Momentum Podcast: 41
Why Entrepreneurs Don't Talk About Embezzlement
by Alex Charfen
In 2011 Cadey and I discovered that a person we trusted for years had been embezzling from us.
Michael Goldberg was our contract CFO, advisor and even was the trustee on our wills. He was one of the most trusted people in our lives.
It was devastating to find out he had embezzled over a million dollars from us and had misdirected over a million more.
Once we discovered his crime, we contacted the US Secret Service and what followed was two of the most stressful years of our lives…
Full Audio Transcript
I'm Alex Charfen, and this is the Momentum podcast, made for empire builders, game changers, trail blazers, shot takers, world makers, record breakers, 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'll pay attention to their rules but only so we can bend them, break them and then rewrite them around our own will. We don't accept our destiny. We define it. We don't understand defeat because the only way you loose, is 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 that there can be a better future instead of just daydreaming what could be. We enter 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 Episode 41: Why Entrepreneurs Don't Talk About Embezzlement. This is a really personal topic for me and I'll share from a personal story that happened to Cadey and I. A few years ago, I was on the phone with our corporate counsel at the time, Steve Samuels, and the person who was our outsource CFO, his name was Michael Goldberg and just so that there's no confusion, this is Michael Goldberg from Boca Raton, Florida, Michael Aaron Goldberg, whose mom's name is Cena Goldberg, and whose father who was involved by helping set up the corporation through which he embezzled, Norman Goldberg. Just want to make sure that everybody knows who it is because as you'll hear in this story, we put him in jail but he's out now, and as you'll hear in the story, we weren't the first people he took advantage of, so it was even more challenging than it could have or should have been.
So I'll give you the story so that you can understand my perspective. I think there's a reason we don't share embezzlement. I can tell you personally, why it was so hard for me to start talking about it with people, for me to start telling people, because Steve Samuels and I were on the phone with Michael Goldberg, and one of our team members, Elliot Boney, who is tagged here, so Elliot, thanks man, because there's no way we could have done this otherwise with you, and I'm gonna make sure that he gets a copy of this podcast. There's no way we could have done it without you. Because Elliot was on our team, he was an analyst, and he was watching our numbers really closely, and he has this eidetic, photographic memory that's just incredible and he thinks at a level that is like he's ahead of the computer most of the time. Let's just put it that way. He's one of the most brilliant statisticians, mathematicians, analysts I've ever worked with, and he walked into my office one day and told me that there was a problem with our books and with Michael.
And here's how hard it was for Elliot to do this. Michael had been a trusted advisor of mine and Cadey's for years. In fact, we had started with him right before we went bankrupt in 2006. We had started working with him. He had done our books. He had helped us with a ton of stuff, and he was with us through that, through building the business that we have now, through going from zero dollars to a half million in our second year to seven million in our third year to ten million in our fourth year, and right in there he started stealing money from us. He had access to our QuickBooks file, so he was in a very elaborate scheme that took a long time to unravel. He was stealing money through payroll taxes. He was essentially having Cadey and I pay ourselves and then redirecting exaggerated payroll taxes to himself over the course of a few years which ended up at about 1.2, between 1.2 and 1.4 million dollars. He also had us redirecting funds to insurance policies that were supposedly cash on hand, cash available type policies. He was creating statements for them.
This is Bernie Madoff type stuff on a very small level, and he had us redirecting another 1.2 to 1.4 million to insurance policies that were basically useless, and I remember being on the phone with him and trying to understand the inaccuracies that we had found in our books and asking him like Michael, what's going on? What happened? Why is Elliot finding these things? What Elliot had found is that our balances were changing on our closed books but they were changing this month for last month, and that should never happen. There should never be adjustments once your book are closed. The problem is we were in QuickBooks. It was easy to manipulate and Michael had been coming in and changing our general ledger to hide how much money he had been stealing from us. So he took it out as payroll taxes one month, then he'd come in the next month and switch it to office expenses or furniture expenses and Elliot found it, discovered it and figured out how he was doing it.
