The Lecturer
It was reported in the Los Angeles Times on March 25, 2006 (Page B7) that a
business school lecturer at USC was arrested by FBI agents for allegedly bilking students
out of more than $1.5 million and spending much of the money on show horses
(apparently, that were not to be used in the classroom). Authorities said that the lecturer
lured students and their gullible parents into investing in a real estate investment scheme.
The lecturer told students the investments would be put in Nevada and Illinois
commercial properties and would yield a 190% return. The lecturer deposited $718,000
of their money into a personal bank account. The lecturer used much of the remaining
funds for personal expenses including $500,000 to buy and care for show jumping horses,
a $73,000 Cadillac Escalade and $52,000 for personal brokerage accounts.
Authorities stated that suspicions grew when monthly statements failed to arrive
and the investors did not receive their returns. Two students confronted the lecturer one
dark and dreary night asking for a return of their money. The lecturer put them off for
awhile and then proceeded to draw up fake sales agreements showing that the lecturer
had bought or owned the projects. The students were having none of it thinking “Fool
me once, shame on you; fool me a second time, shame on me.”
This case discusses a college lecturer defrauding his students and their families on an
investment scheme promising a 190% return.
Ethical Issues
The ethical questions in the case are the implied promises of fiduciary duty where trust is
high and who is guaranteeing that fiduciary duty? Additionally, what is the fiduciary duty
of employer or employee when the employee acts outside of job duties? Is the school
responsible for protecting students from financial scam? Does a university guarantee any
or all advice given by faculty?
Questions
1. Should college lecturers and professors be held to the same legal standards of
conduct as accountants and auditors? Why or why not? What if the lecturer
or professor is a CPA? Would that change your answer?
College faculty should have no personal or business relationships with their current
students. College lecturers and professors can be held to the same legal standards of
2. What are the responsibilities of students and their parents in becoming
involved with a college professor in an investment outside of class? That is,
putting aside the question of the rightness or wrongness of such an activity,
how do you assess blame in the case? Is it 100 percent the professor’s fault?
Is it 100 percent the students and their parents fault? Provide logical
reasoning in support of your answer.
Investors beware is what students go to school to learn. The lecturer was 1) in conflict
of interest by selling investments to students and 2) not teaching the students how to
evaluate investment claims. Faculty have an obligation not to experiment on students.
The students and parents of students should have been leery of the high promised
3. The lecturer in this case is the founder, president and chief executive officer
of a realty investor company. That may be why USC asked the lecturer to
teach the course in which the investment opportunities were offered to the
students and their parents. What do you think should be the ethical
responsibilities of a lecturer or professor with respect to discussing possible
outside business and financial activities with students? What are the ethical
responsibilities of a university that hires a faculty member to teach a course
to its students?
The university and the lecturer should be very careful on how, when and whether outside
investment opportunities can be offered to students. USC should have a policy on
harassment which may be applied in this case. Did the lecturer harass students to invest?
There is a power relationship between faculty and students, which does not make them
equals and may even negate some normal free will of students to say no to the