Mays Business School
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White-Collar Criminal in the Classroom

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.

Garrett Bauer's Arrest in April 2011

Garrett Bauer's Arrest in April 2011

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.

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  1. Great post, Laura!

  2. well done, laura

  3. Hearing Garrett share his experience was definatley a once in a lifetime experience! I felt very sorry for him when he was talking, and understand that the culture of a trader requires digging for information. However, when he asked if any of us could write letters on his behalf, I was a bit more skeptical of his motives. And I echo what you said Laura, that we should learn that any “normal person” could be easily convicted of this crime; there are no steryotypes. Well done Laura!

  4. Hi Laura,

    Good article. When I got the first tip from Ken, I wasn’t part of a trading room. I really did that on my own. About a year later I was sitting on a trading desk hearing very specific information on deals (mostly wrong information).

    I used to volunteer with Make-A-Wish. Not doing that now.

    I always knew what I was doing was wrong (even when I got that first stock tip from Ken). I thought I mentioned this, but maybe I didn’t. I just didn’t know if there was a difference between receiving very specific information and vague information (which I was getting). I thought it could have been a lesser crime.

    Yes, I am volunteering more now that I was before I was arrested. I feel it is the most productive use of my time. I can’t really start a career. I started giving the speeches when it was suggested to me that if I was really sorry for what I had done that I should give a speech as a way deter others from getting into the same situation as myself. It has been a way for me to work through my remorse for committing the crime. A way that I can say I’m sorry. I really only thought I would give a speech or two. I had actually never given a speech before I started this. I really never expected that I would have given so many speeches. Just trying to find out how to get an audience to speak to was a huge task for me. I feel like I am being as productive as I can be with my time rather than just sit in my apartment and wish this never happened.

    Yes, I do hope the judge recognizes that I am giving speeches and what I am doing to deter others. I’m not counting on it to lower my sentence but if it does have some affect, I’d be happy about it.

    Feel free to ask anything….

    • Hi Garrett,

      I apologize for my misspeaking about your involvement with Make-A-Wish, and I appreciate your clarification of other aspects I mentioned in my post. Thank you for speaking to our class. As I mentioned before, it was a rare opportunity being able to speak with someone in your position, and I believe we all learned something valuable from your story. For me particularly, your story made me realize how no one is immune from committing crimes similar to insider trading, and I believe I will be more cognizant in the corporate world of the ethical implications of my actions, even the ones that seem insignificant. Again, thank you for taking your time to speak with our class.

  5. Thanks for your perspective Laura! I believe you did a great job of capturing all of the facts that our class has learned about the case through our readings and through our conversation with Garrett himself. Also, I believe you brought to light suspicions that accurately portrayed those of our class.

    I believe that even though Garrett didn’t admit to rationalizing his actions, it was evident during his recollection of the events that happened. An example was when Garrett said that the information was very vague and that he had to do research to actually make trades on the information that he was given. However, everyone at his firm was doing it so he thought they was no way for him to get caught.

    In a sense I sympathize with him because the culture that you are surrounded by can become all-consuming; however, I believe with the right ethical education you can learn to identify that your environment is corrupt and make the appropriate adjustments to maintain your ethical code.

  6. Very solid points Laura. I had a hard time believing that Garrett Bauer was doing this solely for the benefit of future people to learn from his mistakes. The tips he received were wrong from the beginning because the rules of insider trading are pretty well defined. It is good he’s volunteering his time, but I am not convinced 100% that he’s doing this out of the kindness of his heart.

    He continued his unethical behavior for 17 years, and although I do feel 9-11 years is a little extreme, it may fit the crime here just because he did these trades for such a long time.

  7. This blog captued everything that we had discussed and the feelings of the class very well. It is hard to ell whether Garret Bauer was actually remorseful for his actions and it even seemed as though he was still rying to rationalize to us that his actions were somehow proper. Knowing how the markets operate, it is upsetting, no mater how much one rationalizes it, that one can reap benefits through insider rading while others suffer the consequences of not having that information. I do feel sorry for him but I wish what he actually believed could be seen as truthful.

  8. This was a great representation of what happened during the class time. I think it all comes back to rationalization. Garrett rationalized that he wasn’t really doing anything wrong and everyone was doing it. He continued to rationalize that they weren’t very specific tips he had to do a lot of research on his own and didn’t think anything was wrong with using another phone for the tips that he received. I don’t think it is wrong to rationalize your actions but maybe we should take a minute to give are actions a second look if we continue to rationalize. Obviously, we are rationalizing excessively for a reason.

  9. I also thought this was a great summary of the discussion we had with Garrett. I think it showed us the importance of understanding where your “line” is. When there is not one in place, it’s really easy to do something wrong and feel that it is right. I think Garrett’s situation embodies character and consequentialism. I know it can be really easy to justify “a little thing,” it really shows that it’s hard to tell when it becomes a big thing. Without knowing what is small or large, you can do something unethical, but not see yourself in that light.

  10. Great blog Laura. I’ll admit while Garrett was giving his speach I remember sitting there and wondering whether he was telling the entire truth. I compared what he mentioned to that of the article about Ken. Some details did not match up, and then I wondered who was telling the truth? Obviously there are three sides to this story. Like Jennise mentioned above, rationlization was key in this speech. We all do it, we all rationlize our actions, but it is important to take a step back and sometimes admit if we were wrong in doing those actions.

