White-Collar Defense Attorney

September 16, 2014

White-Collar Defense Attorney

Through my prison advice services many of my clients and prospects seek my opinion on what white-collar defense attorney they should hire. Out of prudence I always recommend a handful of competent, experienced white-collar defense attorneys. In Los Angeles, clients of mine have had success with lawyers that include, Alan Eisner and Dmitry Gorin of Eisner & Gorin LLP, and Mark Werksman, of the The Law Offices of Mark Werksman.

This short blog cannot cover everything you should look for in a white-collar defense attorney. As a starting point, however, any white-collar defense attorney should have references you can check, they should have massive experience in federal court, and they should be sympathetic to your plight. You should access whether you have the budget and need for a big firm or whether a more boutique type firm would be better for you. Do they charge hourly or is the rate inclusive? Is it a conflation of both?

Moving on, please ensure they have not become so desensitized to the judicial process. In other words, this is your first go round through the system. For you, as it was for me, this process can be distuburing, painful, life wrenching. For most lawyers, however, they have been down this road hundreds of times. Getting sentenced to 24-months for you is life changing, but for them they see it daily–hence some desensitization to the process. They could be the smartest attorney in the world but if you do not feel comfortable around them your results will not be what they should. The lawyers I referenced above seemed to have cracked the code between showing expertise and compassion for their clients. That is a big deal.

When you call or email your white-collar defense attorney you should not feel as if you are “bothering them,” or “taking their precious time,” as so many defendants, myself included, complain. They have an obligation, a duty to advise and to tend your questions and concerns; never refrain from asking them whatever is on your mind.

As a rule, whomever you hire, make sure to work openly and honestly with them. Sometimes embarrassment about our criminal conduct leads one to sugarcoat exactly what happened. You are just wasting money while you work towards the truth. Sugarcoating or living in denial may provide some moments of solace, but longer term, I know, the consequences are disastrous. How can you expect a lawyer to defend you properly if you do not tell them everything? They cannot. Be prepared to purge and go all in with your white-collar defense attorney. Confronting reality can be tough, I know, but I assure you serving an extra three years in prison because of your failure to work properly with your lawyer is tougher.

Also never forget that while your white-collar defense attorney will prepare you for your defense, they are not prepared to prepare you for life in federal prison, halfway house, home confinement, federal probation and life after prison.  Just as I would never presume to disperse legal advice, a white-collar defense attorney should never dispense prison advice.

Justin Paperny

U-Shaped Prison Curve

September 12, 2014

U-Shaped Prison Curve

I received a message this week that pleased me. It said, “JP, my lawyer gave me your book. Read it all last night. I am going in soon, real soon. Been thinking about the U-Shaped Prison Curve you wrote about. Gotta be ready to ascend that U. My family too. Let’s chat tomorrow if you are available.” We spoke the next day, and this gentlemen is proudly a new client. Some wait to take action, others talk about it–some step up and make it happen!

For a longer summary of the U-Shaped Prison Curve I refer you to my book. For purposes of this blog, however, I will summarize: In prison I noticed a pattern emerge as I listened to more and more men express their anxieties about the obstacles awaiting their release. Whether they were serving a one year sentence or a ten year sentence, a new kind of anxiety seemed to set in as they were getting closer to home. My good friend, Michael, described it as the U-shaped prison curve.

Essentially, the U-shaped prison curve measures a man’s ease of confinement or adjustment. To understand the theory, Michael told me to think of society as being above the curve and the prison community as being below the curve. As a man enters the criminal justice system, he begins descending through the U. He feels himself leaving society behind and anxieties plague him as he moves deeper into the unknown world. Yet, the man begins to adjust to prison life and he acclimates to the world of confinement. He falls into a routine of exercise, cards or television. By the time the man moves halfway through his prison sentence, he will have adjusted in ways that sets him at ease with the prison community, which lies below the metaphorical U.

In advancing through the halfway point of his sentence, however, the prisoner begins to develop those anxieties again. The comfort level dissipates because he is ascending in the U, knowing that he will soon leave the ease of prison behind and he will return to society. Recreational activities and four-hour exercise days will cease. The time of rent payments, car payments, insurance payments and stress over paychecks inches closer each day. As a prisoner’s time moves beyond the halfway point, regardless of the length of his sentence, the theory of the U-shaped prison curve suggests that anxieties return.

In prison and in the filthier halfway house, it was difficult for me to see so many of my fellow white-collar offenders feeling helpless and scared. Rather than feeling excitement about returning home, too many worried about how they would “make it” again. In interviewing some of these men, I learned they all regretted the way they served their sentence. Many wasted the opportunity. I am thankful for the assistance I had in preparing for the journey. Indeed the data suggests the time served me. I was always preparing to ascend the U. Are you?

