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Hilton Hotel’s Manager and Constructor Facing Wire Fraud Charges

Introduction

Unlike the ordinary employees, executives tend to have the freedom to act in accordance with their wishes. Oftentimes, they misuse their authority, make poor decisions, or even engage in outright fraud. Adan Roldan and Geoffrey Palermo, the owner of a construction firm and a manager at a San Francisco Hilton hotel, are alleged to have engaged in a conspiracy to defraud the latter’s employer of over $1.5 million. The kickback scheme is under investigation by the Federal Bureau of Investigation. The prosecution is expected to be handled by Acting US Attorney Stephanie Hinds of the Northern District of California (The US Attorney’s Office Northern District of California, 2021). Roldan is likely to have been motivated by the necessity to sustain his firm amidst intense competition in the market. On his part, Palermo may have decided to take advantage of the opportunity believing that his corrupt practices would remain concealed. The fraud triangle facilitates the understanding of how the perpetrators rationalized their actions.

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Background of the Fraud Investigation Against Roldan and Palermo

Roldan and Palermo have been indicted by a federal grand jury over fraud. They are accused of jointly defrauding Hilton hotel of 1.5 million using various overcharged checks between 2013 and 2016. Based on his terms of employment, Palermo had the authority to not just hire contractors but also manage projects as well (The US Attorney’s Office Northern District of California, 2021). He could decide on the capital improvements needed and determine how the work would be completed, and that left him with immense powers to do as he wished. Therefore, it was plausible for him to believe that his illegal activities would never be uncovered.

Over the period under investigation, Palermo hired A. Roldan Construction to complete various projects which he single-handedly selected. Moreover, he approved of the work done and authorized payments amounting to about $6.4 million. The investigators and prosecution believe that the invoices were inflated, and this was in a bid to account for the kickbacks which Palermo eventually received (The US Attorney’s Office Northern District of California, 2021). With an average of about $14,200 each, the perpetrators hoped that their scheme would remain undetected. Besides, they also used several bank accounts to avoid arousing suspicion.

Most of the funds which Roldan channeled to Palermo were withdrawn from an account he had called ‘Bahama Reef Living Trust’. The investigators have information on how on a single day in October 2015, 4 checks amounting to $145,915 were deposited by Roldan into this account, and $125,000 was subsequently wired to Palermo. It is estimated that the latter got a total of $1,535,965 between 2013 and 2015 (The US Attorney’s Office Northern District of California, 2021). This is a significant amount of money, and yet the actual figure of the loss that Palermo perpetuated may never be known.

The Fraud Triangle as it Applies in the Case of Roldan and Palermo

There are various factors that contribute to an individual’s decision to engage in criminal activities. The fraud triangle is a framework that effectively converges the three components which have the most significant influence on an executive’s deceptive activities. They include motive, an opportunity, and rationalization (Hauser, 2019). This model was developed by Donald Cressey and Edwin Sutherland in the early 1950s as they researched the circumstances which compel people into becoming embezzlers (Azam, 2018; Noble, 2021). Their theory reveals the influences which may cause trusted leaders to start engaging in deceitful behaviors.

The Motive Element of the Fraud Triangle

The motive could be addition or the obligation that a person feels to maximize profits through any means possible. Based on the prosecutor’s analysis, Palermo appears to be greedy and is also obsessed with acquiring illicit wealth. Roldan is most likely being compelled into committing illegalities by work-related pressures (Gottschalk, 2019). Although they are both violating the law and breaching the trust of their respective stakeholders, Palermo is more blameworthy than Roldan.

Motive is the mindset that an individual has while in the process of committing criminal activities. Among the issues which could incentivize executives into engaging in illegalities include having their bonuses tied to financial metrics, high investor expectations, and personal incentives (Raval, 2018). The pressure that Palermo has is to increase his earnings. People with such an urge tend to be living far beyond their means, or they could be engaging in activities like gambling (Noble, 2021). Indeed, Huber (2017) argues that several executives have ruined their careers and lives upon becoming compulsive gamblers. The case is still under investigation, and the authorities have not yet revealed the information on what they think could be motivating the accused.

