Ralph Summerford, CFE
President of Forensic Strategic Solutions
Smart people commit fraud every day. A recent case gives us a prime example.
A federal judge asked Donald Watkins, Sr. to step away from the jury box as Watkins, Sr. made an impassioned plea in his closing argument. Watkins, Sr. was in the personal space of front-row jurors, who were clearly agitated and restless as they leaned, twisted back and forth and from side to side to move away from the attorney. Watkins, Sr. was pointing his finger at the jurors and leaning directly into them.
In their March 2019 fraud trial, Donald Watkins, Sr. and Donald Watkins, Jr. were both convicted of defrauding investors of more than $10 million. An FBI agent described both as “financial predators who truly represent pure greed.”
Condoleezza Rice, the Rev. Martin Luther King III and former Birmingham mayor Richard Arrington, Jr. testified for the prosecution at the trial. Former NBA star Charles Barkley also testified, as he is a former friend of Watkins. In over a decade, Barkley invested more than $6.1 million and “never got a dime back.” Other professional athletes also invested with Watkins and have not been repaid. According to prosecutors the investors were given “materially false and fraudulent pretenses, representations, and promises.”
The guilty verdict was delivered in the same Birmingham, Alabama, courthouse with the same federal judge as the infamous Richard Scrushy case. On June 29, 2005, Scrushy, founder and CEO of the $2.7 billion fraud-ridden HealthSouth Corporation, walked out of Federal Judge Karen Bowdre’s courtroom a free man — represented by Waktins, Sr. Scrushy was the first CEO indicted and tried under Sarbanes Oxley.
How did Scrushy make it out of the courtroom unscathed? Prior to the trial, Scrushy bought a local public television station, from which he and his wife produced a religious evangelism program. Soon, Scrushy became a lay minister, preaching at local churches and reportedly making large contributions to the congregations. This trial strategy, a strategy of positive image and strong community outreach, worked in securing an acquittal.
Unfortunately, Scrushy did not fare as well when, four months after his acquittal, he was indicted in a political corruption scandal with the governor of Alabama. Both Scrushy and former governor Don Siegelman were convicted of a political conspiracy in a federal criminal court in Montgomery, Alabama. Both were sentenced to over five years in federal prison.
Scrushy also received a bitter defeat in a later civil case. While incarcerated in 2009, a state court judge ruled “Scrushy was the C.E.O. of the fraud” at HealthSouth. The judge awarded a $2.8 billion judgement to the stockholders of HealthSouth against Scrushy.
By all accounts, Richard Scrushy was regarded as brilliant. He built a Fortune 500 company from scratch (albeit, by fraudulent means) and grew his self-proclaimed net worth to more than $600 million. But, after his criminal conviction and civil judgment, he lost his wealth and his freedom. Clearly, in this battle of flawed ethics vs. brilliance, Scrushy’s flawed personal ethics emerged victorious.
Donald Watkins, Sr. orchestrated his own defense in his fraud trial. The indicted 70-year-old attorney represented himself and testified as a defense witness. He would ask himself questions, then answer those questions. Unsurprisingly, this proceeding was exceedingly strange — the prosecutor even objected that Watkins was asking leading questions!
Watkins, Sr., who had developed a national reputation by representing Scrushy and the City of Birmingham’s then-mayor, Richard Arrington, Jr., was reported by several news sources to be a billionaire. According to Watkins, Sr., he was “certified by Goldman Saks” as being qualified to make a bid for the St. Louis Rams football team. Like Scrushy, however, Watkins’ alleged wealth and intellect met a test of brilliance v. flawed ethics.
The November 2018 indictment against Watkins and his son was filed after a 2016 SEC civil suit claiming Watkins duped investors into paying millions of dollars to a bank account controlled by Watkins, Sr. Rather than being used to finance the growth of two international companies, the funds were used to finance an elaborate personal lifestyle, paying for personal expenses such as American Express bills, private jet expenses, taxes, alimony, clothing and personal loans.
On March 8, 2019, the federal jury in Birmingham, Alabama returned a verdict of guilty on all 10 counts of the indictment against Watkins, Sr., along with a guilty verdict on two counts against Watkins, Jr. Sentencing for both men is set for July 16, 2019. In this battle between personal ethics and brilliance, flawed personal ethics again emerged the winner.