Why White-Collar Criminals Commit Their Crimes

New Book: Curious about the motives behind white-collar crime, Eugene Soltes spent seven years interviewing nearly 50 convicted corporate felons, including Bernard Madoff, Allen Stanford, and Dennis Kozlowski. Soltes shares what he learned in his new book, Why They Do It: Inside the Mind of the White-Collar Criminal.
  • Author Interview

Inside the Minds of Corporate Criminals

Interview by Carmen Nobel

One night about a decade ago, while watching an episode of the TV prison documentary Lockup, Eugene Soltes began thinking hard about white-collar crime. Most violent felons on the show had been influenced by poverty, drugs, or gang affiliation. But corporate criminals had often lived comfortable, if not extravagant lives before deciding to break the law. So why did they do it?

His search for answers began in the library. “I’m an academic, so I looked at all the academic literature I could find in economics, criminology, neuroscience, psychology, and philosophy,” says Soltes, the Jakurski Family Associate Professor of Business Administration at Harvard Business School. “I found many different explanations—some very compelling, some complex, others that seemed simpler but naïve—but there was not much concrete evidence.”

Another research tack brought more clarity: Soltes reached out to the perpetrators themselves. He typed up a brief form letter peppered with questions; used the Federal Bureau of Prisons inmate locator website to track down the mailing addresses for scores of imprisoned financial fraudsters, embezzlers, and insider traders; and dropped the letters in the mail. Bored, lonely, and intrigued by the professor’s questions, a lot of them wrote back.

What followed was a long series of intense, personal, intimate, chilling, and ultimately enlightening interviews with four dozen prisoners—including Ponzi schemers Bernie Madoff and Allen Stanford, insider traders Scott London and Sam Waksal, and several Enron executives. Seven years’ worth of letters, phone calls, prison visits, and emails resulted in the book Why They Do It: Inside the Mind of the White-Collar Criminal, which comes out tomorrow.


The book dispels the idea that most corporate crooks are masterminds who carefully calculated their illegal acts, weighing the risks and rewards before embarking on their nefarious plans. Soltes maintains the exact opposite: More often than not, they didn’t think things through at all.

“I hope readers can take away a sense that these errors in judgment are much more failures of managerial intuitions and gut instincts, rather than failures of thoughtful reasoning,” Soltes says.

Take for example Scott London, a former senior partner at KPMG who served 14 months in prison for insider trading, accepting small fees from a friend in exchange for illegally sharing tips involving KPMG clients. Reportedly, the crime earned him about $70,000 in total—a paltry amount compared to his nearly million dollars in annual salary—before he was caught. “At the time this was going on, I just never really thought about the consequences,” London says of his crime in Why They Do It. “The money was nominal, really nominal….I was on three charitable boards and I had to step off of all of them. I will probably lose my CPA license and I can’t practice in front of the SEC. None of these things were going through my mind….I never once thought about the costs versus rewards.”

That said, many of the subjects in the book also exhibit an overwhelming lack of remorse for what they’ve done. In part, this is because these men are especially good at rationalization. But, as Soltes explains, it’s also because the harmful effects of a white-collar crime are less viscerally obvious to perpetrators than, say, the effects of an assault with a deadly weapon. Hit someone with a bat and you’ll undoubtedly realize the physical harm you’ve caused. But if you engage in insider trading, you likely won’t see the reaction of victims or know the specific damage you caused to many people. So while many of the men in the book are capable of feeling sorry for themselves and their families, there’s little emotional concern for their victims.

“Going to prison is rough,” Soltes says. “It’s not just difficult because it’s unpleasant, it’s rough because you’re going to miss your kids’ high-school graduation, anniversaries, and birthdays. And that’s what you see really deeply affecting many of these former executives. You see these once proud people almost brought to tears, because they know what they’re missing in the context of their family. But in terms of their crimes themselves, the acts that ultimately caused extraordinary damage to many people, identifying the harm ends up being more of an intellectual exercise separate from any emotions or feelings of actually harming people.”


