Momentum Podcast: 408
by Alex Charfen
This is a tough and personal subject for me but it's something I feel like I have a responsibility to share. Here's a shocking statistic, 90% of entrepreneurs will be embezzled or stolen from. No one wants to talk about it if it's happened to them but it's time to open up the conversation. You are allowed to talk about it, it's not your fault, and it's not anything that you did wrong. I hope by sharing my story and the lessons I learned, it will help you stop anything like this from happening in your life.
Full Audio Transcript
One of the most difficult things I've ever been through in my career is being embezzled from. As I talk about now, just, I get the body reactions, the feelings, the feeling of being taken advantage of. As an entrepreneur, as a driven personality, one of the most difficult things for people like us is being taken advantage of, but here's a shocking statistic. 90% of entrepreneurs will be embezzled or stolen from, but none of us talk about, and so it keeps happening over and over again. Today, I want to share with you the story of our embezzlement because maybe it might help you see something like this happening in your life.
I'm Alex Charfen and this is the Momentum podcast, made for empire-builders, game-changers, trail-blazers, shot-takers, record-breakers, world-makers, and creators of all kinds. Those among us who can't turn it off and don't know why anyone would want to. We challenge complacency, destroy apathy, and we are obsessed with creating momentum so we can roll over bureaucracy and make our greatest contribution. Sure, we pay attention to their rules, but only so that we can bend them, break them, then rewrite them around our own will. We don't accept our destiny, we define it. We don't understand defeat because you only lose if you stop, and we don't know how.
While the rest of the world strives for average and clings desperately to the status quo, we are the minority, the few, who are willing to hallucinate there could be a better future, and instead of just daydreaming of what could be, we endure the vulnerability and exposure it takes to make it real. We are the evolutionary hunters, clearly the most important people in the world because entrepreneurs are the only source of consistent, positive human evolution, and we always will be.
This is hard subject for me to talk about. I'm a High-D personality, I'm driven, I don't like being taken advantage of, but I think that it's my responsibility to share this with you because one of the biggest challenges with entrepreneurial embezzlement is that not only do 90% of entrepreneurs get embezzled from, but the vast majority of embezzlement goes unreported. Entrepreneurs are ashamed, they're embarrassed. They feel bad about what's happened. They don't share what's happened, and a lot of them just sweep it under the rug, or fire the person, or move on and hope that it won't happen again.
But I think as entrepreneurs, we have a responsibility to share with each other what's happened, to make sure that other people know that if something like this happens to you, you can talk about it, and it's not your fault, and it's not something you did wrong. I went through all of those feelings when we discovered this. I felt like I did something wrong. I felt like it was my responsibility, like I should have seen it coming. But after we spent time with the Secret Service, and IRS investigators, and forensic accountants, they told us that it was one of the most elaborate embezzlements that they had ever seen and that they really couldn't find it.
In fact, the way we found it was incredible, I'll share that with you in a minute but I want to give you the back story. In the 2000s, Cadey and I ran a real estate company in Florida. We needed an accountant. We needed somebody to help us with our books, with accounting. We had tons of transactions, and so we hired a guy named Michael Goldberg who worked with a company called NTNS Tax Services. It was actually owned by his father, Norman Goldberg, we found out later.
It's kind of ironic why we found out his father owned it. I'll share that with you in a minute, just makes the story even worse. We hired Michael. He came in, he started working with us, started doing our books, started really helping us. He worked with us for a few years in our real estate business.
In 2007, Cadey and I went bankrupt. The real estate market imploded in South Florida. Our business absolutely fell in on itself. We had millions of dollars in property that almost overnight went upside down, and we went from having millions of dollars in equity, and millions of dollars in the bank, to having negative equity, and having to spend most of the money we had in the bank in hurricane repairs for Hurricane Wilma, and hurricane ... I can't remember the other one, I blocked most of this out, that damaged our properties in South Florida.
By the time 2007 rolled around, we still had money in the bank but we had nowhere near what we needed to balance the equity issues that we had, and to continue making all of our payments, and because the real estate market in South Florida completely imploded, we want bankrupt and we lost everything. We very quickly out of the bankruptcy started rebuilding, and we built a product called the Certified Distressed Property Expert. And from going bankrupt to again getting to liquid millionaire status took us a year. With a year of our bankruptcy to being discharged, we did it, and Michael was our accountant at the time.
