The names of Columbia Business School and Harvard Business School, two prestigious institutions known to produce students and faculty of excellent caliber, have suffered a blemish with the news of 63-year-old Gregory Rorke being sentenced to two years in prison. Rorke graduated from Harvard Business School’s class of 1980. Rorke was also a former Columbia Business School professor from 1997 to 2012.

On Friday, May 13 2016, (truly a Black Friday for Rorke), Gregory Rorke appeared in front of Judge Katherine Polk Failla in the District Court for the Southern District of New York and was sentenced to two years in prison for defrauding investors. In addition to the two years in prison, Rorke was sentenced to three years of supervised release.

U.S. Attorney Preet Bharara said: “As he admitted, Gregory Rorke lied to investors while soliciting their investments in his company. He overstated his own net worth and the tax liabilities of the company. Today, Rorke, a former professor at Columbia Business School, learned an important lesson in business ethics, as he was sentenced to two years in prison for his crimes.”

First arrested from his home in Bronxville, New York, in October 2014, Rorke had been accused of fraud worth a whopping three million dollars. Since December 2009, he had been found guilty of making false representations to almost 30 investors including a former student. Appearing in front of Magistrate Judge Gabriel W. Gorenstein at the Manhattan federal court, Rorke was released after furnishing bail for $250,000.

Charges filed against him included one count each of securities fraud and wire fraud stating Rorke misled investors into making investments in a convertible debt offering in his company, Navagate Inc. Rorke pled guilty on May 7 2015 to one count of securities fraud and one count of wire fraud before the U.S. District Court Judge Failla who also imposed last week’s sentence. Rorke raised money from investors based on fraudulent representations including a personal guarantee supported by a financial statement. The financial statement falsely indicated that Rorke held at least $12 million in assets, including more than $1 million in cash, more than $5 million in ‘readily marketable securities’ and a home worth more than $1 million. The majority of the pledged assets did not belong to Rorke. In addition, Rorke signed an affidavit indicating he paid money owed to the Internal Revenue Service (IRS) when the tax liabilities had not been paid, remained outstanding, and were actually increasing.

The issue came to light when investors demanded repayment and threatened to sue him in late 2012. He claimed to be a representative of the Hong Kong Shanghai Bank Corporation (HSBC) through an email stating he had just signed a multimillion-dollar contract with Navagate.

Rorke’s Rise

Rorke graduated from Brown university with an A.B. degree in history and economics and from Harvard Business School with a Masters of Business Administration. Rorke was a promising student who went on to achieve laurels as a businessman. Rorke was an adjunct professor at the Columbia Business School from 1997 to 2012 and taught second year students an MBA course called “Turnarounds and Restructuring” within the Management and Finance Deptartment. He was the president of Danskin, a premier exercise apparel company, and raised its bar from loss to profit. He then went on to become CEO of Kaplan Test Prep – a leading test preparation firm in the US. He was also the CEO of MMS incentives, where he did a follow-on round at 8x valuation from $4m to $32m. He was a partner at CRG Partners and ran 20 marathons and completed the Hawaii Ironman Triathlon apart from all his professional achievements. From January 2001, Rorke was the founder and Chief Executive Officer of Navigate – a software company. Rorke’s LinkedIn claims that he sold Navagate in 2015.

Partner in Crime

In October 2014, the SEC also charged Gregory Osborn and his New Jersey-based broker-dealer Middlebury Securities LLC in connection with the Navagate case. The SEC said that “Osborn and Middlebury Securities repeatedly assured investors that Rorke’s personal guarantee was a good reason to enter into the deal despite knowing or recklessly disregarding that Rorke’s claim was false and he did not solely possess the assets listed in the personal financial statement.”

Middlebury served as the placement agent in selling Navagate securities. They mobilized payments to some former investors of Navagate by utilizing money invested by later investors although they knew payments of such forms are termed illegal thus proving their recklessness. They finally settled to accept SEC’s charges through an administrative order that called for expulsion and penalties to be determined later and to be barred permanently from the securities industry.

Previous High Profile MBA Graduates Caught on the Wrong Side of the Law

In the past, there have been several high-profile cases of MBA graduates who’ve risen to great fame and then fallen for financial fraud or other misdemeanors. A few notable ones are listed below:

• Rajat Gupta (HBS MBA 1973): Rajat graduated HBS with distinction as a Baker Scholar. About twenty years after graduating, he rose to the top of McKinsey, becoming the Managing Director.
• Jeff Skilling (HBS MBA 1979): Skilling graduated from HBS a year before Rorke and was a Baker scholar (graduating in the top 5%). He was the CEO of scandal-ridden Enron.
• Andrew Fastow (Kellogg MBA 1986): CFO of Enron
• Raja Rajaratnam (Wharton MBA 1983): Former Hedge Fund Manager at the Galleon Group arrested for insider trading. At Wharton, Rajaratnam was Anil Ambani’s classmate.
• Matthew Martoma (Stanford GSB 2003): Worked at a hedge fund – SAC Advisors – where he was accused of insider trading. Additionally, Martoma got into Stanford by forging his transcripts. Stanford revoked Martoma’s degree in March 2014, making him the first person in the school’s history to have his degree withdrawn.

Indian-born Bharara – U.S. attorney in Rorke’s sentencing – has also overseen the conviction of Rajat Gupta, Rajaratnam and Martoma.