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January 29, 2008

Pavlo’s slog: Trying to move on, a convicted felon shares his cautionary tale with impressionable minds

Walt Pavlo doesn’t worry all that much about getting ice water dumped on his head when he’s out at dinner, or getting jumped by an aggrieved party walking to his car at night. His profile never reached the heights of Ken Lay or Bernie Ebbers. But those who know their white-collar criminals know about Pavlo. As a manager with MCI in the booming mid-1990s, Pavlo was involved in hairy things. He helped the company hide a couple hundred millions dollars’ worth of bad debt, and as the larger story began unraveling, he went to federal prison for two years.It’s a tale worthy of John Gotti. In fact, the crux became the storyline on an episode of “The Sopranos.”That was the one where the family was selling calling cards. To those of us with cell phones and bundled services, that concept may sound strange. It worked like this:The telecom field was flush in the early- to mid-1990s. Companies like MCI rapidly added capacity, meaning they had to sell their services more aggressively. The MCIs of the world would contract with other large companies like AT&T and Sprint, but they needed something else, a new revenue stream, and so they began dealing with smaller entities that had never sold phone service. Those “third tier” businesses — some were mom-and-pop and legitimate, others were goofy or seedy, like Miss Cleo or phone sex providers — bought long distance service from MCI at fixed rates. With the proliferation of long distance service, however, rates kept falling, so many companies buying from MCI were selling to their customers at a loss. So they simply quit paying MCI, and there were no tangible goods for MCI to confiscate.Certain resellers specialized in selling phone cards to ethnic groups in dense urban areas, marketing them to Vietnamese or Chinese or Indians who wanted to call home. The service was dirt-cheap, and the cards turned something like 1,000-percent profit. That sort of thing, of course, is tailor-made for organized crime. MCI looked amazingly profitable on paper. Its stock price was high, and soon British Telecom came calling. That merger didn’t pan out, but one with WorldCom did. When such deals are under way, there is significant pressure to hide bad debt, and Pavlo got good at it. He was promoted to senior manager.He knew it wouldn’t last, though, and he reached out to a telecom entrepreneur named Harold, hoping for a job. But Harold saw a different opportunity. Together, the pair scammed a phone sex company. Pavlo told the owner to pay the $2 million he owed MCI or be disconnected. Harold showed up out of the blue as an angel investor with $2 million. All the phone sex impresario had to do was pay Harold a $250,000 fee and $10,000 a month in repayment, all to be sent to a bank in the Grand Cayman Islands. Pavlo and Harold eventually squirreled away $6 million. Pavlo got caught. He pleaded guilty to wire fraud, obstruction of justice and money laundering. He flatly says prison was horrific. Upon release, he moved back in with his parents. He and his wife of 12 years divorced. He has 21 more years to pay $5 million in restitution. He has no credit card, cannot vote or own a firearm and can’t get a job doing what he does best. Big accounting firms say they may hire him to train auditors; that’s where he may end up eventually. But for the past four years, he’s been on the speaking circuit, including many hours talking to business students. He was at the University of Louisville this week, where he addressed seven classes over two days.He comes off as remorseful and takes all questions, from why he didn’t try to leave the country with the money (living life with that fear never works, he says) to, basically, how dare you?U of L professor Frank Kuzmits, who observed while Pavlo spoke to his junior-senior human resources management course on Tuesday, said it was courageous of both Pavlo and the university to bring in such a real-world story. “In 35 years of teaching, that’s the first time I’ve ever had a convicted felon in my classroom,” he said, adding that students need to hear about situations where riches seem at hand if only they’ll shade their ethics. It’s a losing bet, he said, and students need to hear it early and often.  Contact the writer at cstemle@leoweekly.com