Our business exploded, it started growing like crazy. Michael was helping us with the books, and I remember during one point after bankruptcy because he watched us go through bankruptcy. He watched us go to the place where we didn't have enough money to buy groceries, and then he watched us rebuild. He was part of it. He was doing our books, he was advising us.
I remember at one point after the bankruptcy and as our business was exploding, we had missed getting Michael a check for some tax payment that was due. I can't remember exactly what it was but I think it was payroll taxes. He paid the payroll tax payment for us and I remember thinking, what an incredible accountant that he would be willing to make a payment for us that we would of course reimburse him for, but he didn't want us to be late, and he didn't want us to have a challenge. I thought that was just so incredible. Michael built a tremendous amount of trust with us, and became a close friend of ours, and got inside, like we asked him for advice. He did our books for us. We trusted what he did for us.
As we grew our business, he actually became out outsource CFO. When we moved to Texas in 2009, he would fly out from Florida to Texas a few days a month, and come in, and help us with all our books, and our accounting, and our finances. What we thought was happening was we had somebody who we trusted, who was a friend, who cared about us, taking care of us financially and looking over our shoulder, and it made us feel confident, and made us feel taken care of.
I can remember the first time somebody on my team said that they had a suspicion about Michael. It was one of my team members came in and said, "Hey, you know, I asked Michael a few questions about something that I saw in the books, and he got really defensive and kind of upset with me. I feel like there's something going on there." Given the history we had with Michael, I remember I said, "I don't think you understand. Michael, at one point, made a tax payment for us because he was afraid that we would get fined. He's got our back."
I remember, I went as far as to say he's like a member of our family. As I share that right now, it's hard to even tell you that because as a business expert, as a consultant, as an international consultant that's worked with major brands, and done all kinds of things, it's so embarrassing to share with you how wholly and totally we were taken advantage of because that team member was absolutely right. I remember telling him like, "There's no way, Michael's like family." I actually got a little irritated with them, and frustrated with them.
I remember them saying, "Hey, you know, I thought you'd react like this and it's probably nothing. We see Michael all the time. We know you and Cadey are really close with him. I'm sorry I brought it up." A couple weeks later, that same team member came back in and said, "Hey Alex, I have to talk to you." And here's what's so crazy. His name's Elliot Boney, and he's a certified genius. He lives here in Austin, he works with a friend of ours who used to work with us. Elliot said, "I have to talk to you. I'm looking at the books again, and the closed numbers for last month changed in our bookkeeping software."
And I said, "What do you mean the closed numbers for last month changed? The totals changed?" He said, "No, the totals didn't change, but some of the numbers within the totals changed, and it feels really suspicious." I said, "Well, okay, I need to look into this because there should be no reason that numbers in closed books are changed for any reason." We went in, and we looked at it, and here's how Elliot figured out the numbers had changed. He had looked at P&L at one point on a screen with Michael, and then he looked at it again, and he had remembered what some of the numbers were, and he knew that they had changed.
So we got into the accounting software, and we found that Michael had been embezzling money by over-billing us for taxes. And this was our mistake, we were making our tax payments to him, and he was making the payments to the IRS for us. The challenge was, he was billing us far more from the taxes, and then he was coming in and using general ledger entries in our accounting software to normalize what he had done with the overpayments, to balance the books so that we couldn't find what he had done. We didn't really know that at the time. In fact, we were looking through the accounting software, it was hard to figure out. We couldn't understand really what was going on. We were uncovering everything at the time.
After I'd had that conversation with Elliot, something felt different. I felt like there was some type of a threat. I felt like I was being threatened. I felt like something was wrong. I felt like the way that he explained made sense, and there really was a problem. I remember getting on the phone with Michael. I had one of my attorneys on the phone with me, in fact our in-house attorney at the time was on the phone with me. I explained to Michael what we had found, and what was going on. There was thing that happened in the tone of his voice, when I said, "Michael, you know Elliot found that some of the closed numbers had changed, and I want to understand what's going on. I feel like that should never happen. I'm not an accountant, but closed numbers should never be adjusted with a really clear reason, so what happened?"
