White Collar Crime: Types, Regulations, and Consequences, Exams of Psychology

Download White Collar Crime: Types, Regulations, and Consequences and more Exams Psychology in PDF only on Docsity!

CRJ 312 Exam #1 Quizlet

Primary Areas of White Collar Crime - -Consumer Fraud -Public Corruption -Financial and Corporate Fraud (Madoff, Ponzi Scheme) Public Corruption - -non-violent theft; politicians getting paid taxpayer money -doing other things with taxpayer money and advantages Consumer fraud - telemarketing, unsafe products, multi-level marketing-pyramids, false advertisement Medical fraud - -pharmaceutical, misbranding, ancillary services Corporate fraud - -Enron, Arthur Anderson Investment fraud - ponzis, Bernie Madoff Anti-Trust Violations - (monopolies) Ex: Google, Amazon, Microsoft (Word, Powerpoint, Excel) Price Fixing - -ADM (Archer-Daniels Midland) Securities Fraud - -insider trading Public Corruption - -bribery, honest services fraud Insurance fraud - slip and falls, fraudulent claims Legal issues - federal vs. state jurisdiction, criminal vs. civil Financial crimes - The "Melt Down"- bad mortgages 2008 Criminal violation -

offenses against federal statues (U.S Gov.) or individual states laws (local) that may result in imprisonment, criminal fines, and restitution **legal victims are the U.S. or states. Individuals are considered "complaining witnesses" (prove the crime) Ex: United States vs. Jane Doe or Commonwealth vs. Jane Doe non-criminal violation - offenses against established rules of regulatory agencies or individual victims (people or corporation) may result in fines, compensation or revocation of rights to conduct business *victims can be individuals, companies or the government Ex: John Doe vs. ABC Inc. Tort - civil wrong that represents "harm" to property or individuals. They are resolved in "civil court" actions Crime - serious "harm" to society, union can be property (theft) or violent actions. Crimes are "litigated" (presented) in "criminal court" **All crimes can still be "torts" but not all "torts" can be crime Ex: OJ Simpson Case Crimes require two elements - -act and intent Act - action to create the "harm or injury" Intent - the perpetrator intended to commit the harm/injury (Torts only require the "act") Law Enforcement Agency - -an arm of government (federal, state municipal that is empowered and required to investigate and prosecute crime -all law enforcement is governed and restrained by constitutional restrictions but, law enforcement enjoys "qualitative immunity" (honest mistake) against lawsuits -private, nongovernmental, entities (banks, insurance, school boards, etc) do not get qualitative immunity can be sued, Can't arrest or prosecute but can investigate Jurisdiction - the criminal statute that was violated (federal or state) determines the law enforcement agency that will investigate the incident Mechanics of White Collar Crime Investigation by Law Enforcement - -law enforcement must obey the Constitutional rights of individuals AND corporations (YES- Corporations have constitutional rights) 4th Amendment - protect against unreasonable search and seizure

Law enforcement can obtain evidence - 1- Through voluntary compliance 2- Through the use of a "search warrant" issued by a judge (must be specific to what you actually are searching for) *has to be a crime on affidavit (terrorism is the only exception) 3-Through the use of a "grand jury subpoena" issued by a judge *agent gives details to prosecutor; judge and defendant complys 5th Amendment - protects against self-incrimination and provides for a speedy trial and right to be charged by a "grand jury" grand jury - jurors DO NOT determine guilt BUT provides for an investigational and accusation legal action in criminal matters *court room not open to public only "trial jury" *most federal white collar crimes are extremely comply and law enforcement uses the grand jury process to obtain evidence and to determine if criminal charges are warranted Advantage of grand jury - privacy= less reputation damage -if criminal charges are indicated, the grand jury will issue a "Indictment," which is a formally charging document 14th amendment - requires states to adopt federal rights; due process Reporting of white collar crime - -"UCR"(Uniform Crime Report) was enacted mostly to report violent, "street" crime -White collar crime is difficult to "classify" what was the crime? -Local law enforcement ill equipped to understand and investigate -Estimate losses per year greater than street crime losses Problematic areas of white collar crime - -defining the behaviors as crime; what actually happened?? -Prosecution (skill of prosecutor to prosecute *most handle "blue collar crime" *delays in discovery of the crime and delays investigation *public perception (not physically harmful difficult to understand, uneasily wants restitution- not prison for offenders) +social acceptance? Do we look at economic harm differently? *Alternatives? Civil actions (Tort or crime) Economics of White Collar Crime - -usual and customary goals of fraud are to obtain wealthy; or control of wealth through some form of deceitful behavior or misrepresentation of fact -misrepresentation can be in an oral, visual, or written communication -victims often facilitate their own fraud by looking for special pricing of consumer goods/services or superior investment opportunities

