How the Fraudulent Behavior of Employees Can Ruin a Business

One of the main reasons why companies are reluctant to report employee fraud to the police is fear of bad publicity. And if the story of Gee Automotive Companies in West Seattle is any indication, companies are right to be afraid.

The Seattle times reports that Gee Auto is closing the automotive dealerships purchased from Huling Brothers earlier this year amid a crime scandal that is impacting sales.

The scandal began in July 2006, when Huling's former sales manager Adrian Dillard and five former salesmen allegedly acted on a plan to steal money from a mentally disabled man's home. The man came into the dealership and purchased a truck for $30,000 cash. He told employees he had more money at his apartment. Some employees allegedly went to the man's residence the following day to steal his money, and one allegedly stole the man's new truck. Three employees were charged in the crime.

Gee Automotive Companies bought the dealerships from Huling Brothers in January 2007 for $5.3 million. While the purchase contract required the sellers to disclose anything that might affect the value of the dealerships, the buyers say they didn't find out anything until mid-January, and got most of their information through the news.

The sale contract included a statement that Huling believed the company had operated in a law-abiding fashion, and the contract also required Huling to disclose any liabilities which might decrease the value of the company.

Gee Autos is unable to live down the bad press from the scandal. The planned to keep the Huling name on the dealerships for a period of time, but changed it immediately upon learning of the crime to minimize the damage. But they say sales at the dealerships are down 50% from last year, and they are losing about $300,000 a month.

A survey of residents in the area indicated that they knew of the alleged crime involving Huling, and Gee believes this is what has impacted sales so drastically. 160 employees will lose their jobs when the dealerships close.

The current ownership and management have nothing to do with the crime committed against the disabled man, yet they are paying the price for the public perception. Who wants to do business with companies that employ unethical people? It can be next to impossible for companies to live down the negative impression created by a fraud scandal. Some companies have successfully recovered from major thefts or fraud scandals, but the risk is undeniable.