When I was on the phone with Michael, I could tell that there was some type of a challenge. There was something wrong. The way he was talking, the way that we were asking him questions, he wasn't answering like he normally would. He felt like he was back on his heels and I finally said "Michael, you better tell me what's going on right now because I feel like you've been stealing from us. I think we both know something's going on. I think you should tell me," and I remember like my heart was up in my throat. I felt like I was going to vomit when I said that to him, and I remember what he said. "Okay, I've been taking some money." And in that moment I couldn't breathe. I was so shocked. This was somebody that Cadey and I trusted. This was somebody that Cadey and I asked for advice. This was somebody that we had as the trustee on our will to help our kids should something ever happen to us, and here I was on a phone call with him in the afternoon standing out in my garage and he told me that he had stolen money from us.
And he first admitted to 90,000 dollars because that's what Elliot had found, but over time we found that his embezzlement was closer to 1.2 million and it was one of the most overwhelming things in my life, and I can tell you how it felt. In the moment that Michael told me I felt anger and rage and all of the things towards him, but I also felt ashamed and embarrassed and like I didn't want anyone to know, and like I felt, I was so exposed and so foolish to let this happen to us and here I was a consultant, somebody who had helped people grow billion dollar companies, who had advised some of the smartest people in the world, who had worked with people who had done amazing things and here I am running a 12 million dollar company allowing tons of money to get embezzled out. I remember my first instinct was how do we hide this? That didn't last long because the next day we decided that we were going to figure out exactly what was happening, and I entered into this negotiation with Michael to keep him out of jail, at least that's what he thought.
Once he had admitted that there was an embezzlement, I told him that the only thing that was going to keep him out of jail was to show us everything, to tell us what happened, to give us the information, so we actually requested and he sent us his bank statements for years because he knew he was caught. So rather than just go straight to the authorities, we spent a few days getting all of his bank statements, getting his financial records, getting information from him, all under the guise of not calling the authorities, and once we had enough evidence to prove beyond a shadow of a doubt he had stolen money from us and re-appropriated it, we called the Secret Service and sat down with them and entered into what ended up being a two year federal prosecution for embezzlement. Now, let me tell you how well this went for us. Because we had Elliot on our team, because we were able to discover, get all the information from Michael that we got during that time where he sent us his bank statements, sent us basically all of the evidence, we were able to assemble such a strong case that it only took two years which is really short for federal cases, and Michael actually pled guilty to an information.
So the legal term behind that means he pled guilty without an indictment, without a trial, without anything else just because we had such an overwhelming case against him. I remember when we were putting all this together and when Secret Service agents were showing up at my office with guns and when we had to turn over all of our corporate records, not just to the Secret Service but to IRS investigators as well. I remember the feeling when we found out that the money that had been misdirected to insurance policies, this is how crazy things were, not only did we have 1.4 million stolen from us by Michael, we had paid about an equivalent amount into insurance policies that he had literally just made up how they worked, and so instead of us paying money into policies where we had the money on hand where we could pull the money out, they were these long term terrible policies we couldn't get any money out of them, but he had deducted the payments to the insurance policies from our taxes.
So not only did we find out that we had 1.4 million embezzled and about the same amount misdirected, we ended up paying taxes on the second amount. So not only did we lose it, we had to go back and pay almost a half million dollars in taxes on money that we no longer had. It was all devastating, and here's why I'm sharing it with you because 90 percent of companies get embezzled from. Ninety percent, and a huge percentage of company failures are due to embezzlement, and embezzlement is one of those things just like being told you're dyslexic or bipolar or depressed or you have ADHD or any of those things, that we immediately want to hide and shut down and not share with anyone and not talk about, but I'm talking about it with you because just like being told that you have ADD or depression or any of those things, if we would just open up and talk about it we would find out how many people around us had gone through the same thing.