-victims of white collar crime expectation of the criminal justice system is usually different than that of victims of violent crime, victims of white collar crime will almost always prefer restitution over prison for offenders Fraudulent Misrepresentation - can be "omitted" or "committed" ex: any intentional omission to conduct safety or quality inspections to maximize profits are also considered fraudulent misrepresentations Fraud - the intentional misrepresentation of material facts or beliefs to obtain something of value Material Fact - fact you are relying on to make decisions The Offenders - -Why do millionaires, corporations or other "rich" people engage in fraud? *Sutherland (a noted criminologist who has coined the term "white collar crime" believes rich people still steal BECAUSE THEY CAN!! -Offenders always believe they are smarter than other and sometimes they are Regulation vs. Prosecution - -many consumers & financial business provide essential services and goods that would harm most consumers if these businesses were shutdown by criminal or civil prosecution: *Banking, Communication, Transportation, Utilities, Food and Drugs -Government (state & federal) regulatory agencies provides industry overnight and can investigate fraudulent allegations and assess fines and other sanction specific industry -government regulatory agencies will usually fear cases for criminal prosecution if fraud or serious injures may or do occur Federal Regulatory Agencies - -Federal Trade Commission (Price fixing, consumer products) -U.S Department of Justice (criminal prosecution, law enforcement agency) -Food & Drug Administration (FDA) -Securities and Exchange Commission (SEC) -Environment Protection Agency *regulations in all agencies can be criminal or civil Criminal conviction must be - beyond a reasonable doubt Consumer Fraud - auto repair, home repair and remodeling, fraudulent business opportunities "MLM," false advertising, price fixing or price gouging, adulterated drugs and foods (companies that cut corners to lower operating costs), unsafe consumer products Auto Repair Scams - -AAMCO Transmissions

-Most proud committed by mechanic shops are performing unnecessary work or not doing the work at all. This is problematic for prosecution since work was actually performed -from a victimology perspective women are more likely victims of this type of fraud -scams are usually discovered by watchdog agencies or law enforcement by "shopping" rigged vehicles with inexpensive solutions Home Improvement Fraud - -one of the most common consumer complaints -con artist provide (inducements) or material misrepresentation to furnish construction or repair --We have "extra material left over" leading to promise to provide deep discount -shoddy workmanship, minimal work, or provides deficient material to complete the job -perpetrators are often transient and difficult to locate after the work was completed Types of Home Improvement Fraud Work - driveway paving, fences, concrete, siding & roofing, landscaping Home repair scam remedies - -civil {lawsuits: individuals & class actions; state consumer protection agency} -criminal { problem was always difficult to prove "intent" vs. "breach of contract"; material misrepresentation} PA Home Improvement Consumer Protection Act, HICPA (2009) -

1. Requires registration of contractors; including all personal business information; any history or prior lawsuits or criminal action 2.Requires proof insurance
2. Grading of crime is enhanced if victim is over 60 years old 4."Strict liability" for accepting payment, and not performing and failure to return money MLM - -sales force is compensated for the sale of merchandise or goods plus compensated for sales by personnel recruited by them -can be form of direct selling which is legitimate; "Tupperware" type (home sales), Herbal Life -Initially effective in rural areas where specialty shops were unavailable, and marketing too expensive. -Products flourished by "word of mouth"

