Please see the attachment and answer the question below.
CRIME AND CRIMINAL PROCEDURE
DISTINGUISHING FEATURES OF WHITE-COLLAR CRIME
COMMON WHITE-COLLAR CRIMES
PREVENTION OF WHITE-COLLAR CRIME
FEDERAL LAWS USED IN THE FIGHT AGAINST WHITE-COLLAR CRIME
STATE LAWS USED IN THE FIGHT AGAINST WHITE-COLLAR CRIME
GLOBAL DIMENSIONS OF WHITE-COLLAR CRIME
A midst the turmoil and fallout of the Enron scandal that led to the company’s declaration of bankruptcy, a number of former Enron officials faced charges for various offenses. One such official was former CEO Jeffrey Skilling, who was ultimately found guilty of 19 fraud related charges, including conspiracy, insider trading, securities fraud, and making false statements to auditors. As punishment for his misdeeds, the 52-year-old Skilling was sentenced in 2006 to 24 years and 4 months in a federal prison. In addition, he was fined $45 million, which was to be put into a fund to benefit those who had been harmed by Enron’s collapse. While servining his sentence in 2010, he won a minor victory when the U.S. Supreme Court found that instructions to the jury with respect to one of the charges were inaccurate, and threw out the conviction on that charge. The case was then sent back to the trial court judge to determine whether the inaccurate instructions regarding the one charge tainted the convictions on the other charges. In 2013, the case was finally resolved as he was resentenced to 14 years in a federal prison as part of a court ordered reduction and a separate plea agreement with the prosecution. Unfortunately, this story is just one of many recent large and complex white-collar crime scandals. During 2009, Internet crime resulted in losses in the United States of $559.7 million, more than two times as much as in 2008.1 At the end of 2008, the FBI was investigating 545 corporate fraud cases each of which involved investor losses that exceeded $1 billion.2
1’Internet Crime Complaint Center, IC3 Annual Internet Crime Report 2009; retrieved May 10, 2010, from National White Collar Crime Center, http://www.nw3c.org/research/site_files.cfm?fileid=dl991bea-8a22-4e54-82f5-678d4d83581a&mode=r.
2Federal Bureau of Investigation, Financial Crimes Report to the Public Fiscal Year 2008; retrieved May 10, 2010, from http://www.fbi.gov/publications/financial/fcs_report2008/financial_crime2008.htm#health
The Coalition Against Insurance Fraud reports that insurance fraud costs Americans more than $80 billion per year.3
White-collar crimes—crimes committed in a commercial context—occur every day. Collectively, these crimes often result in millions of dollars of damages. In recent years, as corporate crimes such as the ones detailed in Exhibit 6-1 become more publicized, people’s attitudes toward corporations and white-collar crime are being affected.
3Coalition Against Insurance Fraud, “Consumer Information,” http://www.insurancefraud.org/fraud_backgrounder.htm, May 10, 2010
EXHIBIT 6-1 RECENT MAJOR WHITE-COLLAR CRIME SENTENCES
Allen Stanford. Sentence: 110 years
Allen Stanford, 63, was a Texan financier accused of running a $7 billion Ponzi scheme. He had investors invest billions of dollars into his bank, and then spent the money on private jets, yachts and acres of undeveloped Antiguan land among other expenditures. In December 2008 Stanford International Bank had $88 million in cash, but it fudged its numbers to say it had $1 billion in assets. In the same month it finally owed investors $7 billion when they tried to pull out their money, and the bank had no money to cover the costs.
In 2012, a jury found Stanford guilty of conspiracy, along with 12 other criminal charges including obstruction. He was found innocent of one wire fraud charge. Stanford was sentenced to 110 years in federal prison.
Bernard Madoff, Businessman. Sentence: 150 years
Madoff, 72, directed one of the largest Ponzi schemes in U.S. history. Madoff, in his role as CEO of Bernard L. Madoff Investment Securities LLC, stole from his clients in a $65 billion Ponzi scheme. Despite a continuing decline in the economy, Madoff continued to assure his clients that his numbers (investment returns) would continue rising. As the economy continued to decline, Madoff’s increases became suspicious and clients began to contact him to get their money back. When the requests for returned funds reached $7 billion, Madoff met with his sons and told them that his business was fraudulent. The sons turned Madoff in to the authorities.