And you may, too, or may already have had. For those of you who haven't, embezzlement is one of the most devastating feelings you can have. I remember once Michael admitted that he had embezzled from us and once we started working with the Secret Service, in my recollection the best way I can put it is all hell broke loose. The Secret Service started interviewing all of our team including Elliot and a bookkeeper that we had at the time, Ginger Nixon and all kinds of other people, they had to go downtown and sit in a Secret Service interrogation rooms. The Secret Service went out and got security camera footage of Michael sending us faxes of him actually in the act of embezzlement, and it was crazy because as the person being embezzled from I remember feeling like I couldn't trust anyone. I remember feeling like the whole world was out to get me. I remember feeling like I shouldn't believe or listen to or really put any weight on anything anyone said because here was this person who I trusted so much who was stealing money from us.
And taking it right away from Cadey and I even though he was paid really well, and he was one of the most trusted people in our lives. And I'm sharing it now because I think we should all talk about stuff like this. We should name the person who stole from us. We went through two years with the Secret Service and I remember being told that we were going to have our day in court, but it wasn't really like a full day in court. There was no testimony, no witnesses called. There was no actually court case. What happened was we went in and Michael pled guilty to an information. He basically said yes, I did it based on how much we provided and I was allowed to get up for a couple minutes and share where we were coming from, and I got up and I shared with the court what it felt like to be embezzled from. I remember, I don't get nervous when I speak in public, but that day my knees were shaking, my palms were sweating, just being near Michael, I wanted to jump across the table and beat the crap out of him.
I wanted to destroy him. I was so angry that day, and I remember getting up and telling the court how I felt and how he had stolen from us and he had gained our confidence and that he had done it before. In this process, we found out that he actually, this wasn't his first federal crime. This was his second one. He had worked with a toy company, so if you look up Michael Goldberg and you find the toy company article for the Might Morphin Power Rangers or something like that and had worked with a toy company where they had falsified earnings and stolen tons of money from stockholders and taken advantage of Wall Street, so this wasn't the first time, and I remember sharing that in court and I remember Michael being sentenced to four and a half years in federal prison.
I thought it was going to feel like this crazy victory. I thought it was going to feel like closure. I thought it was going to feel like everything was okay and everything was better and I remember sitting through court that day and feeling overwhelmed and feeling like the adrenaline was flowing the whole time and then we finally got through the court case. He was sentenced to jail. They put handcuffs on him. They walked him out of the courtroom along with some other felons that had dealt drugs and pled guilty and it was like the day that everybody who was going to plead guilty pled guilty, and Cadey and I went downstairs after he was taken off to jail and I remember hitting the crash bar on the exit door to the courthouse and thinking once I walked outside how everything would feel better, and instead I hit the crash bar, walked outside and realized for the first time in two years Michael was no longer the adversary but I still felt completely overwhelmed and taken advantage of.
And even though the person who had done this was put in jail, I still felt this overwhelming feeling like it wasn't over, like it wasn't done, like I wanted to do more, like I wanted to chase him down, and the thing that worked for me was going and seeing my EMDR therapist and talking through the entire embezzlement and the trauma of finding this out and feeling exposed and feeling taken advantage of, and little by little I was able to regain trust in the people around me, and one day at a time I was able to take deep breaths and feel confident again and not look over my shoulder and feel like everyone was trying to take something from us because that's really how it felt. And little by little I was able to get past the place where all I could think about was finding Michael and dismantling him. I mean, I never did anything. I never would, but believe me the thoughts were there and anyone who's been embezzled from and tells you that the thoughts weren't there, I don't know what type of constitution they have because all I could think about was getting revenge and getting back at him. And here's what I've learned. When someone embezzles, when somebody steals, when somebody puts themselves on that side of morality you don't have to do anything to get back at them. They destroy their own lives. Michael took money from us and we got most of it back. We were the lucky people who were embezzled from. We're still getting money back. He had bought some investments that are now being liquidated and we're getting the money returned to us, and we had to sue him in Florida. We had to sue his father, but it's all getting put back to where it was, and we're getting not all but a lot of it back, and what I've realized is that those people who make questionable moral decisions like that, they only hurt themselves. We were hurt, but I can rebuild. Cadey can rebuild. We've rebuilt a lot of our wealth. We put that money back where it was. We've created momentum again and we have some of the most amazing clients and people around us in the entire world, and Michael's a convicted felon who recently got out of prison.
