Walt Pavlo

Walt Pavlo
Born:
Charges:	Wire fraud, Money laundering, Obstruction of justice
Sentence:	41 months (served approximately 2 years)
Facility:	FPC Jesup, FPC Edgefield
Status:	Released

Walter "Walt" Pavlo Jr. is an American prison consultant, author, public speaker, and Forbes contributor who served two years in federal prison after pleading guilty in January 2001 to wire fraud, money laundering, and obstruction of justice. As a senior manager at MCI Telecommunications responsible for billing and collecting nearly $1 billion in monthly revenue, Pavlo participated in a scheme that embezzled $6 million from MCI customers, funneling the funds to accounts in the Cayman Islands. Since his release in 2003, Pavlo has become a nationally recognized speaker on white-collar crime and business ethics, co-authored the book "Stolen Without A Gun," co-founded the prison consulting firm Prisonology LLC, and established 500 Pearl Street, a speaker bureau and crisis management firm specializing in white-collar criminal matters.

Summary

Walt Pavlo's criminal conduct occurred at MCI Communications (later part of WorldCom) during the mid-1990s, when he served as a senior manager overseeing the billing and collection of accounts receivable for the company's carrier finance division. Under pressure from senior executives to minimize the visibility of over $100 million in bad debts and limit write-offs, Pavlo first engaged in accounting gimmicks to hide delinquencies on behalf of the company, then conspired with an outside associate to profit personally from the same techniques. After cooperating with federal investigators, Pavlo served his sentence at Federal Prison Camps in Jesup, Georgia and Edgefield, South Carolina. His case gained renewed attention when it was featured in Forbes magazine in June 2002, just weeks before WorldCom disclosed over $7 billion in accounting irregularities, ultimately leading to the largest bankruptcy in U.S. history at that time.

Background

Pavlo earned a Bachelor of Science in Industrial Engineering from West Virginia University. He subsequently obtained a Master of Business Administration in Finance from Mercer University's Stetson School of Business and Economics. He was raised in a devoutly religious Catholic family and attended Catholic schools throughout his childhood.

Following his education, Pavlo began his career at GEC Avionics, Inc., a division of GEC Ltd., where he served as a senior contract manager negotiating contracts for high-tech military equipment with prime contractors including Lockheed, Rockwell, and General Dynamics. His international assignments included contract negotiations in Great Britain, South Korea, Egypt, and Israel.

In 1992, Pavlo joined a subsidiary of MCI Communications in Atlanta, Georgia, as a finance executive. He was hired into a four-person carrier finance department and rose rapidly within the organization. By 1995, he had been promoted to senior manager, and the department had grown to 120 people, reflecting MCI's tremendous growth during the telecommunications boom of the 1990s.

Pavlo's role at MCI involved overseeing the billing and collection of approximately $1 billion in monthly accounts receivable from the company's carrier finance division, which served telecommunications resellers who purchased MCI's long-distance services in bulk and resold them to end customers.

Criminal Conduct at MCI

Corporate Pressure and Bad Debt

As MCI grew rapidly during the telecommunications boom, so did its delinquencies. Pavlo was responsible for collecting past-due accounts from large business customers, many of whom were high-risk "tier three" resellers with no credit history. These resellers were launching products such as debit and prepaid calling cards, international calling plans, and profitable adult entertainment telephone services.

According to Pavlo, MCI's senior executives decided to lower credit requirements to tier three accounts to capture market share, even though many of these customers owned no equipment or buildings and were "like virtual companies." As a result, Pavlo saw a growing problem with high default rates on these accounts.

Pavlo contends he was pressured by MCI senior executives to minimize the visibility of approximately $120 million in bad debts and limit bad debt write-offs to $15 million per year in order to attract a favorable takeover bid—MCI was in discussions with British Telecom and later WorldCom about potential mergers.

Accounting Gimmicks

Pavlo alleges that he was taught by colleagues how to hide the debts of some of MCI's worst-performing customers using various accounting techniques. One method involved crediting the delinquent receivable and debiting a new one, which effectively brought the account current without any actual payment being received.

Pavlo has stated that the corporate culture at MCI rewarded those who "kept giving the answer they wanted to hear" without asking how results were obtained, which he characterizes as the company being "partially culpable" in creating conditions for fraud.

The Embezzlement Scheme

In 1996, Pavlo formed a relationship with Harold Mann, a delinquent MCI customer who proposed a scheme to profit from the situation. Beginning in March 1996, Pavlo, one member of his staff, and Mann perpetrated a fraud involving seven MCI customers over a six-month period.

The scheme worked as follows: Pavlo would pressure MCI customers who were struggling to pay their bills, telling them they would be disconnected if they did not pay. Mann would then appear as an "angel investor," offering to pay off their MCI debt in exchange for an upfront fee and ongoing monthly payments sent to bank accounts in the Cayman Islands.

