Financial Advice from White Collar Criminals


White collar criminals seem to be the most hated criminals around. When the 2008 financial crisis shined a light on the financial industry people were horrified at what they saw. Your banker, your investment manager, and your lawyer are all playing the same dangerous game.

But there's a lot to learn from our white collar friends. With their horrific crimes and short prison sentences, they have a lot to teach us. And that advice doesn't just revolve around knowing a good lawyer. Here's some financial advice you can learn from some of the biggest white collar individuals and companies that committed financial crimes in the US.

Bernard Madoff - Ponzi Scheme

Bernard Madoff is one of the most famous white collar criminals to have ever lived. He was finally convicted of fraud in 2009 after robbing investors of $65 billion. His Ponzi scheme involved taking money from investors and using it to pay older investors who wanted the money back. None of that money was ever invested like it should have been. And that was why he was sentenced to 150 years in prison.

But it fell apart because eventually, he couldn't pay back a large number of investors who wanted their money back. His scheme might still be alive and well if he could pay his creditors.

Financial Lesson #1
- Make sure you always budget enough to pay your creditors.

Credit Suisse - IRS Tax Evasion

Credit Suisse got into trouble in 2014 when it admitted enabling tax evasion. It was found that it had helped a large number of US citizens to evade taxes through hiding their income from the Internal Revenue Service. Through some clever accountancy, Credit Suisse managed to get away with it, for a time.

But with so many false accounts and records, it was only a matter of time before it sprung a leak. A single misstep in the confusion cost them $2.6 billion.

Financial Lesson #2 - Keep good records and make sure you're paying the full amount of tax. It will catch up with you.

Bank of America - Mortgage-Backed Securities Crisis

Bank of America displayed the type of behavior that led to the 2008 financial crash in 2014. It admitted to selling mortgage-backed securities connected to properties that had massively inflated values. It sold billions of these loans without the proper collateral. Bank of America agreed to pay $16.65 billion in damages.

What it actually did was sell something that wasn't there. This is a financial mistake you should never make. Attempting to gain an income through lying to your main customers will only leave you in a position where people are going to ask for their money back.

Those represent unstable financial foundations for your company.

Financial Lesson #3 - Never try to build the financial base of your small business through trying to make a quick buck.

Enron - When Mistrust Runs Throughout Your Company

You wouldn't attempt to look into small business working capital loan options without consulting your team. You wouldn't make big financial decisions without running it past someone else first. Enron was one of America's largest energy giants and seemingly indestructible at the turn of the millennium.

Rumors of illegal accounting practices and rampant dishonesty swirled throughout much of its history. Jeffrey Skilling, the president, and CEO, hid billions of dollars with the help of Andrew Fastow, the COO. They both lied to the board of directors about the accounts of the company.

It was only when stocks fell a formal investigation uncovered the accounting practices. Skilling and Fastow received 24-year and six-year sentences respectively.

Financial Lesson #4
- As well as report your income correctly, make sure you're being open and honest with your team about the financial health of your company.

Tyco - Expensive Parties and Lavish Expenses

Dennis Kozlowski and Mark Swartz were the two fall guys for the goings on at Tyco. The CEO of Tyco was found to have stolen over $150 million from the company. Most outrageously of all was Kozlowski's wife was gifted $2 million to throw a birthday party in Sardinia back in 2001.

The pair managed to escape after the first trial because it was declared a mistrial. The second trial left them with sentences of eight years and four months each.

Financial Lesson #5 - Separate your personal expenses from your business expenses and don't use the former for the latter.

Last Word - Play Things by the Book

As you can see, even the smallest indiscretion can lead to much greater crimes later. When running a business, you should play things by the book and be completely open about your financial affairs.