Walt Pavlo: The Visiting Fellow of Fraud

Jan. 30, 2006 — -- The chimes of the University of Mississippi's clock tower call students to their first lecture of the week, and attendance is unusually high for a Monday morning. The attraction may be that today's subject -- corporate ethics and fraud -- is the hottest topic of the year now that the Enron trial is under way.

But these students may just be eager to meet today's guest lecturer. He's no ivory tower professor of economics but a supremely qualified individual with priceless practical experience: convicted white collar criminal Walt Pavlo -- the Visiting Fellow of Fraud.

Pavlo was once a God-fearing student who played hard and played straight.

"I went to Catholic school ... my entire life," he told "Nightline."

Was he taught the catechism as a child? Was he taught the Ten Commandments?

"Oh yes, yes," Pavlo said. "Yes, I was raised, raised a Christian. I was taught right from wrong. I was taught, don't steal, don't cheat, don't curse. Be honest, be truthful, in everything that you do."

After securing a prestigious MBA, Pavlo secured a senior position at communications giant MCI. He began working in the collections department and hit the job with ferocious intent.

"Sometimes I'd come in and if there was another car in the parking deck that was closer to the building than mine, I thought about who that person was ... What is that person doing?" he said. "Is that person getting ahead of me? If I'm coming in at four o'clock in the morning, what should I do? Should I be coming in at three?"

But soon the pressures of work began to mount, and he struggled to meet the targets set before him. For the first time in his life, he began to stare the possibility of failure in the face. Somewhat unusually, for one who rarely displayed weakness, he told a colleague about his struggle. His colleague's response proved the pivotal moment in his career.

"His comment to me was that everybody is cheating," Pavlo said. "That's the way you make it."

Pavlo said he was taught how to hide the debts of some of MCI's worst-performing customers so that his personal record would continue to look impressive. But for these customers to continue trading, they would have to pay Pavlo a sweetener for this illicit arrangement.

Over a six-month period, Pavlo and his colleague siphoned $6 million from these poor-performing clients and stashed the money away in a Grand Cayman bank account. He began to live according to his newfound means: an expensive new car, hand-tailored Italian suits and regular holidays -- often to the Cayman Islands. And nobody asked questions, not even his wife. Everybody believed that Walt Pavlo, workaholic, was simply getting his just desserts.

But six months into the fraud, MCI's auditors noticed a strange series of transactions that involved Pavlo and an account in Grand Cayman. Pavlo resigned immediately, hoping and praying that the company would write off the $6 million as bad debt and thereby avoid any adverse publicity that would inevitably follow an investigation. But Pavlo's prayers went unanswered. MCI called in the FBI.

Rather than face trial, Pavlo made a full and frank admission and was sentenced to three years and five months in prison. He would also have to pay recompense, from any subsequent earnings, for the next 27 years. But it was the experience of prison that proved most painful for Pavlo, especially when his two children came to visit.

"It's standing up in front of them, in front of a room during a count time, and giving your name and your number ... to be identified as an inmate in front of your children," he said. "It's terrible. When I first got a prison number, I was determined not to memorize it ... but now it's forever etched on my memory. Prisoner 52071019 comes to me more easily than does my Social Security number."

That wasn't all. After serving his sentence, he emerged a free man but was met by his wife's attorney. She had filed for divorce during his incarceration.

Pavlo, penniless and homeless, returned to live with his parents and started looking for work. But his resume, once the envy of his friends and colleagues, was no longer so impressive.

Toward the end of yet another fruitless interview, he was told that he didn't get the job -- but could he return the following week to speak to the company's staff about white-collar crime? This was the beginning of Pavlo's second career.

For the past 18 months, he has delivered lectures to the FBI, and to many of the nation's top accounting firms and business schools. It is a remarkable turnaround and, Pavlo believes, a redemptive one too. He discussed the reaction of many who say that he's still benefiting from his criminal past by being paid to deliver lectures.

"You are a convicted felon and an accomplished liar. Why should anybody listen to you?" asked "Nightline.

"Before I was a criminal or committed a criminal act, I was someone," replied Pavlo. "I was someone who was on the fast track and did a lot of things right in my life. I've paid a significant price for what I've done, and I tell people that, and I educate people with a cautionary tale about what's going on out there. I'm trying to make a difference, and it's a chance for me to move on with my life, and I feel good about my career, for once. For once in my life. I enjoy my work."

Pavlo earned about $100,000 last year and, with corporate fraud in the headlines, expects to double that amount in the next 12 months. But he takes no pleasure in his wrongdoing and only seeks to warn all of his listeners.

"All of us are capable of such a crime," he said. "Nobody is immune. I did it, and you can do it. So let's be honest from the start and try to have a dialogue about what can happen to anyone in any business. Maybe then we'll have a chance of preventing the crimes that we read about so often."