Vanishing deals. Pockmarked balance sheets. Torrents of red ink. As if those weren't enough reasons to feel queasy about your job, here's a new one: The guy whose name is on the door you walk through each morning turns out to be a big-league con-artist.
Two massive frauds unveiled in the past two weeks have destroyed some 450 jobs within their respective firms, whose assets have come under court jurisdiction after their high-profile founders were arrested. And that's not counting people who worked for charities or other victimized investors said to be closing their doors because one of the alleged swindles wiped out everything they had.
First it was Marc S. Dreier, whose Park Avenue law firm employed 250 attorneys before the founder's Dec. 2 arrest on multiple fraud charges in the U.S. and Canada. Then it was Bernard L. Madoff, the 70-year old patriarch whose Bernard L. Madoff Investment Securities was one of Nasdaq's biggest stock market-makers.
Ponzi Scheme Alleged
Days before his Dec. 11 arrest, Madoff reportedly confessed to running "a giant Ponzi scheme" through a shadowy asset management subsidiary he ran largely by himself. Using customers' newly invested cash to pay out phony investment "returns" to other customers, Madoff allegedly bilked a wide range of institutional and individual investors out of as much as $50 billion. That would make the scheme one of the largest financial frauds ever.
The Wall Street Journal reports only about 20 of the 200 employees of Madoff's firm worked in the asset management group, which was housed on a separate floor from the trading operations.
A former chairman of the Nasdaq Stock Market, Madoff opened his firm in 1960. A court order freezing the firm's assets was issued Friday.
A 'Neutron Bomb'
As for Dreier, prosecutors claim he swindled hedge funds and other investors out of hundreds of millions of dollars by selling them fake promissory notes. "Nearly all of (Dreier LLP's) 250 lawyers are now looking for work," according to the New York Times.
"The news of Mr. Dreier's arrest has had a neutron-bomb-like effect on Dreier LLP," wrote employee Vincent F. Pitta in an affidavit. Other employees told the Times Dreier LLP's bills haven't been paid in months, their health insurance is in default and the firm won't be able to meet payroll this week. The government has moved to freeze remaining assets of the firm, which has been in business since 1996 and has offices in five cities.
What's the Lesson?
The two fraud incidents don't exactly illustrate a typical layoff scenario. Still, between them they vaporized jobs on the scale of some investment bank layoff announcements.
And the details reported in extensive media accounts point to a common lesson: Beware too much control in hands of one individual. Of course, even in a public company, few employees have any power to address internal control weaknesses. If you work for a privately held firm, it's all but impossible.
Still, a takeaway for professionals might be this: Regularly assess your employer's business with the same skeptical eye you'd train on an external investment you were considering for your personal portfolio. If you find anything amiss and cannot get a satisfactory explanation (or aren't in a position to ask), assume your job could disappear at any time, and act accordingly.