In my accounting ethics class, I found myself sitting face-to-face with a white-collar criminal; albeit, he was actually Skyping us from his New York apartment while we were sitting in a classroom in College Station. Nevertheless, it was a rare opportunity speaking with an inside trader who has been featured in major news publications over the past year. Garrett Bauer was involved in an insider trading scam that lasted for 17 years, and he is now awaiting his sentencing on June 4.
Garrett considers himself a normal guy. He had a middle-class upbringing, a college education and a lifestyle that was far from the outrageously lavish ones that other inside traders lead. He was a successful day trader and did not need money from trading off of illegal information. So how did an average guy end up at the center of one of the longest running insider trading operations?
Garrett’s former colleague and good friend Ken Robinson began receiving information from his attorney about potential activity within the market. Ken asked Garrett to make the trades for him and his lawyer. Garrett made these trades about twice a year for them, paid the taxes on the profits and then withdrew the money from an ATM to give to Ken, who gave a portion to his lawyer. At the same time, Garrett risked his own money and made bigger trades using the same information for his own profit. Garrett said for the first 10 years, he lost more money than he made from Ken’s information. Yet, he continued trading on the tips.
Garrett had refused to do two trades so Ken made the trades out of his own accounts, which led authorities to investigate him. Ken made a deal with the FBI. He turned in Garrett and his attorney in return for a lesser sentence. In April 2011, a mass of FBI agents marched into Garrett’s apartment and arrested him, only allowing him to brush his teeth and get dressed. Garrett was charged with money laundering, obstruction of justice and insider trading. He pleaded guilty. He now awaits his sentencing, which will be left to the judge’s discretion and based on the $37 million in profits made from his trades. Note this grand total does not deduct the millions of dollars he lost on the trades.
While waiting for his sentencing, he feels like he is the eye of a hurricane; everything is calm. At first, he was under house arrest, but now, he has the freedom to do anything except leave the country or trade stocks. He is spending his free time consulting with former inmates about what he will face in prison. He has always been an active volunteer, and currently, he volunteers for Make-a-Wish Foundation, a soup kitchen and the Bowery Mission. Also, he makes balloon animals for disabled children on Saturday afternoons. In addition, he has been giving speeches to students and companies in an effort to prevent others from making the same mistakes.
When we asked Garrett why he started trading illegally and why he continued doing it even after losing money on the tips, he said he had been wondering what his reasoning was behind his actions since his conviction. He described his actions as “senseless.” In a way, he painted himself as the victim of the trading room culture. He said at his office, traders were constantly yelling out very specific inside tips about companies. Garrett said the tips he received from Ken were more vague than what he heard in the trading room, and since they lacked specificity, he was able to rationalize that what he was doing was different than real insider trading.
When we asked Garrett what his relationship was like with Ken now, Garrett said he had not contacted him since his conviction; however, he is no longer angry with Ken. This dilemma Ken faced to strike a deal with the authorities was a question of self-preservation and duty to others. In Garrett’s opinion, Ken’s loyalty to his wife and children outweighed his duty to his friend whom he had promised not to turn in if they were caught. Garrett said he does not know what he would have done if he had had the opportunity to leverage another person’s involvement for his own sake.
Also, a student asked if Garrett thought he was an ethical person before and during his illegal trading. Garrett said he never thought of himself in the context of ethics, but he had always considered himself a good person. His answer made us realize how important the focus on ethics in our curriculum is. Our classes make us consider the ethical implications of our actions and ultimately help us develop an ethical framework that will hopefully prevent us from ending up in similar situations to Garrett’s.
Garrett’s presentation also demonstrated the consequentialism viewpoint of ethics that we have discussed in our class. People make decisions based on the outcomes they foresee. However, determining how far-reaching and long-lasting the consequences of our actions will be is an impossible task. We do not calculate the repercussions of our actions accurately which leads to poor decision-making. Garrett said at the time of his trading, he did not think he was hurting anyone. If he had known the consequences he would face — nine to 11 years in prison, $11 million fine to the SEC, the seizure of all of his assets, the end of his career and the end of his life as he knows it — he would have thought more about his role in the trading. Garrett’s actions not only hurt him, but they also hurt his family and the integrity of his profession.
While Garrett was transparent about his crime in his presentation to us, a group of future auditors is not the most willing audience to accept what Garrett said as the entire truth. A duty of auditors is to maintain a level of professional skepticism. This duty means we do not accept information at its face value. We are prompted to ask why and find support for our clients’ claims. Thus, many of us expressed skepticism about Garrett’s perspective on his crime. Garrett said he never thought what he was doing was wrong. If that is so, then why did he use a prepaid cellphone to call Ken? Why did he have a conversation with Ken about burning money they made on a trade to conceal his involvement? Another question we wondered was is Garrett more involved in community service now and making all of these presentations for the sole benefit of others? Or does he have ulterior motives for his actions now? After all, he is facing nine to 11 years in prison and is hoping the judge offers him leniency based on his behavior.
Regardless if I believe everything Garrett told us, I believe his presentation effectively demonstrated how an average person can commit unethical actions. The corporate culture heightens the pressure to succeed at all costs and dismisses the repercussions of those actions. Garrett said he never thought he would get caught because everyone was doing it, so he continued to trade. I am sure he wishes he would not have waited for the FBI to barge into his apartment before realizing his crimes were wrong. Now, while waiting for his new life as a prisoner to begin, he finally realizes the risks of his insider trading were not worth the rewards.