CCJ3644 Final Exam Review Final 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 Systems Economic Technological Systems These two system share several similarities which include the following o Both cross international boundaries o 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 systems o White collar crimes occur in both systems Facebook 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 Manipulation o Broker Embezzlement o Hedge fund fraud o Insider trading o Futures trading fraud o Foreign exchange fraud high yield investment schemes and advanced fee fraud o Ponzi and pyramid schemes Market 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 Act o 2 The Energy Policy Act of 2005 o 3 The Energy Independence and Security Act of 2007 Federal Trade Commission o Our mission to prevent business practices that are anticompetitive Deceptive or unfair to consumers o 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 reports o False advertising o Fraud o Identity theft Broker Fraud and Embezzlement Broker Fraud occurs when brokers fail to meet their legal obligations to investors Fail to tell 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 compliance o Developing a hedge fund information depository o Conducting routine assessments of compliance officers with the aim of evaluating their 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 person ABC 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 invest in 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 for an 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 involves the payment of hypothetical returns to existing investors from funds given by new investors o Have increased greatly in the past decade a Ponzi nation Bernie Madoff 65 billion from investors over 17 years