Justin Paperny

Bob McDonnell

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September 4, 2014

I’ve been reading about the former Governor Bob McDonnell and his wife, Maureen, who are going through a criminal trial. In fact, earlier today I heard they were both convicted of corruption, and as a result they face decades in prison. I empathize with the former Governor, his wife and the rest of their family. Certainly, anyone who endures criminal charges encounters real struggle. It leads to costs that begin in the tens of thousands and frequently exceed hundreds of thousands. A high-profile case like the McDonnell’s will probably yield costs in the millions when all is said and done. That does not include the cost of an appeal which I presume they will file.

Financial costs do not take into consideration the enormous emotional toll.  The threat of imprisonment hangs over a defendant’s head like the sword of Damocles.  Every day feels like a rape, a total violation of the individual. I know exactly what it’s like because I’ve been through it.

My troubles with the criminal justice system began more than nine years ago, when I was a stockbroker at UBS. Bad decisions I made led to an imbroglio with the SEC, and the Department of Justice with a charge of violating securities laws. Years had to pass before I could find my way again. Ironically, I found my equanimity while I served an 18-month sentence at the Taft Federal Prison Camp.

I’m hopeful that the McDonnell’s prevail on their appeal. It’s a shame our criminal justice system would consider handing out a lengthy prison term to the both of them. Certainly, they have suffered enough. Why does our country think that imprisonment represents the only path to justice? Frankly, I cannot see any benefit to incarcerating either of them; whatever their conduct, I cannot comprehend how it would have been construed as victimizing anyone. Sentencing Bob and Maureen McDonnell to one day in prison would be disproportionate to any crime that was committed. It would be unjust. It would be wrong.  It would be stupid.

If the McDonnell’s judge determines that imprisonment is warranted, I have a few suggestions that might help their time inside. In my book, Lessons From Prison, I wrote about what I learned and observed as a federal prisoner. In my second book, Ethics in Motion, I wrote about the importance of leading a values-based life. Both of those books provide insight that those who face imprisonment may find of value.

In working with others who struggle with the challenges that the McDonnell’s are now going through, I strive to provide the type of guidance that I could have used. It wasn’t until I surrendered to Taft Camp that I began to accept my fate. First I had to hit bottom.  Then I used that experience to regroup, to begin building foundations for a better life.

I’m not suggesting that the McDonnell’s (or anyone else) are the same as I am. Yet if anyone wants to discuss the challenges of triumphing through a federal prison system, I invite a call.

Justin Paperny

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Football in Federal Prison

Football In Federal Prison

August 26, 2014

Football in Federal Prison

“Dude, what’s wrong?” I asked a friend the day after the Superbowl in February 2009.

“Just having a bad day,” my friend from the kitchen at Taft Prison Camp told me.

“Why? All okay at home, your wife missing you or your kids struggling at school, or you nervous about going home? What is it?”

“No, football season just ended and I have no idea how I’ll make it to September. The weeks just seem to fly by during football season—with college game day and my man Kirk Herbstreit to NFL Sunday to Thursday night football. I just feel the time fly, dude. Now it will be a brutal struggle to September.”

Admittedly, I love watching and playing golf. In prison, I took a whole day off to watch Tiger Woods win the US Open in a playoff in 2008 against Rocco Mediate. But until the Ryder cup later that year I didn’t watch again.

Aristotle suggested there is gold in moderation. All incoming prisoners must be mindful of this. Prison can be easy. One can too easily lose themselves in endless fun or mindless activities. I’m not begrudging someone from watching football. I’m just asking you to access how that activity relates to the obstacles that await your release. Watching golf for me or reading easy books were emotional releases. I needed them. The brakes helped me recharge.

My point again is these breaks or emotional releases should be short lived. Do not allow your happiness or well being to be contingent on football or mail call or how much halfway house/ home confinement time you get.

Persistence, like character, is an acquired skill—power through the need to waste the days. Please follow this prison advice and come home stronger and more prepared for the obstacles that await you.

Justin Paperny

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10 Benefits to Serving Time in Federal Prison

August 21, 2014

Most of the people who reach out to me are are facing a federal prison sentence. Most are afraid, unsure of their future, and curious about what their life in federal prison will look like. The reality is too many shows on television have sensationalized life in prison–they portray a world of fear designed only to draw ratings. Viewers of those shows would be wise to understand their motives.

Certainly, other consultants in my industry purposely play up those fears to drum up business. Their approach lacks transparency. As part of my prison advice services I always reinforce the reality that prison can be an opportunity of a lifetime. I am not stupid and am not implying that I am happy I went to prison. I am not. I am, however, proud of how I responded to an adversity that I alone created. With the thought of becoming more than someone would expect of a person who plead guilty to fraud, I worked extremely hard on the inside to better prepare for the challenges that awaited me. Rather than obsess over what I was missing, I focused on what I had. To that end, I share a list I call, 10 benefits to serving time in federal prison.