Extreme outliers who display psychopathic qualities like Bernie Madoff arguably provide the most memorable moments in Why They Do It. But overall, Soltes hopes the book will show readers that they, too, are susceptible to the types of cognitive biases that help white-collar criminals to rationalize their crimes.

“From a teaching or corporate learning perspective, we’re often taught that if we have good values and the right moral compass, that we’ll be able face these kinds of challenges and avoid failure,” Soltes says. “And that’s naive.”

Many of the book’s subjects seem to view their crimes as solutions to a problem at work, rather than moral failings. Consider Steven Hoffenberg, whose Ponzi scheme bilked investors out of some $475 million in the 1990s, earning him a 20-year prison sentence. As Soltes explains, “Hoffenberg viewed running a deceptive enterprise as a pragmatic issue,” rather than as an ethical or criminal issue.

“Morals go out the window when the pressure is on,” Hoffenberg says in the book. “When the responsibility is there and you have to meet budgetary numbers, you can forget about morals….When you’re a CEO doing a Ponzi, you have to put your life into different boxes. You don’t have a choice. You have to put your family life into one box, your business in a box, your emotions in another. You’ve got no choice.”

The book also discusses how easy it is to fall into criminal behavior when everyone around you is doing it, too. Soltes likens it to driving down the highway with the flow of traffic, glancing down at the odometer and realizing that you’re going 10 miles an hour above the speed limit, and then continuing to speed anyway, thinking nothing of it.

But Soltes offers solace in and advice on how some executives avoid this trap with the example of Ben Horowitz, general partner of the VC firm Andreessen Horowitz.

In the early 2000s, Horowitz was the CEO of Opsware (formerly known as Loudcloud), a software startup he co-founded with his current partner, Marc Andreessen. In 2002, Opsware hired a new CFO. She advised Horowitz to backdate stock options for new employees, in order to offer a more attractive compensation package. She had done that at her previous company, with the approval of her employer, and maintained that it was totally legal.

Rather than giving her the go-ahead, Horowitz did what he always did before moving forward with a plan that gave him pause: He discussed it with a lawyer outside the company, and outside the insulated culture of Silicon Valley, who advised him against it. Horowitz took his advice and decided not to sign off on the change.

Almost two years later, regulators started investigating the practice of backdating stock options at Silicon Valley companies, including the CFO’s former employer. Ultimately, she ended up serving time in prison for her part in in fraudulent backdating at the previous company. But Horowitz was in the clear.

“Had it not been for this well-designed system that he created to check himself when it came to technical matters, where his intuition might not produce the right answer, we would not be viewing him as one of the top venture capitalists but rather as a white-collar criminal,” Soltes says.

In short, the key to avoiding bad ideas often lies in seeking input from people outside our own bubbles. In Soltes’s case, he finds his favorite dissonant viewpoint at home.

“My wife is a doctor,” he says. “She sees the world very differently than I do. When I have a difficult decision to make, she’s the first person I want to discuss it with. She’s always willing to push back on my assessment and force me to think about it differently.

“Although it’s not always comfortable to have our views challenged, I think we all can avoid some mistakes if we have a person whom we respect outside our insular professional environments—who can offer another perspective and help us see our initial judgments differently.”


  • Book Excerpt

The fine line between confidence and hubris

from: Why They Do It: Inside the Mind of the White-Collar Criminal
by Eugene Soltes

Even at places like McKinsey, KMPG, and Deloitte, which genuinely endeavor to promote a set of principled norms, some senior leaders have engaged in practices that are in direct opposition to their firms’ values. Such deviations underscore the fact that newly created norms are neither natural nor permanent. Practicing and even “living” these values for decades within one of these firm cultures is insufficient to avoid the corrupting influence of encountering new and different norms. Maintaining new intuitions requires continual renewal and reinforcement. For these moral intuitions, there is no such thing as permanence.

There’s a fine distinction between being confident and displaying hubris. The successful financiers Lloyd Blankfein of Goldman Sachs and Bill Ackman of Pershing Square Capital have both expressed how they believe their firms are doing “God’s work.” Even if stated in jest, this belief in the righteousness of their ambitions and the lack of any sense of fallibility is precisely the sentiment formerly held by many executives prior to faltering.