His explanation just didn't make sense. There was something in the tone of his voice that made me suspicious. There was something that made me feel like I was in danger. I remember being on the call, and I said, "Michael, you better level with me what's going on right now because you know me. I use the court system like a tool, and I have my entire career." I figured out how to use attorneys when I was very young. I figured out how to use the court system, and the power of a lawsuit, and the power of subpoena to figure out what you need to figure out, and do what you need to do in the world. If you know how to use the court system, it's like a battering ram. If you don't, you're going to get that battering ram. I told him, "You know me, Michael. You've watched me pursue legal issues, and you know I will push this all the way unless you tell me what's going on right now. I'm bringing in forensic accountants, and if there's any issue in my business, I'm going to make sure you go to prison for as long as possible." I remember there was this long pause. I didn't say anything. Steve, my attorney, didn't say anything. Finally, Michael said, "Okay. I took some money."
I remember every cell in my body feeling like it was on fire when I heard that. I remember this feeling of this deep betrayal when I heard, "Okay, I took some money." I was blown away that I was hearing it from Michael. This was my friend. This was somebody who had built trust with me. This was somebody who had known me for years. This was somebody who had known me go from being wealthy, to having nothing, to rebuilding $1 at a time, and this was somebody who had just admitted stealing from me.
I said, "Michael, how much?" And he said, "$80,000." And I said, "What are you talking about? $80,000?" And I said, "How did you take it?" I remember him telling us about that he had over-billed taxes, and I said, "Michael, we're going to go look at all the books, but I want all of your books." I told him, "Unless I get every bank account you have. I want to see your bank statements. I want to see your financials. I want to see how you're making money, otherwise I'm going to the police today and I will make sure you are arrested, and we pursue this as far as we possibly can."
I was blown away by what happened next. He actually thought he had built enough relationship capital with me, and he actually thought that he had built enough of a trust with me that if admitted that he had stolen, and he sent us all of the information, that somehow we might not pursue prosecuting him. My next call was to the authorities. I got the Secret Service involved. I let them know what was going on. I let them know that we actually had all of Michael's books.
We had Elliot, the same guy who found the embezzlement, started going through all of my Michael's books. And here's what we found over time. He had embezzled over $1.2 million from us. He had misappropriated another million dollars from us in a way that we ended up actually having to pay taxes on the loss because we didn't pay taxes when we had spent the money because it was an elaborate scam that he used with life insurance policies, and it was brutal.
I spent two years with the Secret Service in a federal prosecution digging up all of the information that we could in our business, and I'm so fortunate that I had Elliot and a few other of my team members involved because we were able to put together a package of information that we submitted to the Secret Service that pushed the case over the top almost immediately. Michael actually got all the information that we were able to assemble because remember, we didn't just have our books, we had his. We could show when money was stolen from us, and when it was deposited in his books. We could show what investments he made with our money. We could show where he spend our money. We knew that he even bought his daughter, Taylor Goldberg, a car with our money.
We showed it enough that when we submitted all the information, he actually plead guilty just to the information. We never had an indictment. There was never a grand jury. He was arrested and plead guilty to the information that we submitted. It was incredibly difficult for us and for our team. The bookkeeper who worked with him internally on our team ended up having to go down to the Secret Service and sit in an interrogation room, and answer questions.
We ended up having to prove that Michael had faxed us all of his paperwork at an Office Depot, and the Secret Service had to go to the Office Depot and get the videotapes to prove that he was the person who had sent everything. We ended up in a federal court, and I remember the day that we were there for Michael's sentencing. I thought it was going to be this relief. I thought it was going to feel better. I thought it was going to make me feel like I'd accomplished something. We were sitting in the audience of the courtroom, and he was walked in wearing black and white prison strips in shackles, which was somewhat satisfying.
The judge sentenced him to over four years in federal prison. I remember feeling this moment of relief, and thinking, like that's exactly what should have happened. Then, when I walked out of the courtroom and went outside, I felt like this overwhelming feeling of panic because even though we had put him in jail, even though we had finished it, even though we had pursued it all the way through, it still felt so threatening, and I felt so violated. It was like once the case was over, I finally felt all the feelings that maybe I had been suppressing, or maybe I'd only partially been feeling but I finally felt all of it and it was devastating.
I ended up in EMDR therapy for months just to be able to calm down, and stop looking over my shoulder, and stop being so reactive, and stop being angry at everybody around me. I think that's why so many entrepreneurs don't do anything about embezzlement. It's because we feel threatened. It's because we feel like if we do anything about it, it might get worse. It's because we don't want to feel exposed. We already feel vulnerable.