1- Victims – I never forget that my conduct helped create victims. Rather than make promises about how I would change, I took action in prison to demonstrate my remorse. I recognize some will view my actions as unforgivable. Some, however, recognized my efforts. To them, I am eternally grateful.

2- Take a punch! – In Lessons From Prison, I wrote that I had a privileged and coddled childhood. As a result I never faced adversity. My adjustment and accomplishments in prison proved to my network, and most notably my parents, that their son could take a punch ( a lot of them) and keep coming back for more.

3- Perspective- While fighting my case I was obsessed over all I lost–my licenses, money, reputation, my good name. I am not saying those are not big hits, but in prison I saw real struggle from men who had only known misery. With that perspective in mind, I became grateful for what I had left–my mind, a loving family, and a will to succeed–as opposed to obsessing over all I lost.

4- Fat Farm – For many years before my surrender to prison I reasoned that my growing waistline and pudginess was an inevitable by product of aging. Within 3 seconds of seeing that dusty track at Taft Camp on the day of my surrender, however, I knew I would become a runner and get fit. I did!

5- Grow that network! – Before my surrender I tended to live like the proverbial ostrich. Keeping my head buried in the sand brought some benefits, but it also kept me disconnected from my network. In prison, I took the time to nurture my support network.

6- Get smart again! – In my 20s I read two books, I think. Both were Tiger Woods golf books. Coming home strong meant I had to become intellectually prepared. Reading hundreds of books helped me re-engage my mind.

7- From stockbroker, to real estate agent to author – Michelangelo said the problems with goals is not that we set them to big, but too small. Before my surrender I never imagined I would write a blog, then book. Reading great books and developing content helped me organize my thoughts and deliver them in a way that helped me find meaning and strength through prison.

8- I am in individual again! – In my 20s, I was malleable (a word I learned in prison). Because I was easily influenced I tended to run with the pack. In prison, however, with nothing left really to lose, I embraced the reality that success meant I would have to go at it alone, despite negative feedback from both staff and prisoners. In fact, the more criticism and enmity (another word I learned in prison) I felt the more I knew I was onto something.

9- Tolerance – I have received some negative emails from people telling me I am too hard on some of the white-collar offenders. In fact one said, “aren’t you afraid if you scrutinize them they will not hire you?” No. If someone is not prepared to implement the strategies I teach they should hire Larry Levine and his ilk to tell them how to sleep through prison, how to hustle a hard-boiled egg out of the chow hall, and how to put a “prison staff on edge”. The reality is many of the white-collar offenders with whom I served time lack tolerance. All of them? No, of course not. I want to make sure I do not indict them all. I am, however, saying that making fun of, criticizing and beating down other men for their choices in life happens more than it should. To thrive one must be tolerant, look within, and recognize that not everyone had the opportunities we so easily took for granted. If my approach is not for you do not hire me.

10- Friends – Who knew that I would benefit from such close friends while thriving through the system. To this day, I remain close with Walt Pavlo and Michael Santos. Both invested thousands of hours to help me become better.

Again, I want to reiterate that I am not stupid nor delusional. No person should want to serve time in prison. If it is in the cards, however, let the experience be a positive one. These 10 benefits to serving time in federal prison helped me find meaning through the adventure. Form your own list and pursue your goals aggressively. Avoid the procrastination and indecisiveness that corrupts so many prisons. Take action and come home differently than anyone would have ever expected. If I can help feel free to reach out.

JP

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Rachel Dollar

August 18, 2014

Rachel Dollar

Every week I spend some time reading Rachel Dollar’ s Mortgage Fraud Blog. Her blog provides weekly updates on indictments, guilty pleas and more on white-collar crimes as it relates to the mortgage industry. Unfortunately, there are no shortage of people getting indicted and sent to prison. Many of my clients have been featured on her blog.

On the home page of Rachel Dollar’s issue, for example, I read that Armando Granillo, of Huntington Beach, a former sales associate with Fannie Mae, was sentenced to 18-months in prison for accepting kickbacks. Flipping through another release took me to Leonard Williams of Sacramento. Mr. Williams was convicted of mail fraud, securities fraud, and money laundering.

It was Shakespeare who wrote about the tangled web we all weave through the course of our lives.  I’m quite certain that both Mr. Granillo and Mr. Williams now look back at the behavior that uprooted their lives and wonder how in the world they could have allowed themselves to spin so out of control.  The sentencing and indictment may be the beginning of their descent into the whirlpool of justice, but they may find themselves sinking into far deeper despair before it’s over.  I’ve seen it happen time and time again.  That’s why I’ve built a career around the concept of helping people who struggle with the criminal justice system and all of its complexities. They need to know that they can emerge from this experience pure and with their dignity in tact.

