Do you think my friend's behavior is ethical?
August 12, 2019 4:36 AM   Subscribe

My friend and I are working on a project together. He's handling the money. I think the way he handled the money was unethical, but he doesn't think it's unethical. What do you think?

My friend and I have been working together on a project. The project is intended to create an item for sale. The profits of the sale are meant to go to charity.

We hired someone to help us create this item. This employee agreed to wait to get paid out of our revenue from the sale of the product. We agreed to pay him a bonus for waiting, and that we would pay him as soon as we had the money. I also decided that my friend should get paid something out of the profits, since he had put in a lot of unpaid work on the project, but only after the employee was paid.

My friend is managing the money on the project. He got the first payment from sales of our item. He couldn't pay his rent, and a payment he was expecting from a client was late. The building he lives in starts eviction proceedings three days after a late rent check. So he paid his rent out of the money he was managing for the project, with the intention of paying the employee as soon as his check arrived.

We are now ten days late on paying the employee. My friend has committed to pay the employee as soon as he has his check, and I believe he will follow through on this. It should arrive sometime this week. I'm going to insist on paying the employee interest for the two weeks that payment was delayed.

My friend doesn't think this is unethical. I do. I would like your opinion as to whether this is ethical or not. Please be polite, because I'm going to show it to him.

I would like to add that I've known him for many years, and I've never seen him do anything ethically questionable before. He's a great person with many virtues. And his difficult financial situation is in no way his fault. I am not asking you to judge my friend, who is great, I just want a judgment of the action.
posted by anonymous to Human Relations (41 answers total) 3 users marked this as a favorite
 
I think this is totally unethical, and to be honest I'd be surprised if it's even legal.
posted by lollusc at 4:43 AM on August 12 [31 favorites]


I think it's minorly unethical but not full blown unethical. As long as he pays the employee within a month of getting payment, I give it a pass and wouldn't hesitate to work with him again. Plus, you know his history, which sounds like he's a solid person. Kudos to you for being so clear about your expectations in planning the project!
posted by waving at 4:46 AM on August 12 [1 favorite]


It’s both unethical and illegal. Just “borrowing” money until you can cover it is the classic embezzlement excuse.
posted by JJZByBffqU at 4:47 AM on August 12 [95 favorites]


It doesn’t sound like your friend should be getting paid at all, let alone be paid before the contractor. Difficult financial straits are irrelevant.
posted by jon1270 at 5:05 AM on August 12 [4 favorites]


It’s unethical and very unfair to the employee who might also have urgent life expenses that they don’t feel comfortable sharing with their employer.

At the same time, I think I understand why your friend might have done this. Living paycheck to paycheck is hard and can give you tunnel vision which can backfire on making choices that are better in the long run. This is not an excuse for the actions, just an acknowledgement of circumstance and how scarcity can affect behavior.

Your friend should not have done this and your friend might want to try to search for a better living situation if possible.
posted by donut_princess at 5:09 AM on August 12 [27 favorites]


So he paid his rent out of the money he was managing for the project, with the intention of paying the employee as soon as his check arrived.

This sounds very much like embezzlement. Moreover the contractor would have been paid on time were it not for your friend's actions. If your contractor is unable to make a rent payment or otherwise meet an obligation because of this, your friend's actions are a direct cause.
posted by jquinby at 5:10 AM on August 12 [22 favorites]


I agree with you: your friend's approach to this was wrong.

The building he lives in starts eviction proceedings three days after a late rent check.

A mentor once said to me, "People who feel trapped make bad choices." I think one of the keys to ethical behavior is avoiding traps like the one your friend's landlord has set here. Helping him find a path out of financial precarity would be a kindness, and I predict will go farther toward helping him make better choices in the future than showing him this AskMe will. (Not that you can't do both.)
posted by eirias at 5:12 AM on August 12 [23 favorites]


Definitely unethical. Also understandable, and probably forgivable, but it's definitely unethical.
posted by gideonfrog at 5:19 AM on August 12 [14 favorites]


A precarious housing situation is extremely stressful, and, faced with that kind of pressure, an otherwise-ethical person might make some hard choices.

It's unethical, and I would be interested to hear why your friend thinks otherwise. It seems clear to me: you and your friend agreed that you would pay the employee as soon as you had the money, and they didn't do that.