  11. While Garrett is ultimately responsible for his actions, I do believe him when he says that the culture surrounding him had some impact on his actions. I can attest to the demand for up-to-date detailed information in the valuation of securities and structured products. During my time in New York, I worked with a valuation group that put major pressure on staff to dig for information to provide different insights into our valuations.

    Garrett fell prey to a lapse in judgement that caused him to take steps that crossed the line of ethical judgement, but I do believe that many (if not most) people in his position would feel the pressure to take that extra tidbit of information.

  12. I do have to admit that after the presentation was over Garrett did have me feeling sorry for him. It wasn’t until the class started talking afterwards that I realized that he painted himself to be the victim and I didn’t feel bad for him anymore. What he did was wrong and there were definitely many times he should have come clean. I do agree that the industry can put the pressure on someone to do unethical things but we have to take what we learn in class and from others mistakes and apply them to our own lives to keep from being the next “Garrett Bauer.” I would hope if my friend came up to me and asked me to do the same thing I would know to say no.

  13. Stoma in the house!

    Nicely done. What really struck me during Garrett’s speech, and again in this blog post, was how Garrett never thought of himself as an ethical person, but rather a “good” person. I think that is a dangerous mindset that we are all guilty of at times in our lives. To me, being a good person can mean many things. You are a good person if you give money to charity or feed the homeless. But I believe being an ethical person is an extension of this idea of “good.” To be ethical, sometimes you have to speak up or do things in situations where good people may resign. Let’s take Roach’s example of an intern who overhears two colleagues discussing confidential client information in an elevator. If the intern overlooks the issue, he/she can still call themselves “good” because they haven’t necessarily done anything bad. But is he/she ethical? That is the question.

    • Thanks for the thoughts Rachel. I never made that connection with Garrett’s case specifically.

      It would seem counterintuitive, but when someone thinks of him/herself as a good person, it almost seems he/she is saying they can do some not-so-great things and it’s still ok. So maybe there are some actions you can get away with and still be considered a good person? Simply because the actions aren’t too terribly bad?

      Since most people probably consider themselves good, maybe the danger lies in being ok with considering yourself average? Maybe if we avoided complacency and tried to be the best we can possibly be (in ethical-decision making in this case specifically)… then it’s possible “good” people wouldn’t find themselves doing some not-so-good things.

    • Good post Laura! I agree with the point that Rachael and Logan made. I think it is easy for us to judge what Garrett did because we have never been in his situation. I think when it comes down to it, we have to rely on the values that we have been raised with to make the right decision.

      After hearing Garrett speak, you can’t help but feel sorry for him. Many people questioned his motives on why he was speaking to our class and if it was just for his benefit. He doesn’t really have any other option to get his sentenced reduced, so I would say its for his benefit. Whether his motives for speaking were selfish or not, it was still beneficial to us to hear the story first-hand on how easily it can happen.

  14. I completely agree with Amanda’s point above. After hearing Garrett speak about the situation in class last week, I felt very sorry for him. He did a great job portraying himself as the victim of this terrible situation. I then left class and reflected more on what he said and came to a much different conclusion. It is unfortunate that he never thought about the consequences of his actions or considered what might happen if anyone involved in his trading scheme was caught. A reasonable person would assume his friend Ken, who had a wife and two children, would put his family before the criminals he was associating with. But Garrett still made the conscious decision to participate in something he knows was illegal and there can be no excuse for that.

    The point that bothered me the most throughout the entire story was that while at work the other employees were trading on tips that were shouted out to the entire room. Garrett implied that many people traded on those tips, and I inferred from there that he probably traded on the tips that were applicable to his business function. He conveyed this “normal business activity” as an excuse to why his actions should not be punished. As a child a typical excuse for my actions was, “Well he/she did it too.” Just because others are participating in the activities, it does not make it right. Garrett’s discussion of this idea made me realize he had not yet taken responsibility for HIS actions. Just like we have discussed in class, it takes a strong and established set of morals and values to be able to combat this corruptive environment and go against the flow. To me, Garrett had not set a standard for himself to uphold and that led to where he is today, on his way to jail.

  15. While listening to Garrett’s story, I too was torn in my emotional response to his situation. With one eye, I saw an easy-going, well-intentioned, pitiable trader who was the result of a culture where ethics takes backseat to the bottom line. The other eye, however, saw something darker. It saw a man only remorseful because he got caught–a man who, paralleling figures like Andy Fastow and Jeff Skilling, believed himself the smartest guy in the room, incapable of detection or discovery. Apprehended at the pinnacle of the SEC’s crackdown on insider trading, Garrett was paraded around by perhaps the most powerful governmental agency, warning other inside traders, ‘get your act together or you’re next.’ Does the fact that Garrett was made into the SEC’s poster child, when millions of other inside traders continue to illegally profit from non-public information, make him a tragic figure deserving of a lessened sentence? Is it fair that Ken Robinson will serve no jail time, despite the fact that he was the one who initially approached Garrett with his get-rich-quick proposition? Should any of us be concerned that we live in a country whose justice system will completely ignore 17 years of inside trading in exchange for backstabbing a trusting confidant and loyal friend? I know it’s not my place to definitively answer these challenging questions, but they do seriously worry me about the direction in which our society continues to head.