• Sales force is required to pay a "distributorship" fee which allows them to sell product; and receive commissions for distributorships that they sell -also required to purchase merchandise and training aids to keep distributorship active Downline - gotta sell distributorship down the line (Pyramid Scheme) What makes many MLMS a pyramid? - commissions from recruitment is outlawed is most states because recent entrants can not mathematically earn what original distributors made -99.9% of participant lose money -"Market saturation" as distributorships increase, decrease the amount of people to sell product to mathematically decrease -associated with "cut-like" behavior; i.e. aggressive recruitment, protective attitudes, relationship based Ex: Verma (energy drinks)

Type of Advertising Styles -

1. Informative
2. Puffing
3. Deceptive Informative ads - legitimate and reliable information Puffing Ads - an exaggeration which stretches the truth: "world's finest" "best" "improved" consumers really don't believe the literal meaning and usually don't rely on that misrepresentation as material. No usually enforced by regulatory agencies since the company can say its an "opinion" Deceptive Ads - outright lies, no basis in fact that the product or service actually delivers the advertised performance Categories of Goods or Services most often falsely promoted - -nutrition(vitamins, energy drinks) -hair loss -Impotence (male enhancement -weight control (athletic gear, food supplements, exercise equipment) -pain relief When does false advertising become a crime? - -usually when the representations or the performance is based on
4. Fraudulent misrepresentation and/or 2.Intentional adulterated testing "laboratory testing" gives the consumer the belief ("clinically proven") that the products underwent some form of empirical examination that proves the product works as advertised *customers may lose their purchase decisions (i.e reliance) on the "material misrepresentation" of proof or effectiveness or safety "Bait and switch" - another form of false advertising a product which doesn't actually exist to induce the side of another sale Ex: Car Dealer $99/month sale Federal Trade commission (FTC) - regulatory agencies not law enforcement -deals with false advertising Federal Trade Commission ACT 1914 - -enacted to address deceptive business practices
5. False advertising and deceptive practices
6. Violations of the Sherman Anti Trust Act (Monopolies, Price fixing, Bid Rigging)

-provides investigative and civil enforcement through: administrative hearing (civil subpoena power), company compliance (pull the ads & case closed), fine, injunctive relief (court stepping in order to stop ad, stop the product when project is dangerous) -criminal enforcement of false advertising and violations of the Sherman AntiTrust Act and referred to the U.S Dept of Justice Reebok - 1- Ads for Reebok's training shoes boosted lab tests have proved the sole's special design would help lead to a more perfect body 2-Reebok's alluring promise toning sneaker would "make your legs and butt look great" hamstring and claves tone 11% harder tone your butt up to 28% by just walking" -FTC sued Reebok because laboratory tests don't show Reebok's shoe all improve muscle tone and strength *civil suit (no testimonies) -agreed to pay $25 million back to consumers who purchased EASY Tone athletic shoes Price Fixing- ADM - -Archer Daniels Midland"Our competitors are our friends, our customers are the enemies." -multinational corporation primarily engaged in the soybean and grain industry, food processing, and commodities -operates 270 plants worldwide -lysine is compound used in animal feed, soaps, and many food products -1992-1993 engaged other international companies (potential competitors) to control the price of Lysine -Mark Whitacre (Engineering VP) became a whistleblower who revealed ADM has conspired with global companies to fix the price of lysine ADM Case results: - conviction of ADM inc and 3 executives including Whitacre for embezzling money from ADM and also prosecuted longer than ADM executives What we learned from ADM? - -price fixing is a conspiracy or intentional agreement between companies that acts like a monopoly -this act is criminal "it's a conspiracy to defraud" consumers -federal investigations can take years to solve and prosecute -Corporations can also be a criminal defendant just like the three individual executives -investigations can always have setbacks as in the case of Whitacre's own criminal embezzlement from ADM which he did not disclose to the US Attorney at the "attorney proffer" -up until that time Whitacre would have been an "unindicted co-conspirator to price fixing" -case against ADM was saved because of the wiretap evidence Price fixing - agreement to defraud, collusion, conspiracy with two or more companies -ADM consumer harm: consumer pay more for products made with lysine. They cannot use the competitive market to save money Monopolies -