From your description, it sounds like this project is an informal, handshake kind of deal. If you plan to work on future projects with your friend, I suggest having a more formal agreement in place.
posted by box at 5:20 AM on August 12 [10 favorites]


If you had an actual company it would fall into illegal as well as unethical territory, but as you’ve kept everything casual it’s just unethical. The primary harmed party is you, whose shared authority over how money was to be spent was usurped. Why, what, and where don’t matter all that much, just that a major financial decision was made without your input.
posted by Tell Me No Lies at 5:23 AM on August 12 [5 favorites]


Under this trying situation, he chose the unethical path. If you work with him again, he should never be allowed the privilege of sole disbursement from the project accounts. He’s shown himself to be untrustworthy.
posted by lemon_icing at 5:27 AM on August 12 [8 favorites]


Its unethical because his rent is not what the money was for and “borrowing” it without all parties consent equals stealing. As others have said, we understand he was in a difficult place but that was not the ethical way to resolve the problem.
posted by stellathon at 5:32 AM on August 12 [7 favorites]


Generally, if Alec, Bea, and Cassie are awaiting payment, Dennis should be in charge of determining payment order if it hasn't been contractually specified. Mainly because it sidesteps exactly this conflict of interest.

I would very gently point your friend to the fraud triangle, which shows exactly how people rationalise things like this.

I leave to you if you want to double-check what goes to the charity.
posted by eyeofthetiger at 5:33 AM on August 12 [6 favorites]


I don't see how anyone would say this is ethical.
posted by kevinbelt at 5:43 AM on August 12 [2 favorites]


It’s absolutely unethical. In fact, it’s embezzlement.

Even if your friend repays the amount, it was still wrong and the consequences are non reversible, because you made the employee a promise of early payment, and your friend broke that promise. You may have caused them hardship you’ll never know about because people don’t tell their boss about their hardship.
posted by nouvelle-personne at 5:49 AM on August 12 [6 favorites]


Your friend has a pretty myopic view of things (which is normal in the cycle of poverty and that's not a judgement). Consider this:

Friend's rent was late because a client didn't pay them.
Friend didn't pay your creator so... maybe their rent was late?

Anyway, as far as ethics, it was stealing. They stole the money. It doesn't really matter if you pay it back later. You still stole it which is when you take something from someone without their permission. Again, you don't get a takebacksie because you pay it back eventually. You stole it.
posted by OnTheLastCastle at 6:48 AM on August 12 [1 favorite]


Definitely unethical, and ironic: He was late getting paid and so he passed that pain down to a person he had power over to make THEM late getting paid.
posted by spindrifter at 6:55 AM on August 12 [5 favorites]


I strongly suggest not doing any further business with this friend until you have devised a new division of responsibilities that will prevent your friend from engaging in further theft.

I say that not just for your financial protection, but also for the protection of your friendship and for protection of your friend's future. It would be an act of kindness to ensure they cannot commit further crimes.
posted by whisk(e)y neat at 7:33 AM on August 12 [7 favorites]


To be polite as possible for your friend: if one of my friends did this and did not view it as unethical, I probably would not be friends with them anymore. I am floored that people are saying this is minorly unethical. It is literally embezzlement/stealing. It reflects a prioritization of his own needs over two people’s trust in him. I am confident he had other options to get the money. There are always other options to get a rent-sized amount of money.

Obviously, all of that could be excused if there was a true crisis and he was apologetic—like “my kid just died, and I don’t have the spoons to sell a piece of furniture to get my rent money, so I’m so sorry, but I really need to borrow this money from somewhere”, etc. But a good person has that conversation up front, gets buy-in from all of the stakeholders, apologizes profusely, and understands that what they are doing is a burden to others.

In contrast here, it sounds like he did not tell you or the employee in advance. That is inconsiderate and disrespectful at best. I would be asking myself—what else would he quietly do to advantage himself while disadvantaging me and others?

Moreover, it sounds like he thinks his bad situation justifies putting another person in a bad situation. Is the employee now going to be late paying rent? If your friend didn’t ask in advance, he doesn’t know.

We absorb the character of the people we associate with. The belief that this is not unethical is not an attitude I would want to absorb, so I think I would walk away. Again, if he viewed this as unethical and/or problematic, that would be different—it’s not the behavior I’m reacting to here, it’s the underlying attitude.