  16. While Garrett said he never rationalized anything he was doing, I feel like that can’t be the case. Most things we do in life we rationalize in some way. It might be done in our subconscious, but it is hard not to make some type of calculation or see a consequence in doing something such as insider trading. For instance, he knew that trading on these tips was wrong, otherwise why would Garrett have bought an untraceable cell phone or told Ken to burn the money? He must have thought of the consequences of getting caught, and then decided to do these things to prevent that from happening. While I don’t think he intentionally tried to hurt anyone, I fully believe he realized the impact of his actions and how they were unethical.

  17. Awesome job, Laura! Not to be repetitive, but I too felt sympathy for Garrett while listening to his presentation in class. However, when thinking about the things he said and the points he made, I began to get the feeling that he wasn’t really sorry for anything he had done. I feel that 9-11 years in prison might be a little harsh, however it definitely sends a strong message to others in Garret’s former role as a trader. If I was in that position, the potential of being sent to prison for 9+ years would definitely make me think twice about which information I used to to make my trades.

    When asked if he thought he was an ethical person, his response was that he never really thought about himself in terms of ethical or unethical. The reality of it is, he probably never really had to before. I think that our generation is forced to think about ourselves in terms of ethics more so than in the past in response to scandals such as Enron and Worldcom, which is probably a good thing since the majority of us are going to become auditors in the near future.

    As Ellen mentioned, it’s important to know where your “line” is. I think we really will be better off after taking an ethics course such as this so that hopefully we will, if we haven’t already, establish a set of ethical values that we choose to live our personal and professional life by. Having a strong moral foundation will assist us in making the tough decisions that auditors, traders, CEOs, and other professionals are forced to make every day.

  18. I agree with you Laura, it was a rare occasion to speak with an insider trader. It was very interesting hearing his side of the story, and like Blanca commented, every story has three sides to it and it was interesting to hear his. Since we read an article online that said he had made big purchases with the insider trading money, I was expecting to hear more about these purchases. Then, Garrett clarified that he didn’t really spend his money on lavish purchases, so it this was a good comparison to take away from what the article stated. What I noticed from the speech was that Garrett seemed to contradict himself on the issue that he knew that what he was doing was wrong, that he lost more money than he made from the insider trades, but yet he kept taking part in the trading. This rationalization doesn’t make much sense to me, but I’m sure there’s a more complex thinking structure behind the rationalization.

    Although I don’t agree with Garrett’s rationalization, I do agree with his statement that more business majors need to be educated on the legal ramifications of insider trading. I am very glad that Garrett took time to speak with us.

  19. I was also greatly appreciative of the opportunity we had to speak with someone in such a unique circumstance. I did notice that before and during the illegal insider trading, Garrett was not a consequentialist. He did not really take into account what could happen in the long run, especially considering he didn’t think the vague tips were “as illegal” as the clear and concise. One thing I learned from his speech though is that people can learn from their mistakes. We were able to see a financially and socially successful young man that worked his way up the ladder and made a name for himself fall down the ladder, and hit a few rungs on the way.

    I think it was good for us to see firsthand the bad side of things. We hear all the stories on the news or read about the cases in our textbooks, but to actually hear from a “white collar criminal” and ask him questions, really made things stick for me. Any of us in this ethics class could end up in that situation if we make the wrong decisions, and I think this class and his speech will help us to make the right ones.

  20. Nice post, Laura! I always enjoy reading your blog.

    I agree with Paul Searle’s comment. I found myself at some points thinking, “This is really kind of sad.” However, that was quickly overcome by my propensity for judgment. I know it’s very easy to want to “throw the book” at someone, but I see insider trading as a “black and white” issue. I’d be lying if I said a part of me did not have remorse for the complete situation; yet, the other (quite larger) part says there needs to be accountability. However, accountability is where, in my opinion, the regulatory and legal system has failed the public.

    On so many occasions, we see individuals who have committed heinous crimes (such as stealing billions of dollars) receive a lower sentence than others due to a “plea bargain.” I am not advocating the need for or against plea bargains; I merely find the entire situation interesting. I listened to a lecture made by Egil Krogh, the author, of the book I am reading for class. When he was indicted on charges from the Watergate scandal, he understood that he had done something wrong and requested to be arraigned prior to the time any plea bargains could be given and that no presidential pardon would be given. To me, that is an honorable individual- taking responsibility for actions.

    How do you eradicate insider trading? In my opinion, which I think is the most widely held view, you can’t. Our government and regulators are designed to be a reactionary system. This lends to the reason why, as Dr. Shaub mentioned in his notes, that the government does not do as great of a job at evaluating future situations and implications.