single company that provides a irreplaceable item or services allowing that company to charge exorbitant prices to detriment of the consumer regulated vs. unregulated monopolies - regulated: government controls pricing to protect consumer unregulated: monopoly can operate without oversight Sherman Anti Trust Act 1890 - -initially enacted to curb price gouging by standard oil company (Exxon) -Established both criminal and civil statutes for violations. Criminal violations usually involve deception (false records, perjury, or conspiracies) Clayton Act 1914 - expand the power of the Sherman Anti Trust Act Mergers - two companies come together to control prices Anti Trust Violation - -Sherman Anti Trust Laws -Federal which governs: monopolies, price fixing and price gouging, bid rigging *states have enacted individual anti-trust laws which may be prosecuted by Attorney Generals of each state *Most antitrust laws are prosecuted federally Deregulation - believe competitors will compete with each other to keep consumer prices down -obviously price fixing by competitors does not accomplish better consumer pricing -allows for price gouging (ENRON) -government can still regulate safety and environment Regulation by the government - government controls pricing to protect the consumer -Problem: cost money to oversee and enforce the pricing controls on industry (bloated government) -Industry says it: cost them additional money to comply (cost of compliance) with government regulating stifling their ability to lower consumer costs Price Fixing vs Price Gouging - Price Fixing: collusion w/ two or more companies; can involve any product or service; always a crime scene there is always a conspiracy to defraud consumers Price Gouging: can be only one or several companies, involves exploitative price increases in ESSENTIAL products and services; occurs often after period of EMERGENCY or incident, most states have passed criminal statutes against price gouging Bid rigging - A form of price fixing which affects mostly government contracts for goods, services, and construction.

Bid Rigging is a violation of the Sherman Anti Trust act and, because tax payers are mostly likely to be defrauded, the offenders are most likely to be criminally prosecuted Bid Rigging Bid Process - -Sealed bid process is designed to ensure the lowest competitive bids are submitted for major constructions, goods or services -companies secretly know each others bid and agree to partner in a scheme which ensures one of them is awarded the contract. **Fraudulent bid is always higher than competitive bid. -Company which is awarded the contract "kicks back" money to the non-awarded company OR agrees to let non awarded company to "win the next one" -Most products include power, food, medical products and fuel Variation of bid rigging - -when there is a conspiracy between the bidding company and individuals inside the victim organization -The insider prepares specifications for the "request for proposal" called a "RFP" that only the conspiring company can possibly satisfy. Since no other company have the ability to bid, the process becomes an illegal "no bid" contract Bid Rigging Prosecution - -1955- Allis Chalmers, Westinghouse, and General Electric all engaged in bid rigging on government contracts to provide electrical equipment. -US DOJ Anti Trust Division filed criminal violations against three corporations and 25 executives for bid rigging violations of the Sherman Anti Trust Act. -Allegations were that companies conspired to provide higher and identical "sealed" bids to government procurement agency -Seven executives were found guilty and sentenced to 30 days imprisonment; companies were fined $1.9 million Product Performance Requires Two Standard Test: - Product must be SAFE= "It won't hurt you" -Product must be EFFECTIVE = "It works like it says it does Criminal prosecution with unsafe products can results when - -product research testing is intentionally falsified

• Companies continue to market product when they know the product will cause injury or is totally ineffective
• Company continues to sell product when death or serious bodily injury is likely to occur Unsafe products likely to harm - Tobacco Industry Automotive Industry Food Baby Products Cribs, strollers, car seats, toys Medical Pharmaceutical Medical devices Screening or diagnostic tests