In short: It was a bad, bad, bad decision, and his failure to see it as a bad decision is deeply concerning. And because we absorb the character of the people we hang out with, for me, the failure to see this as unethical would reveal a division in our ethical compasses and might even be a disqualifier for future friendship.
posted by suncages at 8:03 AM on August 12 [9 favorites]


I agree with everyone else that this is classic embezzlement. Using company funds for personal expenses is stealing. The friend is in a lousy position, but tons of people are in lousy financial positions and don't use this as a reason to steal. This is no different than someone taking money out of a till or a petty cash box. You can't do it. It's illegal.

Now you know something about your friend, and I would absolutely take steps to remove him from any capacity to do this again.

Just FYI, the classic first-time embezzler is someone who's lived a generally honest life and who takes money to make up a shortfall in their quality of living. I learned that when an ex of mine wound up on the front page of the newspaper for embezzling from a local organization that he'd been part of for over a decade. It happens. Consider this a warning shot over the bow of your business.
posted by Autumnheart at 8:07 AM on August 12 [5 favorites]


If your friend truly didn't believe this behavior was unethical, then he would have had no problem informing the employee of the situation. Did he?
posted by solotoro at 8:08 AM on August 12 [2 favorites]


How is this business set up? Y'all do have a business license, are collecting sales tax as appropriate, etc? Right?

Assuming this is the US, and if this were a sole proprietorship, and your friend is the owner, then I can see the argument that this isn't embezzlement, he's just paying a contractor late (which is unethical IMO but not necessarily illegal depending on the contract). But I doubt that is the appropriate structure for what you have described, and I have heard all of these excuses before, from the treasurer of a club I used to belong to who embezzeled our money and promised to pay it back (but never did).
posted by muddgirl at 8:19 AM on August 12 [1 favorite]


I know someone who was fired, prosecuted, and convicted for exactly this behavior.
posted by kimberussell at 8:26 AM on August 12 [4 favorites]


I'm just assuming this project is something like a Kickstarter where you've just had the first release of funds to make your amazing widgets.

The "borrowing money from a funding pot" part sounds like the sort of thing young people who are broke and without any experience managing funding would do, and commonly do do. We can all scream about how that's unethical, but it's unethical mostly on paper. As long as the money goes back into the pot, I don't think it's a big deal. There's no oversight, nobody is being scammed, no funders are being left short or defrauded.

The "borrowing money from a funding pot to pay rent instead of a waiting contractor" part is... shitty. That is not how you treat the people who help you make your project dream a reality. That is not how you manage money pledged or granted specifically to meet project costs like the contractor. And the contractor also needs to pay her rent, you know?
posted by DarlingBri at 8:33 AM on August 12 [5 favorites]


Just FYI, the classic first-time embezzler is someone who's lived a generally honest life and who takes money to make up a shortfall in their quality of living.

This, people abide by the rules for the longest time, then there is a ‘reason’ to make an exception or they see their bosses ignoring the rules and nothing terrible happens and at that point they rationalise their way to breaking the rules again and again except that sooner or later there will be consequences.

Maybe your friend is very young but this isn’t how looking after money that isn’t yours is supposed to work. And unless they adjust their ideas in this regard I would not want to work with them in any kind of professional capacity going forward. I’d also not put them in charge of any kind of treasurer role in a private capacity including letting them collect money from your friend group for X.
posted by koahiatamadl at 8:47 AM on August 12 [6 favorites]


anonymous posted">> The profits of the sale are meant to go to charity.

If anyone asks where the charity's money went and you have to say it went to pay your friend's rent, that's going to be an awkward conversation.
posted by The corpse in the library at 9:28 AM on August 12 [9 favorites]


My friend is managing the money on the project. He got the first payment from sales of our item. He couldn't pay his rent, and a payment he was expecting from a client was late. The building he lives in starts eviction proceedings three days after a late rent check. So he paid his rent out of the money he was managing for the project, with the intention of paying the employee as soon as his check arrived.

Your friend is embezzling. Keep him as a friend if that's what you want to do, but get out of this project while you still can, and don't go into any more business ventures with anybody until you learn how to recognize various forms of basic corporate fraud. I can't believe this needs to be said, but apparently it does: in this kind of project, the dirt will stick to you, too.
posted by praemunire at 9:47 AM on August 12 [7 favorites]


Oh god, ONE HUNDRED PERCENT unethical, and, as others have noted, almost certainly illegal. This really isn’t even ambiguous.
posted by holborne at 9:55 AM on August 12


It's unethical. Completely.