I’m not a lawyer.  I am more like the character Virgil in Dante’s Divine Comedy, The Inferno.  I wrote about this analogy in my book Lessons From Prison.  For those who don’t remember Dante’s famous contribution to classical literature, Dante wrote his trilogy as if he were a character struggling through some type of midlife crisis.  While running through the woods he found himself being pursued by wild beasts.  Those beasts salivated at the thought of consuming Dante.  The beasts were symbolic representations of such vice as lust, greed, and a quest for power that consumes so many men.  Mr. Granillo and Mr. Williams may relate.  Dante tried to outrun the beasts, but he came to an end.  At the end, he met Virgil, the classic poet of ancient times. Virgil told Dante that an escape route from his crisis existed, but he would pass through the circles of hell to make it through.  Virgil agreed to accompany Dante as his guide, explaining all of the iniquities of those who suffered through the various rings of hell.

That’s my role, and it is one that people like Mr. Granillo and Mr. Williams could use during this trying time in their lives.  Indeed, I’m convinced that any individual who faces a problem with the criminal justice system could gain some insight from services that I offer.  Because although I am not a lawyer and I cannot undo the decisions that opened their problems with the criminal justice system, what I can do is help individuals navigate their way through the chaos they are about to embark upon.  And by doing so, I can help them emerge with better prospects for success.  I can do so because I’ve climbed through those rings myself, but in the end, I emerged successfully.  I am available to help anyone who faces a sentence of imprisonment.

Justin Paperny

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Budgeting in Federal Prison

August 12, 2014

Budgeting in Federal Prison

I struggled to master the art of budgeting in federal prison. Even as I reached the end of my term at Taft Federal Prison Camp, I was still challenged to manage my commissary and phone minutes properly.

For some background, each prisoner in the federal system receives an allotment of 300 telephone minutes on the first day of each month. That averages out to fewer than 10 minutes of telephone access per day on a 31-day month.  As I wrote above, I did not manage my telephone allowance well. Despite setting goals and restrictions on how long I would stay on the line, many events at home required that I extend my conversations beyond the daily limit.  As a consequence of my having used too many phone minutes earlier in the month, I usually ran out of minutes early.  That means I couldn’t chat with my family or friends until the new month began. The 300-minute limit was totally insufficient. A small victory comes in November and December when prisoners gets 400 phone minutes.

Besides the 300-minute phone limit, I also had to deal with a 20-point visitation limit.  Every Friday at Taft Camp costs four points, Saturday visits cost eight points and Sunday visits cost six points.  Ordinarily, that means a prisoner at Taft Camp may receive visits each Friday.  If one can only visit on a week-end, however, the prisoner must limit himself to only two or three visits per month. I did not have children who were in school as did other prisoners.  Thus I visited mostly on Fridays.

The other limitation with which I struggled concerned commissary spending limits. When I was in prison we had a budget of  $290 a month, though the number has now moved to $320. That amount includes expenditures on aspirin, medicine, toiletries and food.  The only items not included on the spending limit are stamps, e-mail, and credit for phone use.  I usually spent all of my limit by the third week of the month.

Budgeting in federal prison must now include the cost of email, something that did not exist while I was in prison. I have clients who spend several hundred dollars a month on the Corrlinks system. Indeed, living in prison is expensive!

Prisoners who expect a journey through a federal prison system must be aware of these limits and costs associated with living in prison.  It is important to budget, as without proper planning, the end of the month comes without telephone minutes, visiting points or spending limits remaining.  We may not understand the reasons for the limits, but we must learn to live and thrive in spite of them.

Justin Paperny

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Getting a Lawyer

August 5, 2014

Getting a Lawyer

As part of my prison advice services I offer suggestions on finding a lawyer that is best suited for your specific situation. My friend Walt Pavlo and I did just did a hangout on the subject. Some of the topics we covered include:

  1. where are some of the best places to look for an attorney?
  2. Once you find one you may want to work with, how do you take your vetting process even deeper?
  3. How do you pay them–hourly, inclusively, a combination of both depending of the state of the investigation?
  4. What if I cannot afford an attorney?
  5. What type of cases does the firm represent?
  6. cost
  7. and more

Getting a lawyer that understands your needs and is willing to invest the time with you is essential to thriving through the criminal justice system. In my book, Lessons From Prison, I describe many of the mistakes I made in failing to work openly and honestly with councel. As a result I spent more money then I should have, and delayed the healing that should have started much sooner. Regardless of the lawyer you hire, you must be prepared to work openly and honestly with them. Gain and profit from my experience.

If I can be of service to you in getting a lawyer that is in your price range, let me know. I can be reached lawyer at 818-424-2220 or by email at [email protected]

Justin Paperny

 

Halfway House

August 4, 2014

5 Reasons You Should Take the Halfway House

Through my prison advice services I am frequently asked my opinion on the halfway house. Contrary to public opinion the halfway house is not right for everyone. Location, potential length of time in the halfway house, job status, family situation, and the way a prisoner served their time are just a few things to consider. No two people have the same release plan. For that reason I will offer some general highlights or reasons someone should take their halfway house placement.

