by Rabon, Don
At this point, opportunity was now added to pressure/motive. Two of the three requisites for fraud as presented by Dr. Cressey were now in place.
Pausing for a moment, we have more to explore regarding this pressure/motive dynamic before we travel further downstream, past Alex’s stock trading, financial evaporations of the investors’ resources, to his rationalization. First, it is necessary to go back up stream to find the source of Alex—who had no real life experience trading stocks—having become involved in such a financially perilous undertaking. How did Alex become involved in trading stocks? Once more we look to his testimony.
Q. Now, as of early and mid 2001 when you moved over to CEP from One-to-One Wireless, did Mr. Noel know anything about this trading program that you had developed in college?
A. Not at that time.
Q. Directing your attention to the fall of 2001, did that change?
A. Yes, it did.
Q. Can you tell the jury what happened in the fall of 2001?
A. In the fall of 2001 — we had the September 11th attacks in 2001. Bryan knew I had an interest in the markets, and his accounts had taken a substantial hit since the 2000 stock market decline, so at that point I took over the management of his personal account in terms of logging in and making stock trades.
Q. Well, what was it that caused Mr. Noel to have you start engaging in his trading in the fall of 2001? Did you tell him something?
A. Yes.
Q. What did you tell him?
A. I had told him about the system that — — — — and I had developed.
Q. So Mr. Noel gave you access to his personal trading accounts?
A. Yes, he did.
Q. And at that time, approximately how much money was in those personal trading accounts that you were managing?
A. I do not recall the exact figures, but it was somewhere in the 10 to 12,000 vicinity.
Q. 10 to $12,000?
A. Yes, 10 to $12,000.
Q. Did you trade those monies?
A. Yes, I did.
Q. Did you use that program you developed in college?
A. Yes, I did.
Q. Is this the first time you had ever used real money for that program?
A. Yes, it was.
Q. How did it go?
A. It went pretty well for 2001 and early 2002.
Q. When you say “pretty well,” what do you mean?
A. The returns that it produced were something on the order of 20 to 25 percent annualized.
Q. And this was from sometime after September 11th, 2001, you said, through 2002?
A. Yes, it was.
Q. And when in 2002? How long did you keep doing that?
A. 2002, probably about May.
Q. At some point you have a discussion with Mr. Noel about whether others could be offered these trading services.
A. Yes, we did.
Q. When was that?
A. That would have been sometime in early 2002.
Q. Tell the jury about that.
A. Bryan was impressed with the results that were generated in late 2001, Bryan Noel, and he said this could be something that could be offered to the existing CEP clients that we had.
Q. Only the existing clients?
A. It could be offered to new clients as well.
Q. And so was the decision made?
A. Yes, it was.
Q. And what was the decision?
A. The decision was made to make this available to new and existing clients.
Q. To make what available?
A. To make this trading system available.
Q. Were clients going to be told about this trading system?
A. Yes, they would be.
Q. What — was there a decision made about what type detail was going to be provided to them about the trading system?
A. That would be a system that does involve day-trading and invests all the funds in stocks.
Q. What — when you say “all the funds,” what funds were supposed to be invested in the stock market?
A. Any incoming client funds that were designated as such for that type of trading.
Q. And were funds that were designated as such put in a particular account?
A. Yes, they were.
Q. And what account was that?
A. They would have been put into Pinnacle’s bank account and, ultimately, broker’s account.
Q. So prior to early 2002, you said that Pinnacle was not involved in money management?
A. That is correct.
Q. But after early 2002, was Pinnacle involved in money management?
A. Yes, it was.
Q. And based on your discussion with Mr. Noel, what were clients told about how those Pinnacle funds were going to be managed after early 2002?
A. Those investors would have been told that they were being used for a relatively rapid day-trading system and that all of those funds would be invested in the stock market.
Q. Now, who was going to be out there promoting this program to clients?
A. That would have been Bryan Noel and the other sales staff.
Q. And was the other sales staff told about the trading program as well?
A. Yes, they were.
Now, we have discovered that the source for the stock trading tributary was Alex and not Bryan Noel. Alex was the one who “had an interest in the markets.” It was Alex who “told” Noel about the stock trading system that he had helped to developed in college. It was Alex that “took over the management of” Noel’s personal account. Verbs are telling in that they show action or state of being. Alex:
Had an interest
Told Noel
Took over
Acting upon his market interest, Alex approached Noel and told him of his stock trading system.
As a result of that conversation, Alex took over. From Noel’s relatively small, personal investment, the trickle grew significantly into a raging river of investors’ money that ultimately evaporated, leaving over one hundred people high and dry.