In 2009, Madoff pleaded guilty to, among other things, securities fraud, wire fraud, money laundering, making false filings with the SEC, and making false statements. He was sentenced to the maximum 150 years in prison for his offenses. His projected release date is November 14, 2159. Since Madoff’s plea, David Friehling from his accounting department has pled guilty to securities fraud, investment advisor fraud, and making false filings with the SEC. Additionally, Frank DiPascali has pled guilty to securities fraud, investment advisor fraud, mail fraud, wire fraud, income tax evasion, international money laundering, falsifying books and records, and more.
Joseph Naccio. Sentence: 6 years
Joseph Naccio, 60, was the chief financial officer and chairman of the board for Qwest Communications International. Qwest is a telecommunications provider in the western United States. When the economy began to decline, Naccio continued to assure Wall Street that the company would continue making large returns even though he knew that such returns would not occur. Based on inside information, Nacchio sold $52 million of Qwest stock just before the prices fell.
In 2007, Naccio was convicted on 19 counts of insider trading and sentenced to 6 years in federal prison. Additionally, Naccio was ordered to pay a $19 million fine and restitution of the $52 million he had made as a result of illegal stock transactions. Although his conviction was overturned in 2008 because of improperly excluded expert testimony, the conviction was reinstated in 2009 when he finally began serving his six-year term.
Jamie Olis, Vice President of Finance. Sentence: 24 years
Jamie Olis, 38, was vice president of finance and senior director of tax planning at Dynergy, a natural gas energy company. Olis attempted to conceal more than $300 million in company debt from public investors. When the attempted concealment was discovered, millions of investor dollars were lost, including a $105 million loss suffered by 13,000 participants in the California Retirement Plan.
In 2004, Olis was sentenced to 292 months in prison after being convicted of securities fraud, mail fraud, and three counts of wire fraud. The 24-year sentence is one of the longest terms for fraud in U.S. history, in part because of the large financial losses to thousands of investors. In addition to the jail time, Olis was fined $25,000. Olis, however, did not act alone in the concealment. Gene Foster and Helen Sharkey, both former Dynergy executives, pled guilty to conspiracy and aided in the investigation. They then entered into a plea bargain under which Foster and Sharkey were to receive sentences of up to 5 years in prison and $250,000 in fines.
In 2004, Quattrone was found guilty of obstruction of justice. He was sentenced in September 2004 to 18 months’ prison and 2 years’ probation. He was also fined $90,000. Near the end of that year, the National Association of Securities Dealers permanently banned Quattrone from the securities industry, although he had planned to appeal the ban to the Securities and Exchange Commission.
Richard Scrushy, CEO of HealthSouth
Richard Scrushy, the founder of HealthSouth, is no stranger to white-collar criminal allegations. After being acquitted of charges under the Sarbanes-Oxley Act for lack of evidence in 2005, Scrushy was indicted on new charges a mere four months later. The new charges were for bribery and mail fraud linked to former Alabama Governor Don Siegelman. The charges involved fraud through exchanging campaign funds for political favors.
Scrushy was ultimately found guilty by a federal jury in 2006 for bribery, mail fraud, and obstruction of justice. He was sentenced in 2007 to almost 10 years’ imprisonment, in addition to having to pay a fine of $150,000 and an additional $267,000 in restitution to the United Way. Scrushy is currently in jail.
Walter Forbes, CEO of Cendant Corporation
In 2004, Walter Forbes went on trial for fraudulently inflating the company’s revenue by $500 million to increase its stock price. Forbes was charged with wire fraud, mail fraud, conspiracy, and securities fraud. In addition, Forbes was also accused of insider trading of $11 million in Cendant stock only weeks before the accounting scandal was discovered. The former vice president was also charged with similar crimes. The Cendant CFO testified against both the vice president and Forbes, saying that he was asked to be “creative” in reorganizing revenue.
Despite his persistent use of the “dumb CEO defense” (I did not know about the wrongdoing), Forbes was found guilty in his third trial, which lasted all of 17 days. In January 2007, Forbes was sentenced to 12 years and 7 months in federal prison. He was also required to pay $3.275 billion in restitution.
Kenneth Lay, CEO of Enron
In 2004, Kenneth Lay went on trial, pleading not guilty to 11 felony counts, including wire fraud, bank fraud, securities fraud, and conspiracy, for his part in falsifying Enron’s financial reports, and denying that he profited enormously from his fraudulent acts. The extent of the fraud was discovered when the energy company went bankrupt in late 2001. As a result of the accounting fraud, Enron’s stock plummeted, leaving thousands of people with near-worthless stock, hitting retirement funds especially hard.