Is it illegal? We can't tell for sure based on your question. It depends on how this activity/entity is categorized from a tax and legal perspective. If you are not a designated charity (such as a 501(c)3) yourselves, then it's actually all a private transaction between individuals and it's between all of you - unless you've violated a formal agreement to pay your vendor by X date, nothing here is really wrong. Now, if you told people buying the product it was a direct charitable donation, you might be open to fraud charges as well as embezzlement charges. If you told people"proceeds [after costs] will go to charity" you might be on safer ground.

And if you are a 501(c)3, then this is 100% illegal.

And by the way, this is almost always the way big-time embezzlement begins - someone uses cash as a "float" for money they owe but don't have yet, intending to pay it back. They even might pay it back, but then do it again. And sometimes that habit overtakes them and they stop worrying about paying it back, and float themselves bigger and bigger "loans." This is one reason that getting caught embezzling is often a matter of timing; it can go undiscovered if the person pays back in. Just about every embezzler says "I just needed 3 more weeks to pay it back."

So call your friend on it. You may be doing them a favor - this is not behavior anyone should get away with.

I'd be wary about letting this person handle the money at all. You should end that right now. Whoever handles the money for this, you need to have a contract with them that spells out exactly where cash will be held between payments and who is signatory on that account.
posted by Miko at 10:08 AM on August 12 [9 favorites]


Yes, it is both unethical and illegal. Don't do business with this person in the future. If you do make that mistake then don't allow them to be in a position to handle any aspect of the finances of that business, because they can't be trusted with money that isn't theirs.
posted by poffin boffin at 10:25 AM on August 12 [2 favorites]


I agree that this is definitely embezzlement even if the small-scale format is kind of hiding that. Even so:

The project is intended to create an item for sale. The profits of the sale are meant to go to charity.

We hired someone to help us create this item. This employee agreed to wait to get paid out of our revenue from the sale of the product. We agreed to pay him a bonus for waiting, and that we would pay him as soon as we had the money. I also decided that my friend should get paid something out of the profits, since he had put in a lot of unpaid work on the project, but only after the employee was paid.


This wasn't a business intended to pay your friend's rent, and he knew that. He chose (in an admittedly tight spot) to go against all of your agreements in order to use the money for personal stuff. That's definitely unethical. I really agree that you must immediately make sure he does not have access to the group funds. And I think you maybe will need to rethink the project...if he can't pay rent, then having him working on a project designed not to make money (without a compensation plan) is kind of working against both his and the project's interests, because this level of temptation will keep being in front of him. If he's one client cheque away from losing his home (no blame here, just pointing this out) then he may not be the right person to manage this project.
posted by warriorqueen at 10:31 AM on August 12 [8 favorites]


I had a friend who embezzled like this at work, and got caught - I sympathized, because it really was desperation rather than malice or greed. But it was terrible judgment, and it hurt her badly in the long run.

It also hurt her company, which was a small low-margin business to begin with. They didn't press charges, but she burned a lot of bridges in a community she had been very involved in, and cared about.

If a friend did this to me, I would be thinking about protecting both the project and myself from fallout.
posted by mersen at 10:53 AM on August 12 [2 favorites]


To clarify, he has not gotten payment from the client yet? Client payments in many industries are wildly unreliable. It sounds like he can't reimburse the funds until he gets this payment. Using Someone Else's Money to cover a temporary shortfall is sketchy. For an employee to do this with an employer's money is unethical and ilegal, for a volunteer to do it is Extremely Sketchy. He has used Someone Else's Money to cover an unreliable payment. He thinks it's borrowing, but he has not repaid the money, so right now it's theft. verb: embezzle, steal or misappropriate (money placed in one's trust or belonging to the organization for which one works).

OnTheLastCastle: nailed it with maybe their rent was late?

Also, We agreed to pay him ... as soon as we had the money. Your friend has broken the agreement.

