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FSU CCJ 3644 - Final Exam Review

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CCJ3644Final Exam ReviewFinal Exam Information- 85 questions- Exam 1: approx. 12 questions (Ch. 1, 2, 11)- Exam 2: approx. 12 questions (Ch. 3-6, half of 7)- New Material: approx. 60 questions (Ch. Second half of 7, 9, 10, 12, 13 only from the notes)Chapter 7: Crimes in the Economic & Technological SystemsEconomic & Technological Systems- These two system share several similarities, which include the following:o Both cross international boundarieso The two systems are more interdependent than independent (both need each other to grow)o Workers in these systems possess specialized knowledge about the careers operating in the systemso White collar crimes occur in both systemsFacebook- Zuckerberg- White collar crime charges:o Copyright infringement (stealing ConnectU source codes)o Securities fraud (giving cheaper stocks than was led to believe)o Misuse of computer information (lax private policies on Facebook)Crimes in the Economic System- Includes banks, investment companies, stock markets across the world, commodities markets, and other exchanges and markets where individuals are able to make investments, purchase raw materials, and secure goods.- Crimes in the economic system can be classified as investment frauds.Investment Fraud- Investment Fraud: when investments made by consumers are managed/ influenced fraudulently by stockbrokers or other officials in the economic system.- Commodities Fraud: fraudulent sale of raw materials such as gas, oil, gold, and agricultural materials.o Prevalent in Florida Warm weather Proximity to other countries Established telemarketing firms- Securities Fraud: refers to fraudulent activities related to stocks, bonds, and mutual funds.Types of “Securities & Commodities” Fraud- Several specific varieties of these frauds exist including:o Market Manipulationo Broker Embezzlemento Hedge fund fraudo Insider tradingo Futures trading fraudo Foreign exchange fraud, high-yield investment schemes, and advanced-fee fraudo Ponzi and pyramid schemesMarket Manipulation “pump and dump”o Where executives/officials do things to artificially inflate trading volume and subsequently affect the price of the commodity or security.o Prevalent in gas & electricity markets- Ex: Enron: transferred energy out of California to evade price caps-allowed the company to charge more for energy than what it was worth.o Energy leaders make a distinction between “market power” manipulation and “fraud based” manipulation Market Power: manipulate the market through aggressive buying and selling strategies. Fraud Based: manipulate the market by distorting information.- 3 Federal laws exist to “prohibit manipulation of various energy commodities and empower federal agencies to impose penalties:o (1) Commodity Exchange Acto (2) The Energy Policy Act of 2005o (3) The Energy Independence and Security Act of 2007- Federal Trade Commissiono Our mission: to prevent business practices that are anticompetitive. Deceptive, or unfair to consumerso Created by Woodrow Wilson in response to trusts and monopolies.- Investigates issues raised by reports from consumers, businesses, pre-merger filings, congressional inquiries, or media reportso False advertisingo Fraudo Identity theftBroker Fraud and Embezzlement- Broker Fraud: occurs when brokers fail to meet their legal obligations to investors. Fail totell clients important information on how to invest their money properly.- Broker Embezzlement: occurs when brokers take money that is supposed to be in an investment account and use it for their own personal use.Hedge Fund Fraud- Hedge Fund: private investment partnership of high net worth clients- Hedge Fund Fraud: refers to fraudulent act perpetrated in hedge fund systems.- Lie on account status in order to make commission- Various strategies have been suggested for curbing hedge fund fraud including:o Hiring external agencies to do internal complianceo Developing a hedge fund information depositoryo Conducting routine assessments of compliance officers with the aim of evaluatingtheir effectiveness.- Insider trading is a type of fraud that occurs regularly in hedge funds.Insider Trading- Insider trading (within hedge funds)o When individuals share/steal information that “is material in nature” for future investments. “Material in nature”: information that must be significant enough to have affected the company’s stock price had the information been available to the public. Stock values, mergers, etc Usually more than one personABC News- 7 notorious insider trading scandals- Rajat Gupta (Goldman Sachs and Procter & Gamble) disclosed nonpublic information to Raj Rajartaman- Rajartaman (Galleon group) is serving an 11 year prison sentence for stealing nearly $64 million through illegal stock tips.Futures Trading Fraud- Futures trading Fraud: refers to fraud occurring in the trading of futures contracts and options on the futures trading market.- Futures Contracts: agreements to buy or sell a given unit of commodity at some future date.- Several types of futures trading fraud include:o (1) Prearranged trading: brokers first agree on a price then act out the trade as a piece of fiction in the pit, thereby excluding other potential bidders from the offering. o (2) Front running: brokers take advantage of the special knowledge about a pending custom order and trades his/her own account before executing that order.o (3) Bucketing: a floor trader will take a position opposite that of a customer’s position, either directly or by using another floor trader, again in collusion.- To limit the extent of fraud in futures markets, in 1974 the Commodity Futures Trading Commission (CFTC) was created.Foreign Exchange Fraud, High-Yield Investment Schemes, and Advanced-Fee Fraud- Foreign Exchange Fraud: occurs when brokers or other officials induce “victims to investin the foreign currency exchange market” through illegitimate and fraudulent practices.- High-Yield Investment Schemes: promise investors low-risk or even no-risk investment strategies, when in fact the funds are not actually invested.- Advanced-Fee Fraud: occurs when investors are promised certain actions in exchange foran up-front fee. Investors are pressured to invest and pay the broker, and never receive any services.Ponzi and Pyramid Schemes- Ponzi and Pyramid schemes scam investors by paying them from future investors’ payments into the offender’s scheme.- Ponzi: investment fraud that


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