Cases of fraud usually take place in both huge firms as well as small firms, and in this case, we will focus on Mamtek, which was a small firm. There are various reasons that usually led to cases of fraud in the various firms. Most of the fraud cases usually involve manipulating the various stakeholders for personal gain. Such decisions to commit fraud are usually for personal gains or to achieve performance within short durations rather than following the right procedures which would bring positive results in the long run. Mamtek was a Hong Kong based manufacturing firm that produced a formula used in making the artificial sweeteners. It was a promising firm that had assured the various investors as well as other stakeholders positive returns. In the year 2010, Mamtek made it known that they would be opening an operation plant in Moberly Missouri State. This was accompanied by the development of a website through which promotion of Mamtek and it future was being made. The various potential investors were requested to give a sum total of $500,000 to the new project in Moberly
In return for their contribution, the various investors were promised EB-5 Visas for the United States Citizenship and Immigration service. This would, therefore, enable them to bring themselves as well as their families to the United States. In 2010, the Mamtek U.S project was approved for $17 million in state tax credits as well as other incentives and Moberly established a financing plan that included $39 million in bonds. In addition, the firm privately invested an amount totaling to $18 million. This project thereby promised positive returns for both the investors and the residents of Moberly. The project would lead to the creation of more than 600 jobs as well placement of Moberly on the world economic landscape.
Within a time span of 73 days the financial plan had gone through and within the proceeding few weeks, the firm had opened its offices opposite City Hall. The firm also hired various managers and solicited various job applications. Sooner as the project was introduced it started experiencing various problems. The first obstacle was the process of reconfiguring a formerly Chinese bases firm to fit the various regulation stipulations in the United States led to a grinding halt of the construction process. The harsh weather also forced the opening date to be pushed to the following summer. These occurrences led to the raising of the eyebrows thereby sending various parties to an inquisition mode. One of the concerned parties was an editor of the Moberly Mirror who after investigations found out that there was no existing plant in Fujian province China that the Firm had claimed to be the locations of its Hong Kong Plant.
Morale the editor through her investigation also found out through the firm's alleged competitors and trade publications that no one knew of such a firm and that 12 other different states had been contacted concerning the introduction of the project. However, these other towns had been hesitant to involving themselves with the incentive that had been promised by the firm. After her finding, she published the information which was then distributed to every home on Moberly. Nonetheless, no action was taken based on the information that Morales had disclosed.
Later the project collapsed even before constructing had begun. In August Mamtek defaulted on their bonds. When the bond funds became available, the firm submitted a $4.1 million invoice from Ramwell Industries which was a firm that did not exist. Nevertheless, Cole who was the CEO of Mamtek claimed that the firm existed and it was providing engineering services and other products to Mamtek. The money was then distributed to Mamtek creditors and officers. The CEO’s wife also received a sum total of $700,000 which was alleged to be sued in making mortgage payments on their home.
The security Exchange Commission accused Cole of defrauding investors through material misrepresentation and omission in the sale of $39 million credit bonds which were backed by the state of Moberly, Missouri. After the closure of the bond offer Cole still went ahead and instructed Mamtek employees to create fictitious documents for an existence firm that would be used to justify the expense regarding the project. Legal action was taken against Cole and he pled guilty to one account of felony stealing, two accounts for securities fraud and consequently he was jailed for 7 years as a punishment for his actions.
Ethical Dilemma and Legal Issues in the Case
The ethical dilemma in the case that face Bruce Cole was that he had chosen to defraud the city of Moberly and the various investors and yet he still tried to hide his tracks by instructing the employees to falsify the documents. He had the option of not covering his tracks after defrauding the various stakeholders but he still went ahead to do so hence showing that he was still undecided about the course of action he had taken. The ethical theory that Cole applied, in this case, was egoism as he had acted in a way that would only benefit him as an individual at the expenses of the privet investors and the state of Missouri. The actions of Cole are considered unethical based on the theory of utilitarianism. He knew that his actions would have a negative impact on the various stakeholders but he still went ahead and defrauded them. Under utilitarianism, one should act in a way that brings the greater good for the greater number and in this case Cole acted for the greater good of his own interest.
Legal issues in this cases come as a result of the unethical choices that were made by Cole. The firm's legal issues are that Cole had committed securities fraud where he had taken money for the various investor by issuing bonds of a firm that was nonexistent. Cole was also guilty of stealing the funds from the various stakeholder that he had been entrusted with. In some instance what is unethical may fail to be illegal. In this instance all the unethical choices that Cole made was illegal. When he had tried to cover his tracks by instructing the employees to falsified documents, he encouraging false misrepresentation which is both unethical and illegal.
