CJ 100 1st Edition Lecture 3 Outline of Current Lecture II. LIBOR scandalIII. White Collar CrimeIV. Edwin SoutherlandV. Why study WC CrimeA. Physical CostsB. Exposure to Criminal CultureVI. White collar crime todayA. Ford Pinto CaseB. Bernie MadofC. MF GlobalD. PFG FinancialCurrent LectureLIBOR Scandal---London Interbank ofered rate---Average interest rate calculated/ estimated by major banks--- Financial institutions, mortgage lenders, and credit card agencies set their own rates relative to LIBOR ---High interest rate= expensive to borrow---low interest rate=you can borrow big sums of money---estimated 30-900 TRILLION in global derivatives---Banks were falsely inflating and deflating their rateswhy? To gain more investors.---Financial times said the scandal has been going on since 1991---LIBOR is still going on today---Deterrent efect- Only having to pay a small fine to the government as a consequence. -Deterrent means consequence. White Collar CrimeThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.---WC Crime is defuse- meaning it efects everyone.---NY Federal Reserve released a document that showed they were aware of the LIBOR scandal and still let it continue on.---Civil suits – class action lawsuits by individuals, cities and municipalities, etc. ---Potentially billions of dollars- UPDATE ---For each basis point (.01%) that LIBOR was manipulated, those involved could net “about a couple of million dollars” ---Timothy Guidner was the head of it at the time and he then became the Secretary of State.---WC crime is a full range of fraud committed by businesses and government professionals--- MF Global, Bernie Madof, Enron are all examples---Victimless? There is no specific single victim of WC crime.- it efects multiple people severelyEdwin Sutherland--- Was the first person to publish a book on WC crime in 1940--- He is known as the father of White Collar Crime--- Society was stunned and outraged by is claims---His 2 criteria to white collar crime are1. The crime had to be committed in the course of the occupation2. Crime is undertaken by a person of “respectability” and “high social statusWhy study WC Crime---WC Crime are “social costs”--- As bad as the economic costs are, the more worrisome efects involve lower morale and creation of distrust (ex. Financial institutions)--- Think MF Global and MadofPhysical Costs--- people can be killed, maimed, injured, or made ill--- lack of regulations, violating safety regulations ex. Coal mining, toxins in the work place, toxins released into the communityExposure to criminal culture--- New comers arrive for a week into a work place that partakes in WC crime, learn unethical and illegal business practices and are normative--- Resistance to breaking the law, those people are treaded like outsiders, considered not a team player, and are usually fired--- when they engage in them they are usually rewarded Ford Pinto Case Study---“Its not just a few rotten apples, it’s a whole rotten barrel” --- the gas tank was placed 6 inches above the rear bumper in the Ford Pinto--- the Japanese and Germans were coming out with new compact gas saving cars, so Ford wanted to rush production--- they “normalized” the risk--- aware of the design flaw, instead of doing a recall and changing all the cars, they decided it would be cheaper to deal with the court cases and possible law suits. This was stupid, because many people died or were seriously injured in car accidents when their car caught flamesWC Crime Today---Bernie Madof- labeled the scam of the century---3 elements of a Ponzy Scam- it a shell model for business. You take new investors money and use it to pay the old investors, making them believe you are making a profit. 1. People think its legitimate2. It comes from a well-respected and trusted person3. Can last longer than people think, but always collapses at some point. --- He received a 156 year sentence in prison, so a life sentence.MF Global---Involved John Corzine--- brokerage firm for commodities--- farmers and top traders used it---John made it into a ponzy scam and the whole thing crashedPFG Financial--- all of the large commodity companies turned to PFG and it turned out they were a pozy also!--- It crashed shortly after, not even a year after MF GlobalEnron--- Jef