Descending bit by bit into a moral pit – two white collar criminals speak

Margaret Heffernan
Margaret Heffernan – author of ‘Willful Blindness’

A book titled “Willful Blindness” would seem to be on people not seeing what they should see, but it also applies to evil, because some of the things we may refuse to see are the moral pit we are descending into. The two examples of white-collar criminals that I give here are from the book (written by Margaret Heffernan), and they both are trying to figure out how they ended up doing unethical (and illegal) acts. (As an aside, it also makes me wonder about much of the financial system – if some of the firms that make it up were to disappear tomorrow, would we really be worse off?)

But here are the bad guys, who are basically good guys gone wrong:


“There was never a moment when it seemed so bad that you had to stop.” said Walt Pavlo, a mid-level executive at MCI Telecommunications. MCI had a highly competitive culture and big rewards for employees who played the game. But most of all, says Pavlo, it had people who wanted to be good employees.
“When I started out, I was thirty, eager and ambitious. Everything was going right. I had a new job, a great family, and MCI was a big go-ahead company, full of smart young people just like me. I was psyched.”

Pavio is now a convicted white-collar criminal.

Pavlo’s job was to make sure that the outstanding amounts owed by the long-distance carriers to MCI got paid. He was really a debt collector but excitement around the new, entrepreneurial company and around the newly deregulated industry made him feel bigger and more important than that. And highly dedicated.
“I’d get up at four thirty every morning, get to work about five thirty.,,

Walt Pavlo
Walt Pavlo

There was much about MCI’s operations that Pavlo didn’t understand: how they let their customers run up such huge debts, why they took on customers delivering trashy products like sex chat and psychics, and why they paid commission on sales to customers who didn’t pay up. But Pavlo was the new boy and he trusted the business would eventually make sense…
Pavlo and his boss, McCumber, came up with the idea of getting delinquent customers to sign promissory notes-legally binding promises by clients to pay back what they owed. Since they represented obligations to MCI, they could be counted as assets and the company’s bad debt disappeared. Pavlo knew it was a fudge but it seemed to work, so he kept doing what he was told.

Of course there was never a direct order to cook the books,” Pavlo explained to me. Instead it was just a kind of willful neglect. No one would ever ask how the debt disappeared. So since nobody told you to stop, you kept going. The only order we had was just: make the debt vanish. Don’t bring me problems, bring me solutions. Nobody wanted to look into the detail.The other thing about it was: nobody seemed to get hurt. The company did fine. The shareholders were doing great. The customers were still running their sleazy businesses. Where was the harm? You couldn’t see any. What you could see was the reward: promotions, swanky hotels, nice resorts. So you just look away. You do what you’re told and you don’t look too close.

After two years, Pavlo started smoking, something he had despised in the past. Turning a blind eye to the mess that he couldn’t clear up—a mess that, in fact, he was exacerbating—was a horrific, cognitively dissonant experience. The good guy and the bad deeds just couldn’t coexist. The only way he could deal with it was to anesthetize himself: drinking, smoking, and working such crazy hours that he couldn’t feel a thing.

“I hated myself. And I hated my customers. And I hated the company. Because, in my mind at the time, I thought: they’re making me do this. MCI is making me smoke and drink and write these notes. It’s not me, it’s them. And how do you go back? I went into that company with such high ideals and after a while, I couldn’t figure out how to get out.”
Twenty years later, and after serving a two-year jail sentence, Pavlo is still in pain, trying to reconcile in his own mind how he could have done things that he knows were wrong. He’s devoted years of his life to teaching college and business-school students how he went wrong, hoping he can help them recognize the traps he fell into. The problem, he says, is not that you are asked to do one big, bad deed; it is that there are so many tiny steps along the way that there is never a moment when it’s simple to say no.

Walt didn’t stop at writing promissory notes. As bad debts at MCI ballooned, he found himself spending more and more time with crooks and charlatans. Some went into liquidation; when Pavlo met with TelRoute, he caught their executives stealing crystal glasses and bottles of liquor from the office bar. This was not, he reflected, liquidation the way he’d studied it at business school. One of his more bizarre clients made its money from porn lines and from selling prepaid calling cards, exploiting new immigrants eager to phone home but too poor to own a phone. When Pavlo called on their New York office, he felt, he said, “like a lost kitten in a jungle full of predators.” The tables were piled high with cash but still the company’s $25 million debt remained unpaid.
“Everywhere you looked,” Pavlo recalled, “everybody was on the make and on the take. At MCI, sales sneaked deadbeats onto the network. Finance wrote worthless promissory notes. Accounting hid MCI’s past-due balances. The customers on MCI’s network were ripping off MCI and I was covering them up on behalf of the company.”


Brad Ruderman is a veteran of the defunct firm Lehman Brothers, and ended up convicted of fraud:

“So I have an MBA from Mercer, which is a small private college. And some of the others are from Northwestern, Wharton. So they think they’re better than me—and maybe I think they’re better than me. So what can I do to make myself better? We judged our effectiveness by how many hours we worked—so I’d come in at four A.M. and leave at eight P.M. If I see there are already cars in the parking lot, I wonder, should I get in at three A.M.? You get so competitive that the hours or the numbers aren’t enough, so you start talking about how many e-mails you get a day, how many frequent-flyer miles you have. I’m platinum on Delta—are you?”..