To conceal the crime from MCI's auditors, Pavlo developed a lapping scheme that worked by applying payments from good customers to the accounts of those who had entered into the illegal arrangement.

The fraudulent proceeds totaled $6 million. Pavlo began living according to his newfound means: an expensive new car, hand-tailored Italian suits, chartered airplanes, and regular vacations, often to the Cayman Islands.

Discovery and Investigation

Approximately six months into the fraud, MCI's accounting department uncovered the scheme when auditors noticed strange transactions involving Pavlo and the Cayman Islands accounts.

Pavlo resigned from MCI immediately, hoping the company would write off the $6 million as bad debt to avoid adverse publicity. However, MCI reported the fraud to the FBI, which launched an investigation. When the scheme was revealed to MCI's banks, lawsuits followed—banks sued MCI for overstating assets, and factor companies sued for breach of contract, fraud, and conspiracy.

Pavlo retreated from the world as the investigation progressed, becoming paranoid about arrest and surveillance. Three years after the fraud was discovered, in October 2000, he turned himself in to federal investigators and cooperated fully with the government's investigation.

Federal Prosecution and Sentencing

In January 2001, Pavlo pleaded guilty in federal court to wire fraud, money laundering, and obstruction of justice, and agreed to cooperate with the federal investigation.

Pavlo was sentenced to 41 months in federal prison, with the sentence later reduced due to his cooperation. He was also sentenced to 27 years of restitution payments from any subsequent earnings to repay the funds stolen from MCI.

Harold Mann, Pavlo's partner in the fraud, was convicted and sentenced to four years in federal prison.

Prison Experience

Pavlo reported to federal prison in March 2001 to begin serving his sentence. He served his time at Federal Prison Camps in Jesup, Georgia and Edgefield, South Carolina, both minimum-security facilities.

Pavlo's security classification was "very low—under five points," driven primarily by his age (under 40), lack of prior criminal history, and the non-violent nature of his offense. This designation made him eligible for camp placement rather than higher-security facilities.

Conditions and Demographics

Pavlo has described his prison experience as "the equivalent of living inside the Department of Motor Vehicles," characterized by "eye-glazing boredom" and "an inefficient regimen that wears a person down." He described daily life as "made up of waiting in lines for everything: Food, counts, medical, counseling."

Regarding the demographic composition of the facilities where he served, Pavlo has stated that of the approximately 500 inmates at the Edgefield camp, perhaps 50 were white-collar offenders, and the white-collar population "was predominantly white." However, he noted that the majority of the overall prison population was Black and Hispanic, with most incarcerated for drug-related crimes.

Personal Impact

Pavlo has stated that "the most difficult thing about prison was the mental stress of being separated from family and friends." He has spoken about the particular pain of having his two children visit him in prison: "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. It's terrible."

Pavlo was released from federal prison in 2003 after serving approximately two years.

Post-Release Career

After his release, Pavlo returned to live with his parents, having lost his home, family, and financial security as a result of his conviction. He began searching for employment but found his resume no longer opened doors.

Toward the end of one unsuccessful job interview, the interviewer told Pavlo he did not get the position but asked if he would return the following week to speak to the company's staff about white-collar crime. This request launched Pavlo's second career as a speaker and consultant.

Speaking and Consulting

Pavlo developed a practice as a nationally recognized speaker on white-collar crime, business ethics, and the federal criminal justice system. Over more than 14 years, he has presented at top-ranked business schools, accounting firms, law enforcement agencies, and professional societies.

His clients and audiences have included:

• The Federal Bureau of Investigation (FBI)
• U.S. Attorneys' Offices
• Big Four accounting firms
• Fortune 500 corporations (including frequent presentations at Walmart's training facility)
• Major law schools
• Professional associations

Pavlo has appeared on CNBC's "American Greed" for his coverage of the Sky Capital trial and has been featured in documentary films including "White Collar Convicts: Life On The Inside" and "(Dis)Honesty."

His work has been covered by Forbes, the New York Times, the Wall Street Journal, USA Today, the NBC Today Show, National Public Radio, Fox Business, and ABC Nightline.

Prison Consulting: Prisonology

Pavlo co-founded Prisonology LLC, an expert testimony, consulting, and training firm specializing in Federal Bureau of Prisons policies and procedures. The firm provides services to attorneys and defendants in federal criminal matters, guiding them from the Presentence Investigation through Supervised Release.

According to Pavlo, Prisonology is "the only complete source of information on U.S. Probation and the Federal Bureau Of Prisons that is aligned with the goals of the law."