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Basing bonus on financial metrics is unlikely to be Palermo’s motive. His actions are actually hurting the company because he is paying for projects which have not been completed. Unlike Hilton, A. Roldan Construction is gaining because it does not have to compete with other firms for the projects in question (Brown, Hays, & Stuebs, 2016). Even though the strategy is unethical and illegal, the contractor does increase revenue and profit margin. Palermo’s activities undermine the investor’s financial expectations, while Roldan’s may impress the shareholders of his organization (Rorie, 2019). The former is selfish, but it is possible that the latter is trying to avoid disappointing the stakeholders in his company.

The Opportunity Element of the Fraud Triangle

Any individual who seeks to engage in criminal activities perceives a weakness that they do not believe that anyone else can notice. The loophole could be inadequate oversight, and the fraudster may decide to embrace the opportunity to gain illicitly (Lokanan, 2018). In most instances, fraudsters start by embezzling money in small amounts. Upon realizing that their criminal activities are undetected, they increase the level of misappropriation (Hauser, 2019). This means that prior to peculating around $125,000 in a single day in 2015, Palermo had desensitized himself over a long period of time when he perhaps progressively increased the funds stolen (Azam, 2018). Indeed, Roldan may not be his first co-perpetrator, and so even the amount being quoted in the legal documents could be just a fraction of what Hilton has lost in the scam.

Opportunity is the only element that the organization can exercise control over. For instance, Hilton can address the issues which increase the possibility that a motivated offender will act in a malicious manner and leave the company at a loss (Raval, 2018). Had the firm, for instance, increased the risks involved when engaging in fraud and reduced the loopholes which may be exploited by individuals like Palermo, the deception could have been mitigated (Rorie, 2019). Unfortunately, the controls were weak as a lot of powers and authority were entrusted to one person (The US Attorney’s Office Northern District of California, 2021). The lack of supervision, poor documentation, and insignificant separation of duties enticed Palermo into seeking illegitimate gains.

It is possible that the executives at Hilton hotel were not committed to being honest, depicting integrity, and remaining ethical irrespective of the pressures. Oftentimes, individuals embrace the culture of the organization (Huber, 2017). While others may not necessarily be stealing, Palermo could have concluded that his colleagues and seniors lacked the moral authority to condemn his activities (Azam, 2018). This is why it is imperative for leaders to champion the kind of traits they want their followers to adopt (Gottschalk, 2019). That would, indeed, reduce susceptibility to fraud as well as other kinds of behaviors that may undermine the sustainability of the organization.

Hilton Hotels may need to roll out an effective set of accounting policies. This refers to the manner in which accounting activities are recorded, and the statements kept. It is possible that the present policies were inadequate, and Brown et al. (2016) argues that such a scenario provides opportunities for the employees not just to steal but also manipulate numbers. According to Noble (2021), several companies have collapsed even as their books depicted financial strength. Sustainable firms make use of internal as well as external auditors who are tasked with the responsibility of ascertaining that records reflect the facts on the ground.

The Rationalization Element of the Fraud Triangle

Rationalization refers to how the individual engaging in fraud justifies their illegal activities. There are two main components of this element, and they include deciding what is to be gained from the behavior and why the offender must take advantage of the opportunity. The rational choice theory applies in this case, and that is because one must conclude that the potential gains of engaging in illicit behavior far outweigh the risk of punishment (Brown et al., 2016; Raval, 2018). If convicted, Roldan and Palermo may be sentenced to 20 years in prison and fined $250,000 million each. Considering such odds, they may have believed that it was impossible for their crimes to be revealed.

Criminals defend their actions by, for instance, imagining how they will get rich quickly and stop offending. According to Noble (2021), some consider it to be a form of borrowing as they honestly think that they will refund the money once their needs are satisfied. Nonetheless, this may never happen, especially after one has engaged in the practice for several years (Lokanan, 2018). The amount to repay could be significantly large, and other excuses are formulated as a means to self-vindicate.

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For Palermo to facilitate the theft of over $1.5 million, he may have believed that the company was in a strong financial position. His consequent thoughts could have been that Hilton did not need the money anyway and talking it was excusable as him and Roldan meant to put it into much better use (Hauser, 2019). According to Gottschalk (2019), a noteworthy number of executives have the tendency to steal based on the view that they are underpaid. The illicit funds are presumed to be a form of payment and hence is regarded as a way to achieve justice.

