Two Tales of TransMoral Leadership

So this one entrepreneur commits fraud.

This wasn’t so long after he was raised and tenderly cared for by the wolf-pack of a well known accelerator program.

Exactly why he did it is obvious: he wanted his startup to succeed, so he cut corners and took risks.

It’s no excuse, really.

Frankly, it’s stupidity. Ignorance. Ego.

But all that aside, the reality is he did it because he couldn’t come to terms with the fact his startup might fail.

Exactly how he did it is as follows: He stopped paying employee payroll taxes. That’s right, he withheld taxes from employee paychecks and failed to deliver them into the hands of the state or federal government. That cash ended up funding the startup’s daily cash flow.

So, what about the finance guy — the check and balance — you ask? Well, at the very least, he was a terrible accountant and controller. But more likely, he was culpable and dirty, too.

Oh, wait, that’s not all. That’s not even the fraudulent part.

The company would accept up-front fees from clients who, due to the nature of the program, had the right to seek a refund — often a year or two later. The fraud: that money was never listed as a liability on the balance sheet. In what amounted to a mini pyramid scheme, millions and millions in raised capital was being utilized to support client refunds vs. ongoing operations. Investors may have been in the game, but the leader was bottom-dealing the whole time.

When the lid was blown off this little caper, the CEO hemmed and hawed and seemed confused about why this was a problem. The payroll taxes would eventually be paid, he argued. The undisclosed client liabilities was just poor financial modeling, he shrugged.

The Board of Directors took immediate action and fired both the CEO and the finance guy. Each had to give their equity back. They never really apologized, they just continued shrugging.

The CEO? He’s now a handsomely paid executive at an established major corporation.

The finance guy? He’s in law school.

No, really.

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