  21. Like many others that have commented on your blog, I thought you did an excellent job Laura! While listening to Garrett, I also fell victim to the sympathy card he pulled on us. I kept thinking “wow, this is really sad that such an average guy who just made a bad decision twice a year or so is going to be in prison for 9-11 years”. I thought the most interesting part of Garrett’s speech was his lack of an answer to why he continued to make the trades if he was making good money (that he didn’t really need) in his legal trades and in fact, was losing money in the insider trades. He really couldn’t answer why he didn’t stop even though he knew it was wrong. I also thought it was very interesting that he thinks he sentence should be affected by his losses on the trades and the fact that his information was vague. Does that really matter? Like Jennise’s comment, I think Garrett’s decisions (as well as most decisions) came down to rationalization. He thought that because everyone at work was doing it and that his information was vague and a lot of times wrong, that he wouldn’t be caught. I don’t think he ever really thought about going to jail or paying fines becuase in his mind, it really wasn’t that bad. Overall, I think this class period was one of my most interesting and memorable classes of all of college! Thanks to Garrett for being so open and thanks to the class for a great discussion!

  22. Great job Laura! I think you hit on all of the key aspects of what we have read about this situation and from our conversation with Garrett.

    One point that has become clear to me through the course and your post is that a focus on ethics in the classroom really does make a difference in the minds of future professionals. It seems that before many fraud and insider trading cases have been exposed, university curriculums have not focused on ethics and moral principles. Even now, not every state requires students to take an ethics course before they sit for the CPA exam.

    I understand that one class may not change the rest of our lives, but it is a possibility. We have been forced to think of how we would react in certain situations and will be creating 10 principles that we can use to guide us in our decision making. With a focus on ethics and a look into the consequences of unethical decisions, we understand what we are going to be facing and how we can determine what the outcome is going to be.

    After our conversation with Garrett and all the discussions and readings from our class, I know that personally, my 10 principles will be my guide to making decisions throughout my career.

  23. I think you covered Garrett’s story in great detail. You raised central ethical concerns regarding Garrett’s story that were common in our classroom conversation. I too was skeptical of Garrett’s high involvement in community service after his conviction. At first, I thought that he was only involved to lower his sentencing, but I had to think of Garrett’s side as well. Garrett has had plenty of time to reflect on his actions. I do believe that Garrett is well aware that what he did was wrong. I feel that Garrett is taking this opportunity to inform others, like us, of the consequences of his actions to prevent and deter this behavior. Whether or not he has alternative motives, I give Garrett credit for not pitying himself for what he did and taking responsibility for his actions.

    I also respect Garrett for not acting bitter towards Ken. He could have easily blamed his situation on the fact that Ken used their friendship to help the FBI convict him for his involvement in insider trading. Garrett realizes that he is accountable for his involvement in this 17 year scandal even though he had the help of others.

  24. Several have commented on this blog, so my apologies for if it is repetitive, but hopefully it won’t be!

    I first and foremost have respect for Bauer speaking to an ETHICS class about the situation he is in. Regardless of his motives, it takes a lot of guts to have the courage to do that and admit your mistakes.

    Secondly, I am curious to believe if Ken Robinson was actually Bauer’s friend, or if he had ill intentions from the very beginning. I tend to be one that likes to see the bright side in people, but it is hard for me to believe that true friends betray one another like that. It would be one thing if Ken was trying to do the right thing and betraying Bauer due to that, however, it seems that Ken was simply trying to save himself.

    I found it interesting that Bauer claims that if he would have known the consequences, he would not have acted the way he did. It seems that is an attempt to justify his actions, paired with the fact that he claims he did it “only every 6 months.” It is hard for me to believe that he did not know consequences of insider trading, because he admitted that while he was doing it, he was doing the wrong thing.

    If anything, he is a prime example of why everyone needs to do the 10 Principles assignment. It is almost a consequentialist mentality: if I don’t do this, that can happen to me; it can happen to anyone. If Bauer had dont his “10 Principles”, he might have escaped an $11 Million future debt as well as years in prison. Regardless, I’m thankful that he is young and that he can reflect on his actions and start a new life when he gets out. It is almost a second chance in the sense that he will still be under the age of 40 most likely.

  25. Laura, this is a nice warp-up of that day. As you have said, I wasn’t really sure to what extent his words were true. I’m sure he was a normal guy who ended up in a big mess because he made bad choices (for quite a long time). What scares me is that bad choices cannot be undone by saying “I’m sorry” or “I won’t do it again” because people will not accept it or take it seriously, even if I truly meant it. As Dr. Nixon said in class, when you make a bad choice, sometimes you can’t go back. Although I think Mr. Bauer is making speeches to make good impression to the judge, but regardless of his intentions, I hope we take his situation and where he stands seriously.

  26. I think this is a great summary of what we learned in class during Mr. Bauer’s call. As most of you have said, I do sympathize with Bauer to an extent. I can see how easy it would be to find yourself heading down the wrong path, and how hard it can be to turn around. I do feel that he victimized himself to a certain degree, but I think that it is human nature to “stick up” for our actions. As far as his call with us goes, I thought his intentions were in the right place, and I definitely respect the courage it must have taken for him to agree to speak to an ethics class where he knew we were learning about how his actions were ethically wrong. Overall, it was a great learning experience, and I definitely appreciate the first-hand account he offered us!

  27. I also thought it was interesting that Garrett said he had never thought about whether or not he was an ethical person. Hearing him admit to this made me realize how important this class is. It forces us to think about these kinds of situations in the terms of ethics, which is something we have never had to do before. I could see how it would be very easy to make what seems like a simple decision of trading stock on very vague information, hoping to make a little money. After hearing Garrett’s story, I can definitely see how this decision may not even make a person think twice, had they not studied ethics in a class like this one.