For clarity, there were many days in the halfway house I wish I had finished my term at Taft Federal Prison Camp. Other days, of course, I was convinced I had made the right decision to go to Vinewood Re-entry Center in Hollywood. But regardless of how I felt I always knew I wouldn’t be free until the term ended. Spending time in the halfway house may not bring all the aspects of imprisonment. Still, you will know you are confined. Now, quickly, 5 reasons you should take the halfway house:

5) Home confinement! – Presuming you meet the criteria, eventually you will qualify for home confinement.

4) Weekend passes! – If you secure a job, follow the rules, pay your 25%, and adjust well you will eventually qualify for weekend passes.

3) You have a job! – Having a job in the halfway house kept me out of those filthy living conditions for 14 hours a day.

2) You got 6 months through RDAP, Residential Drug Abuse Program. – If you qualified for RDAP and received a year off your prison term you will want to participate in the after care programs offered in the halfway house.

1) You are ready! – Too many people release angrier from prison than whey they arrived. I saw many men in the halfway house struggle with their job, finding a job, staff, and as a result got violated and were sent back to finish their prison term at the Metropolitan Detention Center in Downtown, LA.

In later blogs I will share thoughts on why someone should turn down the halfway house.

Justin Paperny

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Tell Me Your Story

August 2, 2014

Tell Me Your Story

After someone reaches out to me I ask them to briefly tell me their story. Putting in the work to better understand our actions, I believe, helps us better prepare for the road ahead. I have frequently said, “Tell me your story and I will tell you your future.” Part of my prison advice services including helping my clients better articulate the pressures and motivations that led them to cross the line. Moreover, we work to tell the story in a way that removes blame and excuses. Many of my clients are accomplished business people, and writers. Still, writing about our episode through the system requires a different skill set that can only be acquired through habit and practice. As a guide I share my story below:

My name is Justin Paperny. I stand before you as a 39-year-old man who was reared in Encino, California, with a privileged background.  I attended Montclair College Prep before moving on to the University of Southern California, where I earned my degree in 1997.  From USC I went on to financial success as a stockbroker at Bear Stearns and UBS, then as a real estate agent in the distinguished house of Sotheby’s.

I qualify my success as merely “financial,” because in spite of the hundreds of thousands I earned as a young man, I was not a person who placed much value on the importance of ethics.  That moral lapse led to my demise, culminating with a struggle through the criminal justice system.  In 2007, I pleaded guilty to securities fraud. In 2008, I began serving a sentence inside a minimum-security federal prison camp. In 2009, I walked out from the federal prison in Taft, California, carrying the lifetime stigma of being a convicted felon.

Through this effort to reconcile with society, to atone for the bad decisions I made as a young professional, I make myself available as a case study—a living, breathing example of what happens when an individual fails to make values-based decisions.  In Lessons From Prison, a book I wrote while serving my prison term, and through Ethics in Motion, a book I wrote the year following my release, I show readers that I didn’t begin my life as a stranger to the principles of good conduct, or good citizenship. That slide into ethical gray areas, and then into criminal problems, didn’t begin until I left the University for the professional world. It was as a stockbroker that I began to disregard the timeless advantages of honesty, temperance, balance, and integrity.  In my case, those virtues yielded to the ubiquitous vice of greed, corrupting the life I was groomed to lead.

While incarcerated, I lived shoulder-to-shoulder with hundreds of other well-educated, white-collar offenders. As I had, they graduated from excellent schools and advanced to well-compensated careers of distinction.  Yet as I listened to stories about the influences that corrupted the character of my peers in the community of felons—eventually leading to their incarceration—I recognized how many people of promise failed when they disregarded the not-so-tangible value of ethics.

The discipline of moral principles and practice was not lost on me as a child in a Jewish household.  Beginning as a six-year-old, and continuing through my graduation from USC, baseball defined me. I was gifted with excellent hand-eye coordination and an early physical development that led me to excel at and love the sport.  From Jack Gilardi, my first baseball coach, and from my parents, Bernie and Tallie, I learned that despite my natural talents as a fielder and hitter, no team could win if the individual pursued selfish glory. The team could only play well together if every member embraced the loyalty, the discipline.  Without those virtues, the team would fall apart, but with them we could build integrity, good sportsmanship, and become winners, regardless of any individual game’s outcome.

Such lessons served me well throughout my childhood, adolescence, and my early adulthood.  Success as a team player in baseball led to my playing in three world-series tournaments, to playing baseball at both Montclair Prep and USC.  Unfortunately, when I put away my baseball glove to begin my career as a financial professional, I’m ashamed to acknowledge that I also put away my commitment to the rules of ethical conduct.  Rather than serving my profession with dignity and honor, I began taking shortcuts that I mistakenly believed would lead to greater and greater rewards. To my chagrin, the story I share shows a different outcome.