Questions
What were the reasons for Bruce Cole committing fraud?
The main reason that made Cole commit security fraud by defrauding both the investors as well as the city of Moberly was so that he could receive personal gain. This is illustrated by the instance when he gave a sum total of $700,000 to his wife that could be used to finance their mortgage home. Cle did not take into consideration the effects that his actions would have on the investors, the state as well the general people of Moberly. The funds could also be used to meet his other personal needs. This, therefore, is an illustration that most cases of fraud are usually committed so that certain individuals could obtain personal selfish gains. If Bruce Cole was ethical and had the interest of the various stakeholders at heart he would not have defrauded them. Such individuals should thus not be allowed to hold leadership positions and various measures should be put in place to prevent the cases of stakeholders being defrauded.
What parties suffered losses as a result of Bruce Cole's actions?
There are various parties that incurred losses due to Cole’s actions. The firs party are the private investors who lost their money in the fraudulent venture. They also failed to get the EB-5 visas they had been promised from the U.S Citizen and immigration services. The visa incentive had been the key factor that had attracted the various private investors to invest their funds in the venture. The city of Moberly Missouri also encountered losses. Due to the initial promise by the venture they had expected to receive various benefits such as becoming a thriving in the global economic map. The state also defaulted on its bonds. The residents and natives of Moberly also suffered a significant loss. They had expected to get more than 600 jobs had the project succeeded. However, this did not happen as the venture turned out to be a scheme to defraud various parties.
What steps might have prevented the fraud from occurring?
There are various measures that would have been put in place by the various parties to prevent the occurrence of such a fraud. Mamtek did not provide adequate information about their existence as a manufacturing firm. It was, therefore, a responsibility of the state of Moberly Missouri to investigate and determine the facts concerning the existence of the firms. The private investors should have also carried out proper investigation before investing their funds in the fraudulent venture. Other states were hesitant to accept the offer that was made by the firm since they did not have clear information hence being reluctant. This would have been the case in the city of Moberly, but instead, they got excited due the incentives they had imagined they would receive. The private investigator, as well as the city of Moberly, should have exercised due diligence when investigating the existence of the firm by asking for the various financial records.
The whole operation was being carried out by the firms CEO which is never the case in various institutions. This should have been able to raise eyebrows among the investors and the citizens of Missouri about the existence of the firms. The fraud would have then been prevented in advance. Investors should also embrace a sense of awareness before committing their funds to any venture. It is, therefore, evident that defrauding of stakeholders can occur in every firm despite their sized. Various long-term measures should, therefore, b put place to minimize and if possible completely prevent the various cases of fraud. The security exchange commission is the regulator of the various activities in the securities market. In this case, they should have done a thorough investigation concerning the existence of Mamtek before allowing it to issue the various bonds. However, they did not undertake a thorough research.
The editor of the mirror had done a thorough research about the issues surrounding the existence of Mamtek and came to a finding the alleged headquarters of the firm was not existence. The information was circulated to all residents of Moberly yet they did not act on this information. Later it came to the realization of the various stakeholders that this information had been true. Taking into account various pieces of information is essential especially those that are sensitive towards investments opportunities. After reading the information that the editor had published the least they would have done was to ask questions as this would have prevented them from incurring losses. Investors, states as well as other stakeholders should ensure that they exercise diligence when investing matters concerning their investments.
Works Cited
"Former Mamtek CEO Gets 7 Years for Theft, Fraud." The New York Times. The New York Times, 10 Nov. 2014. Web. 03 May 2015.
"U.S. Securities and Exchange Commission." Bruce Cole and Nanette Cole. U.S Securities and Exchange Commission, 18 Sept. 2012. Web. 04 May 2015 "U.S. Securities and Exchange Commission." Bruce Cole and Nanette Cole. U.S Securities and Exchange Commission, 18 Sept. 2012. Web. 03 May 2015.
Keller, Rudi. "Mamtek Pushed Visa Deal to Chinese Investors." Columbia Daily Tribune. N.p., 23 Sept. 2011. Web. 03 May 2015.
Logan, Tim. "Chinese Sweetener Deal Turns Sour: Business." St. Louis Post-Dispatch. N.p., 22 Sept. 2011. Web. 03 May 2015.
Weich, Susan. "Former CEO of Mamtek Pleads Guilty to Fraud, Theft in Failed Factory Case."St. Louis Post-Dispatch. N.p., 02 Sept. 2014. Web. 03 May 2015.
"Former Mamtek CEO Sentenced to Seven Years in Prison." Columbia Daily Tribune. N.p., 10 Nov. 2014. Web. 03 May 2015.
