PT; Joe is responsible for his situation. From what little you reveal in details it seems to me that a call and interview with the FBI would be a good idea. Otherwise, if the fit hits the shan, Joe could find himself in as much trouble as the big boys.

Tell Joe that it is not possible to rat out a rat. They deserve the rewards of their behavior.

I find an anology of sorts with the traffic accident you described. Joe is like the little car that hit the truck. One is responsible for what occurs in front of them.

 
At 7/28/2006 9:06 AM, Blogger Praguetwin said...

We have a consensus of two! Be sure to urge Joe to either come forward or just leave the company.

As to specific crimes, I know he sells merchandise to companies in foreign companies, specifically South America, and under-cuts the price in order to avoid tarrifs, and then gets paid the full price under the table. How it all works..? I don't know, but Joe does.

Believe it or not, this is business as usual in large parts of the world. We get requests to do this all the time (which we deny), but it is so institutionalized we actually receive orders with the request that we do this printed on the order form.

They record several million dollars in inventory, and chuckle to themselves about how most of it is unsaleable scrap that they'll eventually have to dispose of.

This is not a crime, it is just bad business. Keep in mind that you have to pay tax on inventory as if it was income. By hanging onto worthless inventory, they increase their "profits" but they also increase their tax burden. They should sell the inventory at a loss to decrease their tax burden, but from the other example, it doesn't sound like tax burden is that much of a problem for them.

This is a good example of institutional malfeasance that is found throughout the business world, unfortunatley. The emphasis on showing profit inverts and corrupts the motivation of the board of directors. Instead of avoiding tax burden and looking out for the long term interests of the investors, managers often inflate numbers to show rapid profits. Having said that, investors are somewhat culpable because they demand dividends and constant growth in profits.

One more major flaw in the corportate system that we praise as the end all of end alls.

What a joke.

 
At 7/28/2006 6:17 PM, Blogger Stephanie said...

I intend to have Joe read this and will hope that a voice other than my own may be more influential.

And Another Thing,

"However, it was worth it for my own piece of mind, but at least I know that when Boeing 777's and Lockheed C-17's are flying there is a better chance that they will not crash because a small number of people were cutting corners."

Definitely. Though it worries me that it would be an issue at all. I wonder if that's why NASA continues to have so many expensive problems.

PT,

"They should sell the inventory at a loss to decrease their tax burden..."

The problem is that the inventory is not at all saleable. They cannot even sell it for scrap. Eventually it will end up in a landfill. This inventory is "parts," but all the parts are unusuable.

 
At 7/31/2006 12:37 AM, Blogger Praguetwin said...

Despite the problems associated with selling off the inventory, they should get rid of it and call it a loss.

 
At 8/01/2006 10:16 PM, Blogger Stephanie said...

Well, there is some good news. Joe decided to blow the whistle. Now he and I just have to wait to see how this all plays out.

 
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