14Antifraud and Compliance Efforts: Ethics, Prevention, and Deterrence

This chapter covers ethics, compliance, fraud deterrence, and fraud prevention. Franco Frande, former Chief of Financial Investigations for the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) often cited the anecdotal 10–80–10 Rule of Ethics: 10% of the population will commit bad acts whenever the opportunity presents itself (consistent with the notion of predators), 80% of the population might commit bad acts, depending on the circumstances (consistent with the notion of situational fraudsters), and the remaining 10% of the population will never commit fraud.1

In a 2018 report from ABC affiliate KTRK Channel 13 Action News in Houston and USA Today, a megachurch pastor and a Louisiana financial planner were accused of defrauding investors of more than $1 million.2 According to the news sources, a federal grand jury indicted Gregory Alan Smith, 55, of Shreveport, La., and Kirbyjon H. Caldwell, 64, of Houston, on six counts of wire fraud, four counts of money laundering, and one count each of conspiracy to commit wire fraud and conspiracy to commit money laundering.

Apparently, the pair offered quick and impressive returns on prerevolutionary Chinese bonds dating back to the 1940s, allegedly collecting as much as $3.5 million from investors. The indictment suggests that the bonds were worthless. To keep investors on the hook, the defendants made frequent calls and promises of pay back to investors, ...

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