After leaving USC, I joined Merrill Lynch and began training under others as an account executive.  While studying diligently to pass my accrediting examinations, those who were mentoring me introduced the practical aspects of how to “succeed” as a stockbroker.  Like all brokerage houses, Merrill had a corporate code of conduct.  Platitudes about leadership, honesty, and integrity decorated walls in stylish frames, but the culture, my mentors taught me, showed that Merrill rewarded performance, and profits gauged performance.

From those who mentored me as a young broker, I learned that my primary function was to build a book of business.  Succeeding would require that I persuade clients to deposit financial resources into Merrill accounts that my mentors and I would manage.  Instead of spending time to understand the long-term interests, lifetime investment strategies, and risk-tolerance levels of my clients, those who groomed me for success taught that as a young stockbroker, I served a different function.  My job was to cold call, to bring in new clients, to increase the size of assets that we kept under management.

The message I received was that I was in a numbers game. The more people I called, the more likely I was to find new clients.  My mentors celebrated each new prospect with a high five, and I became a master of the cold call.  We didn’t have an interest in the direction of the market, nor did we give much thought to price-earnings multiples, balance sheets, dividend yields, or other economic indicators.  I didn’t review candlestick charts, trading volumes, or trend lines. Those lessons in fundamental and technical analysis would lead to my passing licensing examinations, but my mentors at Merrill were teaching me the practical aspects of succeeding as a stockbroker.  The more money I brought in to manage, the more commissions we would generate to split.

By the time I completed my first year at Merrill, my cold-calling efforts generated nearly $10 million in client assets under management.  I had passed my licensing examinations, meaning that instead of earning a nominal salary, I was entitled to a more equitable split of commissions that my book of business generated. Rather than honoring my contribution, however, my mentors would hoard the lion’s share, feeding me crumbs as if I were still a cub.

At the time I was in my early 20’s, and I didn’t grasp the changes, or slide of my moral outlook. Self-interest began to overshadow my earlier appreciation for the values of honesty, discipline, and team building. Questions about the influence or impact my actions would have on the interests of my clients didn’t pang my conscience.  As a stockbroker my job—as I saw it—was to bring in more money to manage, and as my mentors generated lucrative commissions by shuffling (a euphemism for churning) client resources into various equities or funds, I wanted my share. Like most white-collar offenders on the wrong side of prison boundaries, I felt entitled.

Instead of considering what would best serve the interests of my clients, as my supposed fiduciary responsibility required, I contemplated options that might bring me a bigger slice of the commission split. This selfish motivation contradicted everything I learned as an athlete, but at the time, all I could see was that others were raking in more money than I was—and I wanted my share.

With my primary motivations shifting from the long-term interests of my clients, my employer, or my career to the short-term interests of my next paycheck, I decided to leave Merrill Lynch.  From my perspective, it was my individual efforts that brought the $10 million of client resources into managed accounts. There wasn’t any team or commitment to integrity.  Just as I had brought these resources into Merrill, I could persuade what I perceived to be “my” clients to switch their business to Crowell Weedon & Co., a smaller brokerage house that hired me as an account executive.  At Crowell Weedon, I learned new tricks of the trade.

As an account executive at Crowell Weedon, my responsibilities expanded from simply soliciting new investor money to placing that money into investment vehicles.  More experienced brokers introduced me to the art of churning, or promoting funds that paid the highest commissions, and a few other schmoozing tactics that I employed to serve my short-term interests.  After a little more than a year at Crowell Weedon, I felt that I had served my apprenticeship and positioned myself to advance to the major leagues of professional money management.

When I graduated from USC, at 22, I was a disciplined young man, leading a balanced life and placing a high value on physical fitness, personal relationships, and my academic career.  At 24, however, I was a different person.  Without realizing these changes, I discarded the values that had shaped my adolescence and early adulthood, exchanging them for a cynicism and selfishness that eventually came to corrupt every aspect of my life.  Instead of maintaining tip-top physical conditioning, I morphed into an undisciplined blob, ballooning from 165 pounds to more than 200 pounds.  I lost my self-respect, and as a consequence all of my personal relationships suffered, including the departure of my college sweetheart.  Rather than measuring myself by the character I built, I became obsessed with the money I believed I was entitled to earn.  The greed became insatiable, corrupting the core of who I was as a person, rendering me incapable of discerning right from wrong, and eventually leading me into problems with the law, destroying my career, and worse, my name.

By the time I was ready to leave Crowell Weedon, I had built a book of business to $15 million under management. To take it higher, I decided to exploit personal relationships wherever I could. Although I had reached the top of my athletic career as a college ball player, many of my friends went on to become stars in professional baseball, earning millions of dollars in annual revenues. Recognizing that these athletes would need to invest their fortunes, I set up a meeting with a fellow Trojan who had gone on to build a career as an influential sports agent in Beverly Hills for professional athletes.