    As part of our discussions related to our WERS assignments, someone in my group mentioned a quote that said “Maybe there are no good and bad people, just good and bad decisions.” I thought it was a really good point, and definitely made me think of Garrett’s story.

  28. This was a great recap of our experience that day with Garrett. I think one of the biggest lessons I walked away with was knowing that these instances can happen to anyone. Garrett said that he did know if what he was doing was considered insider trading because he was receiving such vague information and because he was actually losing money in the process. I think that goes to show that you need to be 100% confident that every decision you make is the right one. Seek clarification, be skeptical. Ken and Garrett both seemed to be normal, every day people. Unlike others such as Madoff and Fastow whose intent was to maliciously deceive, they were not purposely hurting others. It can happen to anyone and that is why you must always think ethically about the decisions you make. I think this experience was an eye-opener and I really appreciated Garrett’s time.

  29. Very nice recap of what we learned that day in class. After hearing Mr. Bauer speak to us I really began to realize that Insider Trading is not what I had imagined it to be. I understand that this was a very mild case, as Mr. Bauer was not out buying yachts but instead living modestly. I realized that any one of us could eventually be in this same situation later on in our lives and if we accept that then we have a good chance at preventing it from happening. We can’t allow ourselves to compromise our values just because our friends are the ones asking us to do it. When it is our friends asking us that makes saying no much more difficult. A good example is the movie Wallstreet where Charlie Sheen is able to convince a college buddy to help him hide his earnings just by being friendly.

  30. Laura,
    This is a great post! Having Mr. Bauer skype in with our class was very interesting and certainly once in a lifetime. I think we can all agree we learned quite a bit from him. Most people who have a fairly “normal” upbringing could never see themselves in such a sticky situation, and it is easy to see how this could happen to anyone. It is easy to rationalize an action when you see others doing it and not getting caught.

    In addition, not many inside traders have been caught and punished until very recent history. It has always been difficult to convict and prove. This is an important ethical issue to consider, especially becoming an auditor in the future, when we will be privy to private information. It is always good to remember how easy it can be to slip up and end up in a cycle that is hard to fix later on.

    It is like the boiling frog; you may not realize you are totally in the wrong before it is too late.

  31. I was glad to see that you posted about this, Laura. Speaking first-hand with someone so recently convicted of such a large crime was such a unique opportunity. As you mentioned in your blog, I was surprised by Mr. Bauer’s reaction to a classmate’s question about whether he believed he was an ethical person. From his response, it seemed as though he had never thought about the topic before. Since he has had so much free time lately, I would have thought he would have had an opportunity to think about his actions and their ethical implications.

    Also, I know a few people have mentioned this, but I also felt sorry for Mr. Bauer after hearing his story (especially before hearing the class’s questions and thinking about professional skepticism!). He really made it seem as though he was just trying to help out a friend and didn’t mean to hurt anyone through his actions. I would be very interested to hear the perspectives of Ken Robinson and the lawyer. It seems as though some of the articles I have read regarding this situation may have been written more through their point of view, since Bauer sounded like the “bad guy” in them.

  32. You hit the head on the nail with this post! When I was listening to Garrett’s story in class, I felt very sorry for him. While knowing what he was doing was wrong, the idea of your friend who is the scam with you turning you in had to be a tough pill to swallow. If he had considered the consequences, I really doubt that Ken turning him in would be one of them that was high on the list. I agree with Kelly that until other students in our class made comments about Garrett’s intentions for the speeches and volunteering, I had never even considered him doing so for ulterior motives, but that could be simply because I have not taken an audit class yet.
    I also found it interesting in the article that we read that Ken stated Garrett was the one who making extravagant purchases and he had to tell him to stop spending money. Garrett made it sound as though he lived a very modest life.
    With two stories that vary so much, it’s hard to know which to believe.

  33. After reading the articles, I did not know what to expect during class time. The articles painted Bauer in a negative light as they tend to do when crime is involved. A person making mistakes or normal person doing the types of acts committed would not sell stories; however, a sinister malicious sneaky person manipulating the system would. Many articles are written to attract the interest of the user and portray events in an exciting or darkened light.

    After hearing Garret tell his story, my initial response was pity. However, once I considered the source I tried to look at what was said rather than how it was said. I thought there seemed to be a couple holes in the story. It is a part of human nature to tell your story in a way to show yourself in a good light. Parts of a story left out, selective data/information, or exagerrated parts can strongly swing the reader to what the teller wants them to think.

    What actually occured? I could not tell you. In contentious stories such as this one, no one besides the participants can know what happened. Even then our nature is to paint ourselves in a good light even within our own mind. Over time our actions take on a life of their own within our mind.

    What I took out of this and try to apply in every thing I read is to take most stories with a grain of salt. Even the most unbiased person will have a slant to what they assert, no matter how minor the slant.