None of these arguments is sensible, and together, they are indicative of an individual suffering from a narcissistic personality disorder. Executives who loot are oftentimes extremely selfish, envious, unable to recognize other people’s interests, and preoccupied with fantasies (Azam, 2018). Palermo is likely to embody these traits as he does not only abandon his fiduciary duties as a leader but is also blind to the needs of anyone else. He most certainly does not care about the wellbeing of Roldan as well, and he was using the latter to realize his desires.

The Charges Levelled Against the Accused

Roldan and Palermo are accused of attempts to engage in wire fraud. This is in violation Section 1349 of Title 18 of the United States Code, which is specifically targeted on those who attempt or conspire to commit crimes. The maximum statutory penalty for this offense is incarceration for 20 years and a fine not exceeding $250,000. Palermo is facing another separate charge which is cited as breaking sections 1343 and 1346 of Title 18. For the offense of falsifying loan application documents, he has been indicted under Section 1014. If he is convicted of the latter, he could serve an additional 30 years in prison and be compelled to pay $1,000,000 in damages (The US Attorney’s Office Northern District of California, 2021). Nonetheless, it is imperative to appreciate that the actual sentences are determined by a judge in accordance to the United States’ Sentencing Guidelines.

Acting US Attorney Stephanie Hinds insists that at the moment, these charges are allegations. The facts of the case will be tried in court before U.S. Magistrate Judge Thomas Hixson in due course. The accused are presumed to be innocent unless their guilt is ultimately proved. Their initial arraignment is scheduled on 13 May, 2021, and the court is expected to make the determination on their bail application (The US Attorney’s Office Northern District of California, 2021). Their request could be denied if there are compelling reasons to believe that they will not abide by the terms of release.

There are two ways the case can be adjudicated, and this are trial by jurors or by a judge. While they have the right to be tried by a jury of their peers, they can waive it if they believe that justice will be best served through trial by a judge (Lokanan, 2018). The accused may as well go through a jury trial, but have Judge Thomas Hixson determine the sentence (Rorie, 2019). Such important legal matters, however, ought to be discussed with a defense attorney as a counsel has the competence to needed to maximize their clients’ advantage.

Conclusion

Crime of fraud is based on three elements, including motive, opportunity, and rationalization. The incentives vary widely, and they are also influenced by the personalities of individuals. Those who have narcissistic personality disorder are likely to behave in the same manner as Palermo. People with the shaky moral ground may be persuaded to engage in illegalities in the name of sustaining their businesses and satisfying the stakeholders as Roldan did. Illicit activities can be mitigated if the organization seals as many loopholes as possible. In addition, leaders should be good examples to their followers, as this would help shape a constructive corporate culture. Most importantly, executives must recognize the fact that the cost of engaging in deception outweighs the perceived gains.

References

Azam, M. R. (2018). Theory application: Why people commit fraud. International Journal of Management, Accounting & Economics, 5(1), 54–65. Web.

Brown, O. J., Hays, J., & Stuebs, J. M. T. (2016). Modeling accountant whistleblowing intentions: Applying the theory of planned behavior and the fraud triangle. Accounting & the Public Interest, 16(1), 28–56. Web.

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Gottschalk, P. (2019). Convenience triangle in white-collar crime. Northampton, Massachusetts: Edward Elgar Publishing

Hauser, C. (2019). Fighting against corruption: Does anti-corruption training make any difference? Journal of Business Ethics, 159(1), 281–299. Web.

Huber, W. D. (2017). Forensic accounting, fraud theory, and the end of the fraud triangle. Journal of Theoretical Accounting Research, 12(2), 28–49. Web.

Lokanan, M. (2018). Informing the fraud triangle: Insights from differential association theory. Journal of Theoretical Accounting Research, 14(1), 55–98. Web.

Noble, J. C. (2021). White-collar and financial crimes: A casebook of fraudsters, scam artists, and corporate thieves. Berkeley, California: University of California Press

Raval, V. (2018). A disposition-based fraud model: Theoretical integration and research agenda. Journal of Business Ethics, 150(3), 741–763. Web.

Rorie, M. L. (2019). The handbook of white-collar crime. Hoboken, New Jersey: John Wiley & Sons

The US Attorney’s Office Northern District of California. (2021). Bay area executives charged with conspiracy to commit wire fraud. United States Department of Justice. Web.

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