While most people tend to think of white collar crime offenders
as "white collar," a white collar crime can be committed by anyone
employees such as government officials, bankers, business
people, accountants, stockbrokers, attorneys, securities officers,
and many other professionals. Black's Law Dictionary (8th ed.
2004) defines fraud as "a knowing misrepresentation of the truth or
concealment of a material fact to induce another to act to his or her
detriment." (www.blackslawdictionary.com)
The injury in fraud is usually depriving a person of money or
other property that rightfully belongs to that person. Fraud crimes are
classified according to the type of transaction in which the deception
occurred. Fraud is a serious and broadly defined criminal offense. Criminal
fraud is a charge brought against a business, as well as against an individual
(a business cannot be imprisoned, as well as hit with substantial fines).
The Federal Bureau of Investigations defines fraud as deliberate
deception used for unlawful gain. The term “white collar crime” was coined in
1937 by a professor Edwin Sutherland. The proliferation of white-collar crime
in the banking industry has introduced a multitude of fraud crime. Mortgage
fraud and identity theft top the list. This vast amount of crime inspired the
FBI to create "Operation Continued Action"--a national takedown of
organized groups and individuals targeting U.S. financial institutions. These
types of white-collar crimes usually involve insiders, an employee or official.
The legal issues that surround these types of crimes are many
mostly all financial in nature. These crimes frequently involve check kiting,
Ponzi schemes, credit card fraud, identity theft; larceny and blackmail just to
name a few. Other legal issues include conspiracy, embezzlement, tax evasion
and money laundering.
Bernie Madoff Loot: $65 billion What He
Did: Madoff created what is probably the biggest corporate con in
history – essentially a massive ponzi scheme – by encouraging investment from
wealthy individuals and companies around the world, and then using further
investment rather than profit to payoff existing investors, keeping the
difference himself. Initially, he tapped local money pulled in from country
clubs and charity dinners on the so-called ‘Jewish circuit’ of wealthy New York
Jewish businessman. The former chairman of the NASDAQ stock exchange was held
in such high regard, investors actively sought him out to casually plead with
him to manage their savings so they could start reaping the steady, solid
returns their envied friends were getting. Madoff and his promoters then blazed
a trail through Europe, the Middle East and Asia, securing investments as they
went.
How He Was Caught: Although doubts were raised about his
scheme as early as 1999, had it not been for the credit crunch, Madoff may well
have gone detected much longer. The recession dried up his sources of liquidity
and when investors, rattled by the financial crisis and reaching for cash,
sought to pull out some $7 billion from the fund, he was forced into giving
himself away. As one commentator warned at the time: ‘don’t be surprised if
other scams get flushed out in the coming weeks and months as the crisis
deepens’. In the end prosecutors estimated the size of the fraud to be $64.8
billion, based on the amounts available in the accounts of Madoff’s 4,800 clients
as of November 30, 2008 – the biggest corporate swindle ever. Sentence: 150 years in
jail + ordered to pay restitution of $170 million.
Enron Loot: $1 billion + What They
Did: In just 15 years, Enron grew from nowhere to be America’s 7th
largest company, employing 21,000 staff in more than 40 countries. But the
firm’s success turned out to have involved an elaborate scam. Through the use
of accounting loopholes, special purpose entities and poor financial reporting,
senior executives were able to hide billions in debt from failed deals and
projects. Among the firm’s crimes were: manipulating the Texas power market,
bribing foreign governments to win contracts abroad and manipulating the
California energy market.
How They Were Caught: In 2001 Bethany McLean’s article Is
Enron Overpriced? questioned
how Enron could maintain its high stock value, which was trading at 55 times
its earnings. – she
pointed out how analysts and investors did not know exactly how Enron was
earning its income. McLean was first drawn to the company’s situation after an
analyst suggested she view the company’s 10-K report, where she found ‘strange
transactions’, ‘erratic cash flow’, and ‘huge debt’. In July 2001, Enron
reported revenues of $50.1 billion, beating analysts’ estimates by 3 cents a
share. However, concerns were mounting. In October Enron reported a $638
million third-quarter loss and disclosed a $1.2 billion reduction in the value
of shareholders’ stakes, prompting the Securities and Exchange Commission to
begin an inquiry into the firm’s accounts. Later that month Enron announced
that the SEC inquiry had been upgraded to a formal investigation, and in
November was forced to revise its financial statements for the previous five
years to account for $586 million in losses. Following this Enron’s accountancy
firm, Arthur Andersen, received a federal subpoena and was eventually found
guilty of fiddling Enron’s accounts. As the depth of the deception unfolded,
investors and creditors retreated, forcing the firm into Chapter 11 bankruptcy.
Sentences: Rick Causey (Chief Accounting Officer) – 7 and 1/2
years in jail. Andrew Fastow (Chief Financial Officer) – 6 years in
jail. Jeffrey Skilling (Former Enron CEO) – 24 years in jail. Kenneth
Lay (Former Enron CEO) – died before sentencing.
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