  34. Thanks for writing such a good summary of Garrett’s visit Laura. I also felt sorry for Garrett in a way, but wasn’t completely sure of how much of a victim Garrett was. Garrett’s story is one that we should all be able to relate to. He wasn’t an executive at a big company like the other people we’ve heard about in class. He was a normal guy. A day trader justfying his actions because that’s what lots of people around him were doing. We’ve all been a victim of our environment as some point I think. Maybe you’re driving down the highway, and everyone around you is speeding. You might think its okay to speed too, as long as you don’t go as fast as the people around you. However, that doesn’t change the fact that what Garrett did was illegal. He admits his wrongdoings, which I am glad to see. However, he really can’t try to make the case that he was a victim. He played the market. People that traded without insider information were the innocent victims in this situation, not Garrett. I am glad the goverment is starting to crack down more on white-collar crimes like insider trading and fraud. I feel sorry for Garrett’s family and hope that they are able to recover financially from Garrett’s wrongdoings. I feel bad for Garrett too in a way; I understand that he feels like he’s being made the example here, but hey, law enforcement has to start somewhere. You can’t follow the bandwagon and then say “well they were doing it too” and get away with it – you have to choose to remain above your environment and stick to some sense of moral principles or duties.

  35. What struck me most about Garrett’s time with our class was that he had “never really thought about ethics,” and had just considered himself a “good person.”

    I think this is very important to note, because a lot of people fall prey to this type of thinking. Here at Mays, we are so privileged, like Laura mentioned, that our curriculum allows for such a focus on ethics and to have professors that take the Aggie Honor Code so seriously.

    I specifically remember our BUSN 205 class debating on whether or not ethics could be taught in a classroom. While maybe it can’t be fully taught, I’d say that including it in our curriculum is extremely beneficial… which is pretty evident in Garrett’s case. Never really thought about ethics?! That blows my mind. And it makes me thankful that ethics is so tightly woven into our education.

  36. This reminds me of St. Augustine and the pear tree. He knew what he did was wrong. He could have gotten the pears in a legal way. Yet he chose to steal them from a neighbor. He didn’t even eat them. We all have some desire to do bad things, but it is through will, prayer, and proper guidance that good prevails. I didn’t hear Garrett mention anything about faith or any sort of mentor in his life. Perhaps he didn’t have either, or they just didn’t play a huge role in his life. I wonder if he would be in his current position if they had.

  37. Like many other people commenting on this post, I felt very emotionally torn with this situation. I felt a lot of Mr. Bauer’s pain when he was speaking with us. The 9-11 year sentence seems really high when compared to Mr. Robinson’s probable short sentence. I also felt sorry that outside support for ethical situations was absent in Bauer’s life. He really needed advice from an ethical friend or family member that could have kept him on track.

    On the other hand, there’s a lot of pieces to Bauer’s story that clashed. He stated that he lived a relatively frugal life, but I feel that assessment was far out of touch of what an “average” American would consider frugal. Expensive designer furnishings, an $875k house to his mother, and a 5-bedroom apartment in Manhattan with 5100 sq. feet (5400 sq. feet if you count the porch). Even with low housing prices in Texas, a very, very small percentage of people could afford a 5100 sq. foot home. One would also need to consider that he paid $6.65 million in cash for the apartment.

    Additionally, he stated that he made more money with regular day trading than with insider trading. If insider trading made him $37 million in gains and between $17-20 million in losses, then his gains would still be at least $17 million for just insider trading. The additional $18+ million in day trading would amount to at least $35 million over 17 years. If the house and the apartment were really the only splurge, how did he spend the other tens of millions of dollars?

    Moreover, while I feel like he either downplayed his spending or moved a portion of his capital offshore, I do not feel like I can outright condemn his current push to get a sentence reduction. It’s easy to point a finger and say something is wrong. However, I believe that if I faced the same situation, I would, like Bauer, downplay the situation, give speeches, and volunteer at any possible opportunity. Bauer is acting out of fear for his future life; I would too.

  38. First of all, and I think you would agree, I was fascinated by our opportunity to speak with Bauer. I think I told almost everyone I saw that day about the neat experience we had – how we got to see and interact with a real life situation that is 100% relevant to our course.

    As far as assessing the situation for myself, I would like to agree with Rachel. I think perhaps Bauer knew he was doing something wrong, something that he would rather not be made public. I also think that many of us do that every day. People speed in their cars, drink underage, and other “minor” crimes simply hoping they don’t get caught. However, these wrongdoings are rather common in our world – as perhaps information exchange was in Bauer’s world. Just an idea.

    That being said, whether or not Bauer is serving his community from the goodness of his heart, boredom, or complete self-interest, he is still making an impact for the benefit of others, even if he has personal alterior motives. As long as he’s no longer manipulating the public market, go for it.

  39. This is a great article Laura. I think it’s also important to mention how fortunate we were to have Garrett speak to our ethics class. Throughout the semester, we have heard numerous cases of fraud and more specifically insider trading, but we were able to become much more engaged in the case of Bauer because we had the opportunity to hear his side of the story.

    Now, my personal view on this case is that after a while it became second nature. As we heard, this insider trading scandal lasted for seven years and even though it only consisted of one or two trades a year, I believe after a while he didn’t even think that what he was doing was illegal. As Garrett mentioned in his presentation, several people around him were doing the same thing so how could he feel that what he was doing was wrong.

    With that being said, I do not believe that he should receive the maximum 11 years in prison and I feel this way because of Raj Rajaratnum. Raj ran an insider trading scheme that landed him on the list of the top 300 wealthiest people in the world and he received 10 years. Now I’m by no means making excuses for Garrett’s behavior, I just couldn’t help but feel a little sorry for him after hearing that he will basically spend the rest of his life in tremendous debt because his “friend” asked him to make a few trades and then threw him under the bus.