“When I was at Lehman, if you didn’t fit in, you just weren’t there. I mean, the mentality of the business culture there—it was their way or no way.”
Ruderman sits in a Los Angeles synagogue wearing flip-flops, shorts, and a T-shirt. He’s forty-six and his hair is only just beginning to gray. He has beautiful manners but also, like Pavlo, an air of sadness that is strangely touching. Far from boastful, he describes his years in investment banking with a mixture of nostalgia and bafflement.
“I was a blank slate when I got in there,” he recalls. “I had a job in investment management and one day I met a friend who worked two floors down in sales and trading. When I walked onto his floor I saw a situation I couldn’t believe: energetic people just knocking the cover off the ball; energy, activity, just the most amazing scene to behold, and I said, ‘What’s going on here?’ He hooked me up with the managing director downstairs and I was able to start and work my way up. And I was one of them.”
Ruderman had grown up on the west coast, and attended UCLA….and…

the people I’d work with were from Harvard, Yale, Princeton: all Ivy League people…The rewards of belonging—well, it was everything! The self-satisfaction of knowing what you had accomplished monetarily but also intellectually and that you had joined a club, a group of people seen as the best and the brightest—that was something money can’t buy. When you’re twenty-nine and you have a direct phone extension to the vice chairman of the firm; it doesn’t get much better. It is every cliche rolled into one. For someone with low self-esteem, this was the way to show I belonged.”

As a child, Ruderman had been a good boy, looking up to his father, working hard to get good grades and stay out of trouble. He was, he says, always looking for a pat on the back and validation, always feeling a cut below his expectation of himself.

“And then I get into Lehman and it is so competitive as to boggle the mind! We’re all on commission and every day of the week, our prior day’s commission would be posted on the window of the managing director’s office. So every day you walk into work your net income is posted for everyone to see. If that doesn’t foster competition for someone already competitive, what would? Of course, that’s what it’s for. For someone like me, if you’re not up there somewhere near the top, it’s a disaster. You have to do something because otherwise, well, you’re nothing.”

The minimum Ruderman felt he had to earn was 100,000 a month—anything less and he was a loser. But if he’d made $140,000 in July, then anything below $120,000 in August would be a flop, too. Every month, he needed a bigger and bigger hit to stay in the gang.

I was so motivated to gain acceptance. It wasn’t greed. I didn’t need anything. I had a car. A house. Once I had that, I had what I needed. It wasn’t about stuff. It was about my personal scoreboard with everyone else. Sometimes there’d be three days left in the month and I hadn’t hit last month’s target, so I’d push the envelope to do some things not always in the best interest of my client. I lost all morals, all ethics, in the interest of staying in the gang.

I (the blogger) personally feel that the financial markets are often no more than gambling, so its interesting to learn that:

You would walk into the restroom and see racing forms on the floor—because that’s what everyone did in their downtime! There was nothing hidden about it. Then there were huge poker games going on after work, twice a week maybe. It would cost fifty thousand dollars to buy in. We would bet on anything that moved, like which window washer would finish first. Any time you take a chance, that is gambling.

Getting sucked into the poker game meant that now Ruderman was working hard to hold his own in two highly competitive environments. When he returned to the west coast to start his own firm, he became a big fish in a small pond, taking investments from Larry Ellison, CEO of Oracle, and from Michael Milken’s brother, Lowell….
Desperate to stay and look successful in a town where he was surrounded by the rich and famous, Ruderman used his family connections to get new clients and new money to start his own fund. Most of them, he says, were just like him: professionals who’d done well, upper class, well-educated.
“There’s such cachet involved in being part of an exclusive group of investors. I managed a fund with limited entry and my investors walked around their country club saying “The economy is in disarray but I have Brad Ruderman managing my money!” And I’d walk around talking about the people whose money I managed. And we all—there was a kind of reflected glow!”
The glowing bargain to dim when the market went down and Ruderman couldn’t maintain high rates of return. But to stay in the club, he couldn’t admit that to anyone. So he misrepresented his results and hoped that something–gambling, lottery tickets–would provide enough cash to keep his place secure. But he was in over his head and in April 2009, the SEC obtained a court order halting his hedge fund fraud.
“It wasn’t that I didn’t know what was going on. I have intellect. But I couldn’t see any other life. I had to keep it going because—I mean, if I wasn’t part of this, what was I? What else was there?”
In 2010, Ruderman was sentenced to 121 months in jail. Having felt that he would lose everything if he did not fit in, he discovered too late that conformity itself had cost him everything.


There are several lessons that Heffernan draws from all this, but I’d just add to them that the main lesson I’d draw for myself is that if something is nagging at you, at the back of your mind, as an impending disaster or moral compromise, and you find yourself pushing the thought away because you have to keep your job, or your friends, or your status, then you should find the courage to break out of the situation!

Milton Friedman made a good point, though he was talking about government rather than business: “People have a great misconception in this way, they think they solve things by electing the right people. It’s nice to elect the right people, but that isn’t the way you solve them. The way you solve things is by making it politically profitable for the wrong people to do the right things!”

So if you feel all the pressures in your organization are pushing the wrong way, then try to reform those incentives, or leave.

Willful Blindness – Margaret Heffernan (2011)


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