Nitin Nohria, dean of Harvard Business School, described an assignment he gives to new CEOs to complete during a training program for senior leaders. The CEOs are asked to rank a list of ten responsibilities—setting their firm’s strategy, getting a new management team, and working with the board of directors, among others—from the item they feel most to least prepared to take on as they begin leading a multibillion-dollar organization.

Invariably, new CEOs rank “setting the right moral tone” as one of the easiest aspects of management. “They all feel deeply secure in their own moral compass,” Nohria explained. “They have a sense that they are a people of extraordinary moral character and that it is very unlikely that they are going to do anything in their organization to lead either the organization astray or do something that will get them in the front pages of the newspapers.” Yet, as Nohria pointed out, it is exactly many of these same leaders who later appear on the front pages of newspapers for engaging in precisely the egregious conduct that they once insisted they would never do.

The simple fact is, most of us think that we are better and more moral than we actually are. No one, especially those who have achieved success, believes that they are likely to stumble and err. It is this sense of invincibility that has felled leaders across a range of fields—including the cyclist Lance Armstrong, the writer Jonah Lehrer, and the NBC news anchor Brian Williams. It’s only after faltering that people humbly ask, as observed by the psychologist Max Bazerman, “How could that have happened? And why didn’t I see that coming?”

One of the things that I’ve found especially fascinating during my conversations with the former executives discussed in this book is how strongly people hold on to the notion that it wasn’t really their actions that were all that deceitful or destructive. Their actions are not that bad, they argue, when compared with what others have done. According to the executives who committed insider trading, it’s the ones who committed financial fraud who really damaged the integrity of financial markets. According to those who engaged in financial fraud, it’s the executives who built Ponzi schemes that lacked an underlying business who are the real culprits. And for those who created pyramid schemes, it’s the investment bankers who went unpunished during the financial crises who are the real villains. Virtually every one of the former executives I spoke with pointed out, even complained, that it was not he who was the true villain—it was always someone else.

Beneath the irony of this defense, there is an interesting truth. We all confidently believe that we would have behaved differently if placed in the shoes of an executive engaging in malfeasance. However, this confidence is artificial.

We don’t get to reevaluate executives’ decisions using our current beliefs, the norms we’re instilled with now, or our current perspectives on what matters most. Likewise, we don’t get to bring along any finely tuned intuitions that we’ve acquired in our own lives to avoid this kind of be-havior when we place ourselves in these executives’ shoes. Instead, we have to imagine ourselves surrounded by their norms and immersed in their culture—not just in the present but in the past as well. We have to see ourselves as being shaped by the experiences they faced throughout their careers, not by those we face in our own.

If we see ourselves as experiencing the world as many of these former executives did, I don’t believe we can actually know how we would act if placed in their shoes. If anything, maybe we ought to humbly recognize that we might have behaved as they did. Yet, we can still hope, wish, and believe that we would act differently. Frankly, however, we just can’t know.

Perhaps Marc Dreier, the former graduate of Harvard and Yale who engineered a Ponzi scheme, actually had it right when he reflected on this conundrum. “It is easy to say you would never cross the line, but the line is presented to very, very few people,” Dreier explained. “How many could say for sure that they would never do what I did if they had the opportunity and thought they wouldn’t get caught?"

Appreciating our lack of invincibility—our inherent weakness and frailty—offers us the best chance of designing the appropriate mechanisms to help manage these limitations. If we learn to be more suspicious of our gut feelings when placed in new or difficult situations, we can acknowledge the need to create more opportunities for reflection and to bring in the viewpoints of others to question us. If we humbly recognize that we might not always even notice the choices that will lead us astray, we are more likely to develop ways to identify and control those decisions. But it’s only when we realize that our ability to err is much greater than we often think it is that we’ll begin to take the necessary steps to change and improve.

Excerpted from Why They Do It: Inside the Mind of the White-Collar Criminal by Eugene Soltes. Copyright © 2016. Available from PublicAffairs, an imprint of Perseus Books, LLC, a subsidiary of Hachette Book Group, Inc.

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