In approaching the agent, my intentions were to persuade him to recommend me as a stockbroker to the athletes he represented.  His former fraternity brother, Kenny, was a stockbroker at Bear Stearns, the agent said, and Kenny represented all of the agent’s clients.  Since we were all USC alumni and all affiliated with fellow ballplayers, the agent set up a meeting between Kenny and me, suggesting that Kenny and I become partners.

That meeting with Kenny led to my quitting Crowell Weedon to join Bear Stearns, and I brought the clients I had cultivated with me.  Kenny’s book of business exceeded $40 million under management, and with the $15 million I brought, we had the beginnings of a partnership that could generate substantial trading commissions.  At 25, I was the youngest broker Bear Stearns had ever brought into its prestigious Century City office.

When Bear Stearns gave me the desk, the business cards, and the income potential, it gave me an identity.  On the first day as a Bear Stearns account executive, the legendary Ace Greenberg called to welcome and wish me success.  I became a bit full of myself, relishing in the vanity of having arrived.  A responsibility came with the opportunity, however, and I’m embarrassed to say that I didn’t live up to it.  Despite the arrogance of believing that I understood the profession of money management, all I really focused on was the amount of commissions that my partnership with Kenny generated—my proportion of the commission split.

As the junior partner, I resented that I received a fraction of every dollar that Kenny and I earned in commissions. I felt as if my contributions warranted a higher payout.  It didn’t matter to me that in my mid-20’s my monthly commission checks exceeded $20,000 every month. A resentment festered that my compensation paled in comparison to the monthly checks of more than $50,000 that Kenny was bringing home.  I felt entitled to more, and when I saw opportunities to increase my earnings, I took them.  As money became my sole source of validation, I found it easier to justify actions that would result in my taking more.

Many of the clients that Kenny and I managed were professional athletes who had become household names. Their wealth was of such a magnitude that the athletes were not interested in being bothered with the minutiae of how we managed their accounts.  They trusted us to make decisions on their behalf, but in our case, that trust was misplaced.  Kenny and I had a conflict because our incomes depended on the commissions we generated through the trades we made on behalf of our clients.  We abused our clients’ trust by moving their assets in and out of positions for the benefit of higher commissions.

Like all brokerage houses, Bear Stearns kept a written code of ethics and a compliance officer who ostensibly governed the conduct of stockbrokers.  That written code of ethics existed in binders that no one ever opened, and the spirit of the compliance officer approximated that of the “counselor” casinos provided on-site “to treat” customers with gambling addictions.  Rather than chastising Kenny and me for the frequent trading, Bear Stearns paid us substantial bonuses, tacitly encouraging our actions.

That encouragement from Bear Stearns fed our lust for a bigger book of business, and I found new resources in the lightly regulated hedge-fund industry. Hedge funds, in fact, became an ideal source of funds for our book of business because the hedge-fund manager would have an ongoing interest in increasing the size of their deposits.  In effect, the hedge-fund managers would become a quasi-sales force, bringing even more resources into the overall book of business that Kenny and I managed.  This strategy of pursuing hedge funds enabled us to build our book of business to a level approaching $200 million.

Kenny and I discovered another advantage of focusing on hedge funds.  Rather than accepting responsibility for selecting which investment vehicles to buy or sell, Kenny and I earned commissions as the hedge fund managers selected trades.  Further, aggressive hedge fund managers would use three-to-one leverage in their accounts to borrow money from the brokerage.  In other words, margin loans we made available allowed clients to take $30 million dollar positions on stocks when the hedge fund manager only had $10 million of investor money.  Those margin loans enabled Kenny and me to boost our income further through the interest payments the loans generated.  We had found the sweet spot in the brokerage business, sometimes earning six-figure monthly paychecks while shrugging off client responsibility and reserving enough time each day for golf.

As our book of business grew, Kenny and I recognized the value we had “created” for any brokerage firm.  Just as aggressive trading patterns generated substantial commissions for us, Bear Stearns profited handsomely.  Account records showed that while we benefited from the book of business, the individual clients who had made the actual deposits didn’t fair so well.  The client losses didn’t matter, as the brokerage firm, as well as Kenny and I, received commissions with every purchase and sale.  Rather than concerning ourselves with client losses, Kenny and I were looking for ways to enhance our own earnings. We gladly accepted six-figure “signing bonuses” to pull our book of business from Bear Stearns and run our operations from UBS, a competing brokerage house.  UBS wanted in on the action, and for the right price to Kenny and me, we gladly switched our allegiance.