But here's what I can tell you, putting Michael in jail was one of the most important things I've ever done in my career. In fact, here's the irony. Once we had found out what Michael had done, and we met with the Secret Service, I remember the day that Dave, our Secret Service agent, I mean, I had my own Secret Service agent. I remember the day that Dave came into our office, and he told us that Michael was actually a repeat felon. He had actually been prosecuted for a federal crime before.
We found out that Michael had actually been the CFO at a company called Happiness Express that was a toy manufacturer where he had allegedly, and then plead guilty to, inflating their stock price, and capitalizing on inflating the stock price, and making money from it. Out of the several people who were prosecuted from Happiness Express, Michael was the one who spent time ... Who not only plead guilty, but spent time under probation, and I believe even house arrest.
Not only was it me who got taken advantage of, but it had happened before. I remember thinking, how incompetent I felt, and I remember feeling like I was such an idiot. I mean, I felt incompetent. I felt like a fraud. I felt like a complete failure because of what this person had done to me, and to my family, and to Cadey and I, and to my team, and to every person who worked in our business. It almost put our business out of business, again. We made it through. We made it through because Cadey and I are frugal, and we save a tremendous amount of money. We made it through because we had very healthy margins, and we were able to not only defend what he had done, and pursue him, that we were able to keep the business going.
We made it through because we made sure that we did everything we needed to do to keep the business going, so that we could take him down. I remember the day that we sat down with the Secret Service, and a forensic accountant, and an investigator. They all told us like, this is one of the most elaborate scams we've ever seen. Clearly, this guy knows what he's doing. I remember when the Secret Service guy said to us, "He didn't just wake up and steal from you guys on a given day, this is something that he's been doing to other people too. He had other clients that there was issues with or at least they perceived issues with."
It still didn't matter, I still felt so vulnerable, so exposed. It was something I didn't want to talk about. I didn't want anybody to know about it. I wanted to hide it. But now, through sharing it from stage, through sharing it with you, through talking about it before on our podcast, on this podcast, through telling other entrepreneurs about it, it's become cathartic. It's a release. It's easier now to talk about it even though I still get body reactions, and reactivity, and feelings of frustration, and every once in a while, I still have a fantasy about going to Florida and confronting him in person, but I won't ever do that.
The reason I'm sharing this with you today is because if nine out of 10 of us are going to have this happen to us, if 90% of entrepreneurs go through this, I think we all have a responsibility that when something like this happens, one, we don't keep it quiet, and we don't just brush it under the rug. We prosecute to the full extent of the law, and put people behind bars. That's where Michael ended up, in a black and white suit wearing shackles, which is exactly where he belonged. Did he get enough jail time? Not in my opinion, nowhere near enough. But he was in jail, and he's now an ex-convict two times. Just let him step out of line again because three strikes and he's out.
I think we have a responsibility that when this happens to us, to share it with other entrepreneurs, to tell the story, to let people know what happened because this is happening to entrepreneurs right now, every single day, we get taken advantage of. It's not easy doing what we do. We are the most vulnerable person in the room. You can have checks and balances in place. You can do everything you can to be careful, and to make sure that it doesn't happen to you, but the statics tell us it's going to happen to all of us.
Today, Cadey and I have an outsourced finance company that handles our finance. We have a bookkeeper internally that handles our personal finance. We have checks and balances in place for our checks and balances. We don't believe that this will ever happen to us again the way it happened with Michael, but I am always vigilant and always watching to see if anything's happening anywhere that I feel uncomfortable with. Because in retrospect, after it all fell apart and after we figured out what was happening, I started remembering there was times where I did feel a little uncomfortable with Michael. Or there was times where he gave me an answer that I didn't really understand, and because he was friend, and because I was in a hurry, I didn't ask follow-up questions. There was times where I felt like something was going on but I didn't do anything.
For you, if you ever feel like something's going on, if you see smoke in a business, I want you to know that normally, it's not where there's smoke there's fire, in a business where there's smoke, there's usually a raging inferno like we had. If you ever have that feeling, I want you to stop, investigate it, and figure out what's going on because I didn't and you can learn from the mistake I made. You don't have to have a seven-figure embezzlement like I did to learn the lessons. You can just be vigilant, and trust your feelings, and trust your instincts, and if you see smoke, go after it. If there's a thread, pull it because chances are, there's a lot more than you know going on.