Case Study

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Case Study

Synopsis of the Situation / Key Issues / The Problem
--Founded in April 2002 by Albert (Al) Fiorini, Atlanta Home Loan (AHL) was a mortgage lending and financing co. based in Atlanta, GA. --After beginning operations in his home, Al's business grew rapidly; by summer he employed 8 loan officers, all of whom telecommuted. --In June 2002, Joe was admitted to an MBA program in California and was faced with 3 choices for AHL: sell it, shut it down, or find someone to run it. As it was a profitable business with considerable growth potential – it had 90 loan applications in the pipeline, constituting 300K in potential revenue – Al chose the latter option. --Based only on initially favorable judgments, including 20 years experience in the mortgage industry and seemingly excellent sales ability, Al entered into a verbal partnership agreement with AHL loan officer Joe Anastasia in July 2002.   In exchange for an investment of $8,400 for office rent and office equipment, Joe and Al would share AHL's profits equally. --Joe quickly proved to be a bad choice, failing to show for the first meeting with the new landlord, being unaccounted for for two days, and showing up in the office only 3 of 10 days. --Al replaced Joe with an acquaintance with banking experience, but after 3 days, this new manager quit the day before Al was to leave. --Desperate to find someone to run the company, Al reinstated his previous agreement with Joe, who offered a weak apology for his previous absences. Al monitored Joe's absence from afar, and found that despite his promise to not let it happen again, Joe made only 4 office appearances in the following 2 weeks; a 3-day absence followed Joe's taking home a large batch of loan files. --In September 2002, Al decided that he could no longer trust Joe. Wilbur Washington, to whom Al had been introduced by Joe several months earlier, had considerable experience in mortgage banking and was “smooth.” Based on these quick assessments, Al signed a written partnership and licensing agreement with Wilbur. --Wilbur asked for authority to sign checks written against AHL's main bank account. Al refused but, as a gesture of good faith, left with officer manager Letitia Johnson, who had been with Joe since May, four signed, blank checks written against the main account, along with instructions that the checks were not to be used without his permission. --Later that month, Joe discovered what was happening and wanted his $8,400 investment back. Al refused until he returned all of AHL's lead and loan files in Joe's possession were returned. --Still monitoring things from afar, Al felt that Wilbur was employing an excess of loan processors and/or salaried, overhead personnel and informed him of this. Wilbur responded angrily, informing Al that he was managing AHL in the best way he saw fit and to not tell him what to do. --In October 1, following the funding of four loans that generated $11,700 in revenues to be wired into AHL's main corporate account at Bank of America (BofA), Wilbur, without Al's permission, collected the checks personally from the closing attorneys, pooled them together, and deposited them into BofA. Using the four presigned checks Al left with Letitia, Wilbur immediately wrote checks to himself and Letitia for the entire amount of $11,700. Having been written against uncleared funds, the checks bounced. Al, monitoring the account activity, ordered Wilbur and Letitia not to write anymore checks without his permission and to make sure that there were sufficient funds in the account to cover checks they wrote. --Despite Al's calling BofA to stop payments on the four checks and requesting a transfer of funds from the general checking account to a side payroll account to which Wilbur would not have access, Wilbur managed to release the stop payments on the checks, transferred the money from the payroll account back to the general account, and cashed the checks, bank personnel apparently assuming...
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