  40. To mimic what many of my peers have stated, I also initially felt sorry for Garrett. But as I took a moment to step back and look at his situation, my view became more judgmental. Garrett Bauer knew what he was doing was wrong, which is evidenced by his use of the prepaid cellphone. He knew there would be consequences for being caught as evidenced by his comments of burning the money. It goes back to the principle we stated in class, that we are bad calculators of long-term consequences. Garrett wasn’t able to remove himself from his position, and objectively view the situation with a clear mind.

    In addition, I also think Garrett hindered himself by not having a group of trustworthy men which he could seek for counsel and trust to hold him accountable. From a Christian perspective, its essential to have community around you, to hold you to your values and call you out when necessary (Galatians 6:1). If Garrett had this community, I think he may have responded differently to the trading floor culture and questionable actions of his peers.

  41. I felt like Garrett was fairly open with his intentions. He did mention through Skype that the community service and letters of recommendations could be beneficial to his sentence. I felt like he was basically asking for help. I did not get the impression that he was manipulative or calculating during the call. That’s something that could easily backfire on him. His audience could just as easily write negative letters to the judge. My impression was more along the lines of him just being scared and a little bit desperate. Of course, it’s possible that he’s a really good actor, but that’s not my impression.

  42. One of the biggest surprises to me was when I asked Garrett to explain why he kept trading on the inside information when he was better off with his normal day trades. He said he really did not have any reason for it, he just kept doing it.

    It sounded like he was almost a slave to the system for some unknown reason. Maybe every time he heard some new information he thought he would finally be able to gain a huge profit from that particular information. After all, in his mind, it was probably about time the odds worked out in his favor after so many failures.

    I just could not understand that if you are making millions legitimately, and only thousands illegally(when the information does pan out), then why continue for so long? Why not stop using your legitimate income to finance illegal behavior? That was what stood out to me the most and, to me, Garrett seemed just as perplexed looking back it.

  43. Great post, Laura!

    After watching our end of the semester presentations in ethics these past two weeks, I realized that Garrett Bauer’s speech to our class had the most significant impact on us. He is mentioned in more of the presentations than any other person, and I think this is because his speech produced a variety of emotions in each of us. I always knew insider trading was bad–mostly because of scandals like Martha Stewart–but I never really thought about “why” it was bad. Technically you are not taking money from a specific person’s pocket and you are not presenting false information to investors. It is simply cheating the stock market system.

    I think that when Garrett Bauer was committing these actions he was rationalizing it as “well I know its illegal, but I’m not directly harming anyone.” Which, sadly, I would have to say I agree. However, after seeing the consequences that Garrett Bauer has had to deal with (losing all his money, prison, and still owing money), I can say that I will never be tempted to commit insider trading. It is sad that it takes seeing the consequences to prevent people from committing an action, but I understand that the government is trying to make examples of people like Bauer and showing the world how harsh the punishments are. I think, though, that the government, corporations, and schools need to explain to people “why” insider trading is illegal–for instance, by explaining the people it affects and hurts. Hopefully the consequences that Bauer has experienced will prevent people from committing insider trading, but as we learned in class, duties can prevent your actions more than consequences can.

  44. Great job Laura, you captured the essence of our chat with Garrett extremely well. After giving his crime some thought, I’m still not sure as to whether his 11 year and $11MM probable punishment justly fits his 17 year scheme. When I think of 11 years and $11MM, I think of a life ruined for what’s ultimately a nonviolent crime. I’m not sure if he comes from money or not, but unless he’s got a rich family member that’s willing to take care of him and pay his fines, his life after prison is going to be pretty rough. And that’s the truth. (This is also assuming he hasn’t stashed away some of his profits from his heyday).

    On the other hand, I realize that what he did was absolutely wrong. In order to protect the integrity of our capital markets, people like this need to be punished and dealt with firmly. We can’t live in a society where only some people are allowed to profit from the positions they’re in, that would be breaking the law. Glad to see that lawmakers themselves are finally realizing this too… #STOCKAct?

    Two questions I asked myself about this guy:

    Do I think Garrett really feels sorry for his actions? Absolutely not.

    Do I think Garrett learned from his mistakes? Absolutely.

    Based on my answer to the second question, and taking into consideration what he’s already been through and the fine he’s going to pay, I believe that Garrett will never try to earn a dishonest dollar again. It’s because of this that I think he should get a few years knocked off his prison sentence. I believe that even if he gets the full 11 years, the time spent in jail still won’t auto-tune his moral compass. In my opinion, I feel it takes more than just sitting in a cell to change someone’s beliefs. And although he might still have it all wrong in his head, I don’t think he’s a threat to society anymore… So why not save the already overcrowded prison space for someone more deserving? Casey Anthony? I guess it’s just hard for me to wrap my mind around a justice system that sometimes allows the TRULY morally dead to walk amongst the living…

  45. Listening to Garrett speak to our class was a very interesting experience. I was intrigued by his comments about not making money and actually losing money for the first 10 years of trading with the illegal tips from Ken. I believe that Garrett fell victim to the thought that eventually one of the tips would have a big payoff. It seemed that in his mind the potential payoffs were greater than the more probable losses.

