W. Valen McDaniel, CFE

Retired Senior Vice President and Chief Risk Officer – Community Bank System, Inc.

By Interview by Cora Bullock; Photo by Bob Croslin
cora-bullock-80x80   I'm a CFE

McDaniel retired from his role at the $7 billion Community Bank System, where he was responsible for the audit, compliance, security and headquarter facility functions. "In very simple terms," he says, "if something went wrong, it was my fault for not foreseeing the risk and mitigating it prior to loss." He still lends his considerable CFE expertise to helping others through the Financial Services Volunteer Corp (www.fsvc.org) since 2001, traveling worldwide to newly democratic countries to help their banking systems shed corruption and modernize. He has volunteered in Albania, Algeria, Morocco, Russia, Egypt, Jordan, Siberia, Croatia and Vietnam.

JanFeb-Valen-McDanielI attended Montclair State University for a BS in Accounting and Fairleigh Dickenson University for an MA in Senior Bank Management. I started working at 17 right out of high school in banking, and accounting seemed the logical choice when I finished my four-year United States Navy enlistment during the Vietnam War.

My father taught me at a very early age that one's name is the most valuable asset one can possess. He explained how you must protect it with honesty and integrity. As I struggled to make ends meet in my early years I learned that the price of goods included an additional amount for shoplifting and other losses. I wondered why some people should get away with stealing while others picked up that cost.

Throughout my career, I learned the need for planning, methodical investigation methods, careful evidence gathering, recovery options, and how to work with law enforcement and the judicial system to obtain a conviction.

While conducting a routine trust department audit I discovered an obvious missed rights offering being covered up with buys and sells between trust accounts and not conducted on the exchange. (A rights offering is a method some companies use to raise capital. The company gives a number of "rights to buy stock at a specific price" based on the number of shares already owned.) Any new trust officer should have known it is against the law to trade stock between trust accounts without going through a stock exchange but this was the top officer who did this. I asked myself, "What in the world would make him do such a thing? What was he doing that had made him miss the rights offering?" I then examined his trading activity and traced multiple trades being conducted on the Japanese and Chicago exchanges where he would actually sell securities before he bought them using the time zone difference. The price difference was minute, but even with commissions, the profit was meaningful when applied to multiple trades of more than $1 million each. He processed four or five trades daily. The next piece was to determine how he was benefiting from this activity. He was bypassing the investment accounts by using suspense accounts and passing the profit to his mother-in-law's checking account — he had power of attorney on the account. The chief auditor and I presented the case to the executive vice president (EVP) and explained that we were about to confront the trust officer and asked that he keep it quiet while we traveled to the trust officer's location, which was a 30-minute drive away. Evidently the EVP could not believe what we had told him and called the trust officer. When we arrived his secretary was in tears, the office was turned upside down and most everything had been shredded. The trust officer had left his job, his wife and kids and fled the country. Researching the accounts that the trust officer managed, I located two clients in South America that had benefitted from the false trades. With this information, law enforcement was able to track his flight to South America and eventually brought him back to the states. He was tried, convicted and sentenced to six months' probation, full restitution to the bank and agreement never to work again for a financial institution. One year later he was teaching an investment course at a local college.


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