How can you help your friend get their rent paid and their budget under control? That's part of how I would address this, because this is a friend.
How can you help your friend clarify their action so they can be a good person, but also stay out of legal trouble, and be able to be trusted? Friend should avoid access to Other People's Money until they learn to deal with it in an entirely trustworthy manner.
Friend is being stressed about money, defensive, probably scared about the rent, the error, possibly actually knows this is totally not okay, etc., but had his back to a wall Friend is not Lex Luthor or Bernie Madoff, no chopping off of a hand, but does need to figure this stuff out. As their friend, you can help.
posted by theora55 at 10:56 AM on August 12 [5 favorites]


People with financial problems and access to other people's money often make bad decisions that will land them in hot water or even jail. This is why many employers do background and financial checks to see if potential applicants are in compromising financial positions. Yes, it was unethical and if your friend is running this close to the financial line then I would take away his access to the money to avoid future temptation. Once you cross this line without significant repercussions then I can see him doing it again...especially if he doesn't think he did anything wrong in the first place.
posted by victoriab at 11:14 AM on August 12 [4 favorites]


It is unclear from your question whether you and your friend actually formed any kind of legal business/tax entity, whether your hired creator is an employee or a contractor (and whether you understand the difference), whether either of you has any concept of what running a business (or charity) entails. You talk a lot about “projects” and “intent” and “managing money,” all of which are vague descriptors. I cannot tell whether you are keeping the details a mystery on purpose or because you don’t actually know them.

The most charitable read I can give of your friend’s conduct is that he is extremely naïve and should not be doing any kind of “fundraising” or hiring of workers. A lot of aspiring entrepreneurs think, “I am smart; how hard can it be?” That attitude signals a glaring lack of sophistication that can cause all kinds of problems.

I’m glad this situation raised a red flag for you; it means you have good instincts. Follow through on them now.
posted by armeowda at 2:51 PM on August 12 [6 favorites]


I had a friend do this once in a non-profit situation, and we're no longer friends. Totally unethical. Sorry for your situation, it's a tough one!
posted by acridrabbit at 3:32 PM on August 12


If this dude is willing to stiff an employee, what's he going to do when it comes time to pay the charity? He cannot be the one holding the money.
posted by zompist at 6:03 PM on August 12 [9 favorites]


Putting aside whether it's criminally illegal, it sounds like a breach of contract and exposes your business (if incorporated) and/or you two as individuals to liability.

But I also agree with everything above - this is an awful red flag for someone who you have any financial dealings with. Keep him as a friend if you want, but sever financial ties.
posted by lookoutbelow at 9:01 PM on August 12


I've seen this situation up close. I have fired people for this. I managed by never ever touching charity funds for personal costs, which was crazy stressful at times when I was super broke (so fun! six figure bank account next to two figure bank account) but made the responsibility and ethics straightforward.

You can be sleazy in private business and as long as it's technically legal, it's between you, your accountant and the IRS. Once it involves charity work, you're accountable to the public because you're trading your public reputation.

Your friend should have asked for a short-term loan from friends/relatives. The charity money is untouchable. He needs to do that NOW, and pay it back ASAP, and this needs to be documented somehow in an internal memo by him - if you have any kind of actual legal shared entity, I would talk to a lawyer quietly to check you won't be on the hook for something. I would be spitting blood over this and just - this would be an acquaintance now.

If they're not apologetic and continue to be defensive, can you walk away from the business? I would. If not, talk to a lawyer because they will be a nightmare further down the line.
posted by dorothyisunderwood at 7:47 AM on August 13 [4 favorites]


Once it involves charity work, you're accountable to the public because you're trading your public reputation.

More because it's dealt with in nonprofit law and because you hold a public charter from a state agency that says you have to follow those laws - often including an independent financial audit for orgs of a certain size or type.

I'm not sure it's clear form the range of information level in the comments that the determination of "unethical" involves some subjectivity and debate, while the determination of "illegal" is a technical and specific question that rests entirely on how this organization (if it is one) is incorporated, what contracts (if any) exist, and what national/state legal requirements say. It can be both unethical and shitty without being illegal, depending on the answers to those questions, which are not clear enough in the OP to determine.
posted by Miko at 3:30 AM on August 23 [1 favorite]


IANYL and This Is Not Legal Advice--but what it is is something that looks like the start of a lot of stories with endings containing the phrase "is disbarred from the practice of law."
posted by tellumo at 10:37 PM on August 27


« Older Best adult diapers   |   Identify some dogs, AxMe. Newer »

You are not logged in, either login or create an account to post comments