    I also thought it was interesting that Garrett thought of himself as a good person. It made me think that just because a person thinks of themselves as good doesn’t quite make them ethical. I believe what makes a person ethical is the decisions that they make and the motives behind those decisions.

    With that being said, I do feel that Garret was, and still is, a good person. He has accepted responsibility and is remorseful for his actions (and I’m sure he’s also remorseful for getting caught). I hope that Garrett can somehow bounce back after his sentencing and return to living a life based on ethical decision making. I feel that he has learned his lesson but it will be up to society 10 years later to make that judgement and ultimately, give him a second chance.

  46. Thanks for the great write up Laura. It was good too see Garrett comment back on it clearly up some issues and staying active. The talk with him really inspired me. He is just a regular guy like myself. It is hard to imagine me or any of my friends or family members being in the same situation. But it also makes it seem how easy it is for any one of use to fall into this as well.

    I felt that the talk with him was one of the most powerful things that we did in this class. We were able to see up close how the life of someone can change so quickly. It really has made an effect on me and is something I will take to heart as I start my career. I will always remember how just a regular guy found himself in trouble. I hope that the principals that I am writing now will help guide me through my life and not fall prey to something life this.

  47. Laura,

    I feel like you gave a good representation of what our ethics class was lucky enough to experience a few weeks ago when we got to hear Garrett Bauer’s story. As Garrett was telling us his story and answering any questions that we had, I personally felt bad for the guy. I guess I was giving him the benefit of the doubt, and thinking it was a lapse of judgment on his part that got him where he is today. It wasn’t until after we discussed his situation as a class that my perception of him changed.

    I feel deep down, Garrett knew what he was doing was wrong, and he was able to justify it by thinking he wasn’t the only one doing it. Garrett mentioned that when he was working as a trader, his colleagues around him were constantly trading on information that wasn’t available to the public. Whenever one person would receive this information, they would tell others, and they would all trade on it. Whether he made money on the insider information or not, what he was doing was wrong. Rather than being an ethical egoist, Garrett should have thought about how his actions were affecting others by making the markets unfair.

  48. Garret’s account of the events that led to his arrest was fascinating. It amazes me how long the three men were able to keep their insider trading scam going. I personally don’t feel that Garrett realized the consequences that could result based on the crimes he was committing. Considering that he repeatedly traded on information that lost him money, he truly just acted without much thought. When he spoke, he did seem regretful for what he had done. His story struck me as a bad situation that resulted from believing his friend would always have his back. I am sure now Mr. Bauer wishes he had never got involved.

  49. I thought your comment about how average people can commit huge unethical decisions is very interesting. Despite the Jeff Skilling’s and Bernie Madoff’s of the world who purposefully make gigantic unethical decisions, there are plenty of ways for the average person to get themselves in trouble. Just as in Garrett’s case, he knew that insider trading was wrong, but never quite knew how severe his consequences might be if and when he got caught. After spending an hour with him on Skype, it was very compelling to understand how easy it is to get wrapped up in something and not understand the consequences, especially considering he wasn’t hurting anyone directly.

  50. Good job Laura.

    I’d have to say that the day Mr. Bauer came and spoke to our class was probably the most interesting day of class I’ve had at Mays. It was a pretty cool experience to have an insider trader talking to us (almost face to face) in our classroom. However, I think since the day he spoke people are being a little too harsh on him. The fact of the matter is that none of us really know how it feels waiting to be sentenced to prison. Or have our whole life ruined by regretful actions. I don’t really think its something to poke fun at or laugh about. I think it’s really easy for us to say what we would do from the comfort of a classroom. What people say they would do, and what they actually would do, are completely different in real life situations. So in a way, I feel sorry for Garrett. Even if he knew what he was doing was wrong, I think he was overwhelmed by the pressure and culture of his corporation. And I think a lot of people, under similar circumstances, would act the same way.

  51. Hi Laura,

    Not to repeat the first line of the previous 53 commenters, but your blog post really was very well written!

    I first learned of Garrett Bauer through a Wall Street Journal article on a new consulting business that gives prison survival advice to white collar criminals. Upon reading the article my impression of Garrett was that he was just another arrogant, greedy trader and deserved the harsh sentence that is inevitably coming to him. However, as I listened to Garrett tell the class his side of the story I was wondered if I had initially judged him too harshly.

    Sitting in the comfort of the classroom its easy for us to look down on people like Bauer and say “I would never do anything like that”, but how can we really be so sure? Have any of us ever been in the same situation? As college students in our early 20’s I would wager that most of us have not, that’s why its easy for us to dismiss people like Garrett Bauer and David Myers as conniving criminals. However one of the key points I believe Dr. Shaub has trying to teach us in class is that many (although not all) of those convicted of white collar crime never set out to be criminals. They were average people just like us who, due to a lack of strong ethical character, allowed external pressures and temptations to get the best of them.

    That’s why I believe its important for us to stay humble when judging the actions of people like Bauer. As aggies and as auditors it is our duty not to tolerate it, but as people who make mistakes its important to understand how average people can allow themselves to become party to such unethical situations. And hopefully through our understanding we can gain the foresight to not fall prey to such pressure ourselves.

    – The Article on Garrett Bauer can be found here:

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