ELEMENT THREE: RATIONALIZATION
“Rationalization” can be defined, “To ascribe one’s acts to causes that superficially seem reasonable and valid but that actually are unrelated to the true, possibly unconscious and often less creditable or agreeable causes” (Dictionary.com).
In Shakespeare’s tragedy Othello, there is a forceful example of rationalization. Othello had murdered his wife, Desdemona, as well as his loyal friend, Cassio. He committed these murders in an act of (unwarranted) jealousy. In the play, Lodovico asks the following:
“O thou Othello, thou wert once so good,
Fall’n in the practise of a damned slave,
What shall be said to thee?”
Othello replies:
“Why, any thing:
An honourable murderer, if you will;
For nought I did in hate, but all in honour”
The act of rationalization allowed Othello to attribute what he had done as an act of honor rather than a needless reaction of a jealous husband. Honor “seemed reasonable and valid,” whereas the more truthful “suspicion and distrust” lacked the nobility of the former.
While Alex was testifying, a question opened the door, allowing Alex to articulate his rationalization for his fraudulent behavior.
Q. What was going on in 2003 that would cause you to do something like this?
A. There were many circumstances in 2003, especially the latter part of the year where I had a bad breakup with an ex-girlfriend and I started drinking heavily, started smoking marijuana at some points from 2003 to 2004, and also even engaging in sexual activity at that time that I was hiding from my parents. Hiding many of those things from my parents.
As with Othello, our analysis of Alex�
�s words is most revealing. First, we have to put his response in context: Back to the question asked, “What was going on in 2003 that would cause you to do something like this?” We know “what was going on” as articulated by Alex, the pressure/motive of:
Stock losses
Fear of telling clients, lest they withdraw their money
Fear of telling his partner
Loss of position
Now, as to regarding the “cause,” i.e., rationalization for sending out false reports, Alex responded:
Bad breakup with a girlfriend resulting in:
Drinking heavily
Smoking marijuana
Engaging in sexual activity hidden from his parents.
The juxtaposition of pressure/motive with rationalization forms an “If–Then” logic operation. Keep in mind that it is an idiosyncratic logic operation. Consequently, in Alex’s world, as he articulates it and we endeavor to understand it:
IF someone is under pressure because of stock trading losses and fear of clients, partner and loss of position,
AND subsequently there is a breakup in a relationship leading to drinking heavily, smoking marijuana and sexual activity unknown to parents,
THEN the fraud becomes the optimal choice.
It is not necessary to agree with Alex’s articulation of his reality. It is only necessary to understand that it is Alex’s articulation of how things “operate” in his world.
Comparing Alex and the fraud triangle to the classic fire triangle (fuel, heat and oxygen), we find that the stock trading opportunity constituted the fuel, his articulated pressure/motive was the heat and his rationalization supplied the oxygen. Figuratively speaking, there was, at this point, fire on the water.
THOUGHTS, COMMENTS AND ANALYSIS
What are your impressions, to this point, with regard to this circumstance?
Exactly what do you know?
What is it that you know that you don’t know?
What questions would you ask in order to know?
What steps would you take in order to know?
POINTS TO PONDER
At another point in Alex’s testimony we read the following possible motivation for falsifying the account statements:
Q. And what were you going to do with regard to account statements after this meeting for clients?
A. There would be nothing different than what had previously been done.
Q. Which was what?
A. Which was showing them rates of return above two and a half percent per quarter.
Q. And the two and a half percent was a significant number why?
A. That was significant because that was the figure that was in the membership application that clients signed, when they came in to become clients, stating that no fees would be taken for any performance figure below that.
What does the sentence “There would be nothing different than what had previously been done” bring to mind?
What does the use of the word “taken” found in “no fees would be taken for any performance figure below that” bring to mind?
Does falsifying the two and a half percent return to clients illustrate pressure/motive, opportunity, rationalization or something else?
What questions would you pose to Alex at this point?
CONTENT – CONTEXT APPLICATION
A district supervisor with the Division of Motor Vehicle License and Theft Bureau was charged with stealing property and misconduct in office. The warrant indicated the supervisor had bought stolen property—three stolen lawn mowers—that were part of an ongoing investigation. The warrant also stated he subsequently concealed the evidence and hindered the investigation into those who were involved in the theft.
In regard to an individual holding a supervisory position in an investigative agency:
Would the purchase of three stolen lawn mowers (part of an ongoing investigation) be a function of pressure/motive, rationalization or opportunity?