Prisonology's services include:

• Expert testimony in federal court proceedings
• Training for legal professionals on BOP policies
• Consulting on facility designation, medical care, and program eligibility
• Guidance on sentence computation and time credits

The firm includes staff with decades of experience in the Bureau of Prisons, including former BOP employees who held positions in case management, the Residential Drug Abuse Program (RDAP), the Designation and Sentence Computation Center (DSCC), and medical services.

500 Pearl Street

Pavlo established 500 Pearl Street (named after the address of the federal courthouse in Manhattan) as a speaker bureau and crisis management firm.

The firm brings together journalists, former law enforcement agents, forensic accountants, attorneys, and individuals involved in white-collar crimes to create training events. It also provides media relations and narrative control services for clients facing complex litigation, leveraging Pavlo's contacts with reporters and news production executives.

Writing and Journalism

Pavlo is a contributor to Forbes.com, where he writes on white-collar crime and criminal justice issues. He also contributes to the New York University School of Law's Program on Corporate Compliance and Enforcement (PCCE).

In 2007, Pavlo co-authored "Stolen Without A Gun: Confessions from inside history's biggest accounting fraud—the collapse of MCI WorldCom" with Neil Weinberg, then a senior editor at Forbes (now a reporter at Bloomberg). The book chronicles Pavlo's experience at MCI, his criminal conduct, and his subsequent incarceration.

Pavlo and Maureen Baird (a former BOP warden) write a column for the American Bar Association's Criminal Justice magazine.

In 2014, Pavlo completed the Journalist Law School Fellow program at Loyola Law School in Los Angeles, a four-day intensive seminar on the legal system for journalists.

Academic Appointments

Pavlo serves as an adjunct professor at Endicott College, where he teaches MBA-level Ethics and Corporate Responsibility courses featuring lectures, live guest interviews, and case study analysis.

Public Statements

Pavlo has been candid about his crimes while emphasizing the conditions that contributed to his conduct. He has stated: "I'm not a bad person. The reason I enjoy speaking to groups and telling my story is because I want to protect the person, those people in the workplace, from temptation. Many of us know someone who fell short."

On the universality of white-collar crime risk, Pavlo has stated: "All of us are capable of such a crime. Nobody is immune. I did it, and you can do it."

Regarding his response to criticism that he continues to profit from his criminal past, Pavlo has stated: "Before I was a criminal or committed a criminal act, I was someone. 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."

Pavlo has spoken about his rationalization at the time of the fraud: "I put the company and the clients in the same bucket. I felt like I was getting one up on people who were trying to one up me... Initially, I saw this as a victimless crime. I didn't see victims like the shareholders or my family."

On the personal consequences, Pavlo has stated: "Your family can accept the fact that you have a terminal disease easier than the news that you're going to prison."

Despite the difficulties, Pavlo has expressed that his experience ultimately improved him: "I'm a better person. It definitely has changed my perspectives about how I view people, how I judge people. I don't judge people. I am a better person as a result of that, more forgiving and more patient."

Terminology

• Wire Fraud: A federal crime (18 U.S.C. § 1343) involving any scheme to defraud by means of interstate wire communications, including telephone, email, or electronic funds transfers, carrying penalties of up to 20 years in prison.

• Money Laundering: Federal crimes (18 U.S.C. §§ 1956, 1957) involving financial transactions designed to conceal the source, ownership, or destination of illegally obtained funds.

• Obstruction of Justice: Federal crimes involving interference with the administration of justice, including destruction of evidence, witness tampering, or misleading investigators.

• Lapping Scheme: A form of accounting fraud where payments from one customer are applied to another customer's account to conceal shortages or theft, requiring continuous manipulation to prevent detection.

• Accounts Receivable: Money owed to a company by its customers for goods or services delivered on credit.

• Federal Prison Camp (FPC): The lowest security level in the Federal Bureau of Prisons system, typically featuring dormitory housing, limited or no perimeter fencing, and a low staff-to-inmate ratio, housing inmates with minimal security needs.

• Security Points: A scoring system used by the BOP to determine appropriate security designation for inmates, based on factors including offense severity, criminal history, age, education, and history of violence.

• Carrier Finance: A division within a telecommunications company responsible for billing and collecting receivables from other carriers and large resellers who purchase services in bulk.

• Presentence Investigation (PSI): A report prepared by a U.S. Probation Officer providing the sentencing judge with information about the defendant's background, criminal history, and offense circumstances.

• Supervised Release: A period of supervision following release from federal prison, similar to parole, during which the released individual must comply with conditions set by the court.

• RDAP: The Residential Drug Abuse Program, a 500-hour treatment program offered by the Bureau of Prisons that can result in up to one year off an inmate's sentence upon successful completion.

• DSCC: The Designation and Sentence Computation Center, the BOP office responsible for determining initial facility placement and calculating sentences for all federal inmates.

See also

• Prison Consultants