White Collar Crime Final Exam Notes SEC is a Law Enforcement Agency Common Conduct That May Lead to Investigations Misrepresentation omission of important information about securities Manipulation of the market prices of securities Stealing customer s fund or securities Insider trading Selling unregistered securities Enron Corporate Fraud Andrew Fastow CFO Ken Lay CEO and Jeff Skilling CEO U S energy trading utilities company Largest accounting frauds in history Executives falsely inflated company s revenue by hiding failing subsidiaries low returns were transferred to off the books corporations so it wasn t reported market to market accounting Enron issued shares of common stock to compensate to investors Skilling was sentenced to 24 years Lay died before sentencing SEC sought 90 million Fastow was sentenced to 10 years testified against Lay Skilling Worldcom MCI Long distance Telecommunication Company Fired CFO Scott Sullivan 5 year jail sentence CEO Bernie Ebbers was sentenced to 25 years for fraud charges Filed for bankruptcy in 2002 listed more than 107 billion in assets largest in US history Over 30 billion in debt Fired over 17 000 improperly accounted for more than 3 8 billion of expenses Fannie Mae 2006 Government sponsored mortgage company was fined over 400 million by SEC Housing Oversight agency 27 billion in bonuses to executives 11 billion accounting scandal risk taking with loan money intentionally misstating earnings CFO Timothy Howard CEO Franklin Raines were fired AIG American International Group Largest insurance agency in the world also largest corporate bailout in history 182 billion taxpayer Goldman Sachs Morgan Stanley Bank of America and Merrill Lynch as well as a dozen of European banks played the derivatives game with AIG Practice of placing financial bets on future events AIG lost its bet which led it to collapse Fiduciary Fraud Commonalities in Investment Fraud Greed as a motivator Investment fraud offenders are not being punished consistently Investment offenders usually work with conspirators Commit multiple offenses WATCHED VIDEO IN CLASS 1980 s Savings and Loan Scandal One of the largest financial scandals in U S history 1970 s 1990 s Volatile interest rates in the 1970 s Depositors removed their funds from S Ls and into money market funds higher interest rates bigger profit Money market funds had less restrictive regulations In response S L loosened regulation and began risky investments federally insured Federal Insurance became insolvent due too huge amounts of risky investments that did not pay out What happened Government bailout of the thrift to the tune of 12 billion in taxpayer dollars and the liquidation of 747 insolvent S Ls One of the biggest bailouts Lincoln Savings Loan Charles Keating Five Scandal 2008 Economic Crisis 1999 The Gramm Leach Bliley Act passes It repeals Glass Steagall Act of 1933 It deregulates banking insurance securities and the financial services industry allowing financial institutions to grow very large 2001 U S Federal Reserve lowers rate to 1 75 creating an easy credit environment that fueled the growth of U S subprime mortgages Subprime mortgages a loan given to people with a poor credit score who may not be able to repeat on time due to divorce unemployment etc risky investments Inflated the housing market Sep 2008 Feds took over Fannie Mae and Freddie Mac they owned backed over the U S 12 trillion mortgage market 2008 Financial Crisis Lehman Brothers file for bankruptcy no bailout AIG receives a taxpayer 85 billion bailout too big to fall Crisis spreads to Europe Greece Iceland due to AIG sales to inflated bundled junk bonds The Aftermath 2010 The SEC sues Goldman Sachs for fraud Allegedly having failed to disclose vital information to investors in one of its CDO s in 2007 Designed to Fail hedge fund so that John Paulson could make large profits by betting against it This was not disclosed to investors and they lost roughly a billion dollars while Paulson Co profited Proposed new legislation that will make regulations on bank and investment institutions tighter similar to Glass Steagall We are the 99 What is OWS A movement that brought focus to the economic inequality in the U S OWS goals o A reduction in the influence of corporations on politics o More balanced distribution of income o More and better jobs bank reform especially to curtail speculative trading by banks o Forgiveness of student loan debt or other relief for indebted students and alleviation of the foreclosure situation Some people called this movement anti capitalist Corporate Inversion Re incorporating a company overseas in order to reduce the tax burden on income earned abroad Used by companies that receive a significant portion of their income from foreign sources Companies undertaking this strategy are likely to select a country that has lower tax rates and less stringent corporate governance requirements Government Crimes Pubic Officials Courtroom Misconduct Attorney Judicial misconduct charges have increased since the 1990 s Cannot show bias toward a specific ruling regardless of whether it s the courtroom or through other means Kids for Cash scheme 2011 A former Pennsylvania juvenile court judge was sentenced to 28 years in prison for accepting payment to send juveniles for a for profit detention facility Former Luzerne County Juvenile Court Judge Mark Cizvarella 61 accepted nearly 1 million from a developer who built the detention facility o Thousands of juveniles were shipped to the private center on minor or questionable charges Legal Crime Lawyers are required to keep in private any knowledge of a client s past crimes and prohibits lawyers from advising or assisting a client in the commission of an illegal or fraudulent act Several insider trading cases in the 1980 s involved lawyers who passed on information about pending corporate takeovers There are multiple types of Prosecutorial misconduct here are some examples o Asserting facts not supported by evidence o Having ex parte communication with the judge o Failing to disclose evidence o Intimidating or coercing defendants o Using unwarranted courtroom theatrics Political Crimes Watergate 1972 1974 Epitomizes scandal corruption in politics brought white collar crime research and interests to the forefront June 17 1972 Burglars broke into the democratic party s national committee office located in the Watergate Hotel A security officer noticed and reported the crime Nixon claimed to