Would concealing the evidence and hindering the investigation be a function of either of the same three fraud triangle elements?
Why would someone functioning within an organization that consistently discovers and prosecutes violators of the law believe that they would be able to successfully prevail?
What questions would you pose to this individual?
CHAPTER FOUR
ALEX MET THE INVESTORS AT THE WELL
HE TOOK THEIR WATER AND THE WELL RAN DRY
From reveries so airy, from the toil
Of dropping buckets into empty wells,
And growing old in drawing nothing up.
—WILLIAM COWPER (1731–1800), ENGLISH POET
NAVIGATION POINT AND HEADING Let’s walk up another tributary, just a bit, to take a close look at Alex’s involvement with the CEP sales presentations and his meetings with individual prospective clients. He has admitted that from 2002 until 2006, he was sending out false financial reports, deceiving not only the clients, but his partner, Bryan Noel, as well. Concurrently, with the stock trading, financial losses and the falsified financial reports, sales presentations designed to acquire additional investors were ongoing. While the presentations were being conducted and during the subsequent follow-up meetings with potential investors, only one person in the room knew the funds were diminishing and the financial reports were false. That one person was Alex.
NOTHING HAPPENS UNTIL SOMEBODY MAKES A SALE
During Noel’s trial, Alex provided testimony with regard to the marketing and sales endeavors of Certified Estate Planners:
Q. Did you have the opportunity to observe any of these sales presentations?
A. Yes, I did.
Q. How would these — where would these sales presentations occur?
A. These sales presentations would typically occur at restaurants in the Hendersonville area, such as Hubert’s or Blackwater Grill or McGuffy’s.
Q. And how was it that clients were invited to attend these sales presentations?
A. There were mailings that were done to prospective clients, inviting them to attend the sales presentation.
Q. Have you ever seen any of the brochures?
A. Yes, I have.
Q. Let me show you Government Exhibit 20A, which is already in evidence, and ask if you’ve seen it before.
A. Yes, I have.
Q. What is that?
A. That is a seminar brochure for CEP.
Q. And is this one of the brochures that was sent out to invite clients to the seminars?
A. Yes, it was.
Q. Can you tell the jury what these seminars were like.
A. These seminars basically consisted of a sales presentation that involved the four-corners’ approach to estate planning, which is basically investments, legal, taxes, and insurance. Anybody that was interested would then fill out a form saying that they were interested and requested an appointment to discuss this further.
Q. Was any type of meal offered?
A. Yes. A free meal was offered.
Q. Were clients told about any investment strategies at these seminars?
A. They were not told specific investment strategies.
Q. Did that come later?
A. Yes, it did.
Q. Who would be the presenter at these seminars?
A. Bryan Noel was the presenter at the seminars.
Q. Did anybody else speak?
A. Yes, there typically would be some other speakers.
Q. Were you ever the speaker?
A. I was not the speaker, but I was present for many of the seminars in a supportive and administrative role.
Q. Why didn’t you speak?
A. I’m not really much of a salesman.
Q. So why were you there?
A. I was there to show the investors, potential investors — to give kind of a face to the strategy that was going on at CEP, so that they could see everybody that was involved.
Q. When you say give a face to the strategy, what was the strategy?
A. The strategy would be to ultimately tell them about any potential investments that could be made in
Pinnacle.
Q. When clients were advised as to how their funds were being invested, what were they told?
A. They were told those funds were being invested in stocks.
Q. And, specifically, those were the Pinnacle funds?
A. Yes.
Q. Is that what clients were consistently told?
A. Yes, it was.
Q. Now, after the seminars, were there any follow-up meetings with potential clients?
A. Yes, there were.
Q. And can you tell the jury about that?
A. Those meetings would be done at the offices of CEP, where, basically, the clients would be given a further presentation. At that point they would be told about the potential for investment with Pinnacle, and then they could make a decision as to whether they wanted to do business or not.
Q. Who would conduct these private meetings at the offices of CEP?
A. Most of the time those were conducted by Bryan Noel.
Q. Anybody else?
A. Yes, there were.
Q. Who else?
A. Some of the other sales staff would be involved with those meetings as well, and I would be present for some of the meetings in a support role.
Q. What do you mean you were there in a support role?
A. For clients that may have had questions about the strategy, the trading strategy, I would be available to answer those questions.
Q. And did you at times meet with clients?
A. Yes, I did.
Q. Did you tell them about the stock-trading program?
A. Yes, I did.
Q. Did you ever have clients come up to your office and look at your trading system?
A. Yes, I did.