As commissions from aggressive trading continued to flow to UBS, as well as to Kenny and me, we could not ignore the unusual patterns in one of the hedge funds we oversaw.  Despite repeated losses of millions of dollars in client funds through bad trades, the hedge fund continued to attract millions in deposits from new, unsuspecting investors.  This wasprima facie evidence of some sort of fraud and everyone with access to the records urged us to protect ourselves.  Rather than confront the evidence and thereby kill the commissions that flowed from the hedge fund in question, we generated a letter of disclosure with hopes that it would shield us against liability that we anticipated from the hedge fund.

This was the typical culture I am now ashamed to have participated in and contributed to during my tenure as a young stockbroker.  Instead of making decisions rooted in trustworthiness, fairness, and a commitment to transparency, I joined an unscrupulous lot. In time I became locked in a myopic cycle of selfishness, striving to inflate my pay without regard to the principles of good conduct.

A willful blindness to wrongdoing was one thing, but a time came when my level of culpability crossed a line, rising from violations of ethics and morality to clear violations of securities laws.  That moment came during a meeting I attended where an investor of the questionable hedge fund presented incontrovertible proof of fraud.  The investor had in his possession an account statement from UBS verifying that he had equities in his account with a value in excess of $3 million. Since magnificent trading losses by the hedge fund manager had depleted the total balance to far less than $1 million, I knew with certainty that the hedge fund manager had presented the investor with forged financial statements.

An appropriate course of action would have been for me to report the fraud to the investor, to my superiors, and to appropriate authorities. Instead, I dissembled, effectively lying to protect my client—the hedge fund manager—by allowing the investor to believe that his account was in good standing.  In fact, the hedge fund manager was in the midst of a Ponzi scheme, and my failure to report the fraud contributed, making me a co-conspirator.

Upon leaving that meeting, the sickness in my stomach confirmed that I had committed a pernicious act.  In not expressing my client’s fraud I had engaged in a crime.  I wanted to convince myself that it wasn’t me who had done anything wrong, but efforts to ignore my silence at a crucial moment did not appease the guilt I felt inside.  I felt dirty, not because I had profited from what I had suspected all along was my client’s fraud, but because I knew that someday I would have to pay for my decision to remain silent about the fraud during that meeting.  Despite the inner guilt, I didn’t have the strength within me to accept responsibility and try to redeem myself.  Instead, that day was simply a continuation of my long slide to self-destruction.  It began with a diminishing commitment to ethical behavior after I left USC, and culminated with my term in federal prison.

In the months that followed that meeting with my client and his investor, an investigation began that resulted in my being fired.  Then concerns over civil liabilities led to my six-figure legal fees.  I stayed in denial for more than a year, exacerbating the costs of my wrongdoing on every level, including financial, emotional, psychological, and even biological. I didn’t want my family to know that I had been complicit in a fraud nor did I want my reputation to suffer.  I lied to people, including my lawyers and the FBI, tried to cheat my way through lie detector tests, in a futile effort to delay what I knew was inevitable. Only the imminent threat of a more severe sanction from the criminal justice system brought me to confront my conscience, beginning this long journey of, step-by-step, striving to set things right for the wrong I had done.

While serving my term in prison, I had time to reflect on when and how I had begun to go wrong.  That introspection helped me grasp the true costs of abandoning the ethical principles I had been groomed to embrace in childhood and through my University years.  When I entered the workforce I became consumed with the lust for a higher paycheck, no matter what the cost to my reputation.  I began to justify looking out for my own needs, feeling as if I was entitled to more.  The pressure to earn more led me to rationalize my actions, and when opportunities presented themselves, I seized them.

Without a commitment to ethics, I learned the hard way, that pressurerationalization, and opportunity makes a person susceptible to what others have called the “fraud triangle”. While in prison I heard stories from scores of men who once led distinguished careers as accountants, lawyers, and businessman. Like me, they were men who graduated from great Universities, men who didn’t set out to scheme or rob, men who couldn’t fathom the possibility of ever encountering such personal disgrace and failure.  Yet like me, their lives—and their families’ lives—were uprooted because of bad decisions that began with a disregard for the importance of making values-based decisions.

In retrospect, I realize the arrogance of having once believed that I was “entitled” to anything.  Every individual has a responsibility, a duty to live as a good citizen and to abide by the principles of good conduct.  In failing to recognize that decisions I made would have consequences, not only for me, but also for my employer, my family, my unborn children, and for others in society, I lived in a willful blindness, the costs for which I’ll spend a lifetime paying.

I will continue to invest hours every day contemplating the motivations, behaviors, and consequences that resulted in my struggle with the criminal justice system.  I’m determined to fulfill my obligations to live as a contributing citizen, thirsty for forgiveness, insight, and perspective that, in time, might help expiate the shame and guilt weighing upon my shoulders.  By sharing this story and making myself available to respond with questions, I hope to help my fellow citizens appreciate the wisdom of honesty, transparency, temperance, balance, integrity, and the other virtues of good citizenship.

Justin Paperny

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