A true story of fraud and corporate culture that has implications for us all
This weekend, the tales of alleged fraud and the financial crisis became real for me. What I want to share here is a true story told to me by a good friend. For obvious reasons, no names will be mentioned.
The story is about a US company that sold home loans in California. Apparently, one agent worked extensively with an immigrant community where English was frequently poorly spoken. She had customers who were not familiar with the process, the difference between different types of loans, or the risk in loans with balloon payments.
What she seems to have done is encourage people to apply for loans they did not qualify for, and fail to inform them that there were balloon payments or that rates would rise after a teaser period. In at least one case, the copies of the loan documents she gave them after signing did not include the pages with these disclosures.
Some of these individuals complained when they found out. The manager was contacted. But, no action was taken – the manager called HQ but was told to leave it alone. Not only was no action taken, but the agent continued without interruption.
I am told the agent made $600k in annual compensation during this period. The manager and her supervisors in HQ shared in the good times. Nobody called a whistleblower line, a reporter, an auditor, an agency. The silence was deafening. My friend simply quit.
I doubt that the fraudulent deceptive behavior was limited to the one agent, or even to one company.
What does this mean?
- When there is money there is temptation
- When management benefits from employee fraud, don’t be surprised if they look the other way
- If you are concerned about fraud, startlingly high bonuses are a red flag
- It’s not only tone at the top that you have to worry about
- Incentive compensation is an issue at all levels within the organization
- Even good people will quit rather than go through the hassle of a whistleblower call
- I wonder where the auditors were