April 28, 2004

The Real Deal on Business Ethics

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How can someone go from growing up in rural Iowa with a loving family, to working on Wall Street, to being involved in a scheme to fraud the state of Oklahoma, to living as an international fugitive, to serving a term of four years in prison?

All of this happened to Patrick Kuhse who spoke yesterday in a lecture sponsored by NBA604: Ethical Issues in Finance and Accounting at the Johnson School of Management. He spoke about his experiences with business ethics in the real world and described how it was a shock going from a small rural town of 2,400 people to Arizona State University with 43,000 people. While in college, he began to value money and feel entitlement since he was working full-time to pay for college while his fraternity brothers were very wealthy.

Eventually, he dropped out of college to work for a company on Wall Street. He and his co-workers were able to boost sales by omitting the ‘deal killers’ from presentations to prospective clients, only disclosing them if directly questioned. After working with the company for six years, he moved to San Diego with his wife and two kids.

Some time later, he got a call from a friend in Oklahoma. She offered him a good job in return for a share of his commissions. He started day-trading and making a lot of money by changing numbers. He planned to stay there just for four years, but mid-way through a disgruntled employee was fired and went to the FBI.

Kuhse said that “seemingly unimportant decisions” can launch people into major ethical turmoil. One example he used was Martha Stewart, saying that by deciding to sell her stock she saved about $50,000. However, before her conviction, she was worth around $1 billion while today she is worth below $400 million. He said that entitlement combined with super-optimism results in arrogance.

“Who here drives the speed limit?” he asked. When no one in the audience responded he asked why we choose to disobey the law every day. The responses included, “everyone else is doing it,” “who is it really going to hurt” and “it’s okay if someone else is going faster than me.”

He then made the analogy of someone driving the speed limit in the left lane to a corporation where one person wants to do things legally and is blocking the path of everyone else from getting ahead.

One morning, the FBI knocked on his door with an IRS Criminal Fraud Investigator. His attorney said that the options were going to trial or telling all and going to jail for two years. Instead he ran away with his wife and sons to Costa Rica. Six months later he was charged on 32 counts and Interpol came with guns to arrest him. He escaped and lived as an international fugitive, traveling with bodyguards and changing disguises.

Finally, when his wife and sons decided to move back to the U.S., he turned himself in to the U.S. Embassy and was arrested and put in prison in Costa Rica. After confessing instead of having a trial, the judge shortened his prison sentence from 20 years to 71 months, 208 hours of community service and he now owes the government $3.89 million.

Kuhse has been traveling and speaking in venues across the country full time for the past year and a half. He plans to write a book and there might be a movie made about his life. “I was there when my oldest son graduated from high school and I couldn’t put a price tag on that,” he said.

“I thought it was a great, fascinating story,” said Kristi Broderick JGSM ’04.

“These are the conflicts that brokers and people in the investment business face every day,” said Joe Bridy JGSM ’04, who has worked on Wall Street.

“Anyone who even contemplates doing the wrong thing, even at a small level should hear his story because it’s a great deterrent,” he added.

“I’m also going to Wall Street after my graduation and wanted to know how I could avoid having a similar thing happening to me,” said Kathryn Zhao JGSM ’04.

“I don’t teach ethics, I teach ethics courses. In those courses we discuss ethical issues and my aim is to raise students’ awareness of ethical challenges and to help them think critically about them,” said Prof. Dana Radcliffe, Johnson School of Management.

NBA604 has also hosted speakers Bethany McLean, Cynthia Cooper and Glyn Smith.

Archived article by Vanessa Hoffman
Sun Staff Writer