The Securities and Exchange Commission also filed a civil complaint against Lay, which could have led to more than $90 million in penalties and fines. Lay was accused of selling large amounts of stock at artificially high prices, resulting in an illegal profit of $90 million.
On May 25, 2006, Lay was found guilty of 10 of the 11 counts against him. Each count carried a maximum 5- to 10-year sentence, which would have amounted to 50 to 100 years maximum, with most commentators predicting a 20- to 30-year sentence. On July 5, 2006, however, Lay died of a heart attack before the scheduled date of his sentencing. Due to his death, the federal judge for the Fifth Circuit, pursuant to Fifth Circuit precedent, abated Lay’s sentence. The abatement made it as if Lay had never been indicted.
Bernie Ebbers, CEO of WorldCom
In 2004, Bernie Ebbers, former CEO of the bankrupt phone company WorldCom, pleaded not guilty to three counts of fraud and conspiracy. The accounting fraud, which involved hiding expenses and inflating revenue reports, left $11 billion in debt at the time of the bankruptcy. The former CFO of WorldCom, Scott Sullivan, pleaded guilty to fraud and agreed to assist in the prosecution of Ebbers. Sullivan faced up to 25 years in prison for his role in the accounting scandal. In addition, MCI sued Ebbers to recover more than $400 million in loans that he took from WorldCom, now called MCI.
Bernie Ebbers, in one of the longest prison sentences given to a former CEO for white-collar crimes, was sentenced in 2005 to a 25-year prison term in a federal prison. Ebbers, 63 years old at the time of his sentencing, began serving his term in federal prison in 2006.
Dennis Kozlowski, CEO of Tyco International
In a second trial in early 2005 after a mistrial, Dennis Kozlowski faced charges of corruption and larceny for stealing more than $600 million from Tyco International and failing to pay more than $1 million in federal taxes. Kozlowski had Tyco pay for such over-the-top expenses as a $15,000 umbrella holder and a $2,200 garbage can. Kozlowski’s sentence could have been up to 30 years in prison.
Kozlowski, as well as former Tyco CFO Mark Swartz, was sentenced to 8 years and 4 months to 25 years. Unlike other CEOs convicted for white-collar crimes, such as Bernie Ebbers, Kozlowski was convicted in state court. In addition to his prison sentence, to be served in a New York state prison, Kozlowski, with Swartz, was also ordered to pay $134 million to Tyco. In addition, Kozlowski was also fined an additional $70 million. Kozlowski is currently serving his term in prison.
CRITICAL THINKING ABOUT THE LAW
Why should we be concerned about white-collar crime? You can use the following critical thinking questions to help guide your thinking about white-collar crime as you study this chapter.
1. As a future business manager, you may be forced to make tough decisions regarding white-collar crime. Imagine that you discover that one of your employees planned to offer a bribe to an agent from the Environmental Protection Agency to prevent your company from being fined. Although the result of the potential bribe could greatly benefit your company, you know that the bribe is illegal. What conflicting ethical norms are involved in your decision? Clue: Review the list of ethical norms offered in Chapter 1.
2. White-collar crime is typically not violent crime. Therefore, many people assume that street crime is more serious and should receive harsher punishment. Can you generate some reasons why that assumption is false? Why might white-collar crimes deserve more severe sentences? Clue: Reread the introductory paragraphs that provide information about white-collar crime. Why might a business manager deserve a more severe sentence than a young woman who commits a robbery? What are the consequences of both actions? Think about white-collar crime against this background as you study this chapter.
3. If a judge strongly valued justice, do you think he or she would give a lighter sentence to a business manager who embezzled $50,000 than to a person who robbed a bank of $50,000? Why? Clue: Think about the definitions of justice offered in Chapter 1.
The future manager must be prepared to respond to a growing lack of public confidence and avoid becoming a corporate criminal. He or she must find ways to develop a corporate climate that discourages, not encourages, the commission of white-collar crime. This chapter will help readers prepare to face the challenges posed by corporate crime. The first section defines crime and briefly explains criminal procedure. Next, the factors that distinguish corporate crime from street crime are discussed. Section three explains in detail some of the more common white-collar crimes. Section four introduces some ideas on how we can reduce the incidence of white-collar crime. The fifth and sixth sections discuss the federal and state responses to white-collar crime. The chapter closes with an overview of the international dimensions of white-collar crime.
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