Lessons Learned from a White Collar Criminal

Walt Pavlo is every woman’s dream – blonde, boyish good looks, fit (he was a football star in college), smart, articulate and successful in an unconventional way. So where’s the rub? He did 24 months in federal prison for white collar crime. He now speaks publicly and blogs for Forbes.com about the topic, in an attempt to dissuade would-be white collar criminals from following his path. “It’s not worth it,” says he.

Walt was an internal accountant at MCI in the 1990s, a period when telecom was hot and companies were clamoring to snare market share to compete. Many played close to the line as they tried to pretty the books for potential acquisitions. MCI was no exception: British Telecom was in hot pursuit (WorldCom, no lily white suitor, eventually won the prize).

Walt’s job was to collect overdue bills from the telecom resellers – no mean feat, since many thought nothing of welching on their bills. Watching a corrupt industry, and feeling pressure to produce profits in a corporate environment where manipulating the numbers was rampant, Walt worked 20-hour days for a modest salary, hounding deadbeats while his MCI superiors made mega bucks and accumulated valuable stock options. He figured out an ingenious plan to hide some of the bad receivables, and in the process, make some extra money for himself. Quite a lot, it seems – over $6 Million, all through a complex scheme involving off-shore accounts, reticent auditors, another MCI employee and some shady entrepreneurs.

But he paid dearly for the privilege: federal prison is no country club, contrary to what we may think. “Prison is pretty brutal, with significant security, restricted activities, a mundane job and not much else. I was a librarian, had 3 meals a day, made time for exercise, and read. That’s it.” He was confined with 499 others, of whom only 50 were considered white collar criminals.

“Prison destroyed my family (his wife divorced him when he was released), my kids (9 and 10 at the time) paid a price, seeing their dad in prison, I ruined a once-promising career as an internal finance manager. I lost everything.” (He since has remarried).

When did he first believe what he was doing was wrong? “Immediately,” he says. Then why did he do it? “I think on some level I was getting revenge for the dead beat customers I had to deal with and the internal manipulation of the numbers that my bosses seemed to condone.” There was general direction from above to “make the numbers work”. Where were the auditors? “Few auditors questioned the good news of making the numbers.” How did he get caught? “An internal MCI auditor found the evidence.” Walt pled guilty, and $300,000 in legal fees later, was on his way to prison, first to Jesup, Georgia, and then to Edgefield, South Carolina, where completion of a drug and alcohol rehabilitation program earned him some time off from his original 41-month sentence.

What are the important takeaways from his experience? “Most crimes occur because of the congruence of opportunity, pressure and rationalization. However, I believe it boils down to opportunity – there is something missing inside corporations that allows that kind of fraud, and in MCI’s case, it was lax controls. I tell people now not to give weight to the consequences of doing the right thing. For instance, when accounting manipulation occurs inside of a company, many people do not speak up about the practice because they do not want any trouble or they fear losing their job. So they decide not to act, even though they know it is the right course of action. White collar crime is wrong, and everyone who does it deserves to be punished.”

Garrett Bauer (above) is another sort of white collar criminal – he committed insider trading for 17 years, pocketing mega bucks in the process – and is headed to prison in May. We met for lunch at a diner on the Upper East Side of Manhattan, and he told his story (he was arrested a year ago). A nice, slightly built, somewhat shy and unassuming guy, he, too, is the antithesis of what we may think an insider trader to be. He previously worked for State Street in Boston, then came to New York City to join the municipal finance group at Weiss Peck & Greer, where he met Ken Robinson, a corporate finance professional, also indicted.

Their scheme also involved a mergers and acquisitions attorney, Matt Kluger, who worked at tony Wall Street takeover law firms, including Cravath, Swaine & Moore and Skadden, Arps, Slate, Meagher and Flom. When Matt learned of a possible merger, he tipped off a middleman (Ken) who then called Garrett (always on disposable phones or from public pay phones) who then placed the trades through his proprietary trading business housed at RBC. Profits were shared among the three.

The irony of Garrett’s case is that he and his cohorts actually agreed to stop their illegal activity, then his partners in crime did a couple of trades on their own, raising suspicion at the SEC, got caught, and ratted him out in exchange for reduced sentences. There is no honor among thieves.

In another piece of irony, it seems that Garrett & Co. didn’t always profit – in fact, losses for several years totaled over $9 Million. But, prison sentences primarily are based on the amount of the take, and the government doesn’t subtract the losses in computing the formula. Garrett is looking at 9 to 11 years in federal prison where, because of overcrowding, he’ll do time alongside drug runners, hardened criminals, and the like. He won’t be playing tennis on clay courts.

The media generally portrays insider traders as being larger than life, complete with a lavish lifestyle. Garrett is anything but. When we met, he was wearing jeans and a hoodie. He volunteers regularly at a homeless shelter (something he’s done his entire professional career). His only extravagance was purchasing a $6.5 Million apartment on Manhattan’s Upper East Side, for which he paid cash, and a place for his mother in Florida. He’s forfeited both.

Did he ever think about the consequences? “Not really. I knew it was wrong, but I also know that virtually everyone on a trading desk has access to inside information. Some act on it, some don’t. I did, and now I’m paying the price.”

Much of Garrett’s trading business was legitimate, as were some of the profits he earned. But, as he stated, somewhat ruefully, “The trades that I did that were wrong have resulted in severe consequences. I’ve lost my money, my apartment, and now my freedom. I’ll be paying restitution for the rest of my life.” It seemed only appropriate for me to pick up the check for lunch.

Both Walt Pavlo and Garrett Bauer have this to say to anyone contemplating white collar crime: Don’t do it. Eventually, you’ll be caught, and it’s a terrible price to pay.

About Merry Sheils (63 Articles)
Merry Sheils won the New York Press Club’s Journalism Award for best business writing in 2011 and 2012. As a portfolio manager for private clients, she writes a financial column for WomenAroundTown.com as well as features and profiles. She frequently writes economic and capital markets commentary, including white papers, thought leadership pieces and investment reports, for companies and investment managers. Prior to becoming a writer, Merry worked as a senior portfolio manager and investment analyst at BNYMellon and Wilmington Trust Company (now M&T Bank). A SUNY graduate with a degree in finance, she is the author of “Debt-Based Securities” and has been published in The Financial Times, Forbes and Chief Executive Magazine, and has appeared as a guest on CNBC. She founded First New York Equity, Incorporated, an investment advisory firm, and sold it to Price Waterhouse (now PricewaterhouseCoopers). She divides her time between New York City and her 18th century house in Columbia County, NY, where she is active in the North Chatham Free Library, the Old Chatham Hunt Club and the Columbia County Historical Society.