His life will never be the same, and I've stopped feeling like I need to go out and get revenge on him. I've stopped feeling like I need to go hunt him down. Every once in a while the thought might creep in. I'll be honest with you, but these days for the most part, it's gone, but I'm sharing this with you today for this reason. Ninety percent of businesses will be embezzled from. Ninety percent of us will be taken advantage of in a way that causes us shame and frustration and makes us want to hide and not tell the world around us. A very high percentage of us will be told there's something wrong with us, that we have a disease, a disorder, something that's not okay. Many of us will be told the same thing about our kids, and here's the fact. The more that we communicate and share what makes us uncomfortable, the more we share the experiences in our lives that make us feel vulnerable, the more we help each other.
And getting through that embezzlement and the court case and the meetings with the IRS and the Secret Service was so stressful that Cadey and I got sick, Cadey much more than I was, and we had trouble getting through that period of time and it was operational drag and a momentum killer like I've never felt in my entire life. Even putting him in jail didn't bring the momentum back, but here's what did. Understanding who I was, understanding what I'm capable of and who I can help, rebuilding our business around our clients and the change we want to make, sharing like I am with you my lessons so that other people won't have to go through them, all of that started bringing us back to where we could create momentum. So for any of you who have something you're not sharing, something that you don't tell people, that thing that makes you embarrassed, that thing that makes you hide, the fact is there are so many people going through exactly what you're going through.
And the more you share, the more you tell the people around you, the more you unload that, the less you own it and the more it becomes something that you can help the people around you with rather than something you hide from and keep inside, and this was definitely one of the most difficult things that I've ever been through. But I don't know that I would change it because it showed me that my wife and I have a resilience that very few people have. It taught me that what makes us feel vulnerable, what makes us feel like we should hide is exactly what we should share with the people around us. It showed me that regardless of how smart I think I am or how great I think I run a business, that even this could happen to me, and it's made us so much better at keeping track of our finances and our wealth and making sure that this will never happen to us again. I have an amazing outsource finance company now that handles everything for us where we have double and triple and quadruple checks and balances so that nothing can ever happen.
So, for all of you, for anyone who's been through something like this, take a minute and think about is this something you should share and show everyone else around you, is this something you should start talking about and telling people about? I think that what you'll find is that what makes us feel vulnerable, the more we put it out there, the more we let other people know about it, the more we use the lessons we've learned to help other people, the easier things become and I want to thank you for letting me share this with you today and for listening because this was one of the most difficult times in my life and if anything I've said today can help you through one of the most difficult times in your life, then I think that that's why it happened and quite possibly why it was worth it because if we can take that terrible time, that exposed feeling, that vulnerable place and I can share it with you to help you get through the same, I think that's exactly why we're here as evolutionary hunters. That's why you and I are part of the same tribe.
We all go forward faster together and what makes us vulnerable creates momentum, and from the beginning of this podcast to right now, I actually feel better. I feel lighter. I feel like I've released something, and I'm sure that in future podcasts, I will share more details about the embezzlement, how we found it, what it felt like, but for now I just want you to know that that thing that you've been hiding, the thing that makes you feel vulnerable, the thing that you've been keeping stuffed down is probably the thing that's going to help the people around you the most, and I want to thank you for listening. If you haven't yet, subscribe to this podcast, the Momentum Podcast for the Entrepreneurial Personality Type, and if you can take a second and leave us a review. I'd love to know what you think, and if you have a minute go to freemomentumbook.com and download the entrepreneurial personality type book. If you've related to what I've shared with you, I think it's going to tell you more about yourself than anyone ever has. It's a quick read. I can't wait to hear what you think. Thanks for being with me here and I'll see you tomorrow.