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White-collar ex-con: Jail looms for mortgage execs

Average Americans want to know how the lords of investment banking could keep telling investors everything was just peachy while the nation’s financial structure was crashing down around them. But not Walt Pavlo. He knows all too well how easily it can happen.Pavlo knows because he’s been there. He’s a convicted felon, a one-time senior manager at MCI who set out to do his job and ended up i
/ Source: TODAY contributor

Average Americans want to know how the lords of investment banking could keep telling investors everything was just peachy while the nation’s financial structure was crashing down around them. But not Walt Pavlo. He knows all too well how easily it can happen.

Pavlo knows because he’s been there. He’s a convicted felon, a one-time senior manager at MCI who set out to do his job and ended up in prison.

The 46-year-old Tampa resident told his story — which he also recounts in a book, “Stolen Without a Gun” — as part of TODAY’s series on cheating.

Bad decisions

Pavlo has no doubt that when federal investigators get done sorting out the mess that began with the subprime mortgage market, some of the people responsible will be going to prison, just as he did in 2001. They’ll go for the same reason: not because they are bad people, but because when things started to go wrong, they started to make bad decisions that eventually became criminal ones.

“People are going to go to jail for covering up stuff as it started to go south,” Pavlo told TODAY. “It’s going to take a while. It’s going to be a year or two years from now.”

Pavlo has been out of prison since 2003. He earns his modest keep these days by traveling the country, telling students in business schools how he went from a kid raised to know right from wrong to part of a conspiracy that stole $6 million from MCI customers in a mere six months.

He never thought himself capable of the things he did. He grew up in a devoutly religious family and went to Catholic schools. Even today he retains the clean-cut look of the high school quarterback he once was.

“People are lulled into believing they are that special to deserve that kind of money,” Pavlo said. But there comes a time when the goals set by supervisors become harder – if not impossible — to meet. And that’s when trouble can start.

“Once that tide starts turning, how do I react? You find people covering up the bad news: ‘I can’t be failing.’ When faced with the tragedy, that’s when their character’s tested the most. A lot of people are going to fail that test, and they’re going to be going to prison.”

For Pavlo, the path to prison started long before he turned to embezzlement and fraud.

“I’m not going to make any excuses,” he said. But, he continues, as he worked his way up to senior manager at the tender age of 32, he discovered a curious thing. “There were a lot of things I was doing wrong that I was being rewarded for within that company. What happens when good things are happening when you are doing these bad things? I’m doing some things that I think are bad, and good things are happening to me.”

Fudging figures

Pavlo was having increasing difficulty meeting the goals set by management. Other managers told him that everybody dealt with it the same way — they fudged the figures. In Pavlo’s case, it involved delinquent accounts, which were enormous. Pavlo found he could hide late payments.

From there, Pavlo, a fellow MCI employee, and a partner outside the company realized they could extract payments from the people who owed the company money in return for hiding the fact they were late in their payments.

It was supposed to be easy money. They’d shift money from one account to another, and then, when the delinquent payments came in, they’d shift it back. But when the payments didn’t come in, company auditors started to notice.

Still, for six months, the scam worked, and Pavlo lived large: He chartered airplanes, took luxury vacations, drove fancy cars.

Pavlo thinks that the people responsible for the current meltdown in the financial markets went through the same stages he did. They started with questionable business practices — lending money to people who weren’t good credit risks, and writing mortgages for amounts greater than the value of the property — and ended up covering up their mistakes.

The questionable practices may not have been illegal, but some of the cover-up almost undoubtedly is. “It’s not illegal to give someone who isn’t the best qualified person a loan,” Pavlo explained. “But it’s illegal to hide that. I guarantee you, that’s where people are going to go to jail. You start out with something that’s not illegal.”

Nice guys in jail

Pavlo said that when he talks to business students, they keep asking him questions, trying to discover the character flaw that will assure them that they’re not like him. He says there isn’t one — a fact he affirmed in prison, where he met other former white-collar criminals who had at one time been pillars of their own communities.

“I met guys in prison who were nice people, guys who were grandfathers,” Pavlo recalled.

Like him, they rationalized unethical behavior: “ ‘I know it’s wrong in this other circumstance, but here it doesn’t apply.’ That was the beginning of the end. I just kept rationalizing one wrong thing after another. Either it wasn’t wrong or it was justified.”

Pavlo tries to hammer this home to the students to whom he speaks.

“One of the key things I tell students is, we all believe that doing the right thing is easy and if somebody asked us to do the wrong thing, we would say, ‘Oh, I don’t do the wrong thing.’ But sometimes it’s easier to do the unethical thing than to stand up and say, ‘I think what you people are doing is wrong.’ It’s the opposite of what you believe.”

And in a group culture in which it is important to be on board with the team, a person who points out that a certain practice may be unethical is likely to become an outsider. There’s a powerful human drive to conform to the standards of the group.

“Nobody said, ‘Walt, we got to come up with a way to lie, cheat and steal to keep this company going,’ ” Pavlo told TODAY. “These are all good people under a lot of pressure: ‘It’s for the benefit of the company. It’s not our fault. It’ll turn around soon.’ After the fact, you have all kinds of people raising their hands saying, ‘I knew it was wrong.’ ”

Slippery slope

Pavlo went back to the slippery slope analogy: “Once you start down it, it becomes harder and harder to stop going down it. It does tend to accelerate. It’s hard to get back up it. That’s the part that becomes really difficult.”

Pavlo lost everything when he went to prison. He came out with $20. His 401(k) was gone, as were his savings and his home. He and his wife tried to resume their lives, but it didn’t work out (he’s remarried since). Hardest of all was having his two sons, who are now 17 and 18, know he was a convicted felon.

Today Pavlo makes between $60,000 and $70,000 a year from his speaking engagements, from which $300 a month goes to pay restitution for the money he stole. He’ll never pay it all back, but he’ll also never stop trying.

Pavlo says his life is better now because he knows what’s important. It’s not money and fancy cars, but relationships and people.

“I’m a better person,” he said. “It definitely has changed my perspectives about how I view people, how I judge people. I don’t judge people. I am a better person as a result of that, more forgiving and more patient.”

He’d like the kids he speaks to to get that message. Most of all, he wants those closest to him not to do what he did.

“If I can just get through to my own two kids, everything else is a bonus,” he said.