Unsafe Products- Negligence - -negligent actions -grossly negligent actions -criminally negligent actions Negligent actions - -Inadvertently not conducting complete testing -Advertising greater performance of a product than results indicate Grossly negligent actions - -Publishing erroneous test results that are known to be false, or not properly testing product -Not informing the public of significant and relevant testing when tests show product is ineffective or harmful (tobacco industry) Criminally negligent actions - -Intentionally and willfully withholding or falsifying information of critical information that will likely lead to injury or death -Willfully failing to correct a defect in a product for personal gain when that product will likely cause injury or death Liability - responsible for an act Strict Liability - -"seller liable for all defective or hazardous products which unduly threaten a consumer's personal safety".............Black's Law Dictionary -situations exists in both violent criminal offenses (statutory sexual assault) and consumer harm (unsafe products) -Mostly products subject to strict liability deemed to involve "ultra hazardous activities" -No intent or negligence to assess liability in strict liability cases Product Liability - -Any product which may jeopardize the health or personal safety (ULTRA HAZARDOUS ACTIVITY) EX: Food products Pharmaceuticals (heart medication, anti depressants, pain management) Medical appliances (pacemakers, joint replacements) Certain baby products; (cribs, car seats, infant formula) Automotive parts that would affect safety; ( brakes, tires, fuel systems) Unsafe Product Liability - -Negligence (inadvertent mistakes or omissions) -Gross Negligence (intentional or extreme carelessness) -Criminal Negligence (likely to cause death or serious injury) What makes "unsafe products" a white collar crime? -

-Testing of products has a cost; eliminate or reduce testing also reduces cost thereby increases profit- at the expense of the consumer -Manufacturing is a cost to the company; "retooling" or pulling product off the market diminished profit Automotive Industry- The Pinto ("BBQ for 4") - -Ford's answer in the late 60s to Japan's introduction of sub-compact cars to the U.S. -Requirement was to build a car less than 2,000 lbs and cost less than $2,000. Also to accelerate development from 43 months to 23. -During design and development crash tests over 25 mph indicated design defect in the gas tank causing explosion and fire -Ford released the Pinto without gas tank modifications in 1971, production ran till 1980, 2 million were eventually sold -1979 Ford Motor Company became first U.S. corporation to be indicted for criminal homicide. (State of Indiana vs. Ford Motor Company) UNSAFE PRODUCTS- REGULATORY AND ENFORCEMENT AUTHORITY PURE FOOD AND DRUG ACT OF 1906 - -Initially a law was needed to ensure proper labeling of food products and narcotics Also enacted to provide federal inspection of meat products -Additionally forbade the manufacture of adulterated food and medicines FOOD AND DRUG ADMINISTRATION - -Established in 1930 to provide a federal agency to enforce the Pure Food and Drug Act Administrative authority for civil violations; referral to DOJ, U.S. Attorney for criminal acts -FDA can restrict the distribution of products through voluntary compliance or court orders FEDERAL FOOD, DRUG, AND COSMETIC ACT OF 1938 - -Act resulted after 100 child victims died in 1937 after taking unsafe medication, marketed as a "tonic" -Required testing of drugs to establish safety Added "medical devices", bottled water, food additives (food coloring), dietary supplements, and cosmetics -Violations can be both civil and criminal -Permits inspections by federal agency of the FDA medical devices must be approved prior to release to the public -Advertising enforcement (except for drugs)covered by the FTC Federal Trade Commission -Many regulated products are subject to "strict liability" provisions Vioxx - -May, 1999, FDA approves Merck to distribute Vioxx; (Refecoxib)believed to be a superior analgesic to naproxen and having fewer gastrointestinal side effects. Sales totaled $2.5 Billion before voluntary recall in 2004 -Nov, 1999, 79 patients out of 4,000 died or had serious heart problems. Merck's Safety Board permits continued distribution of Vioxx -member of Merk's safety board discloses ownership of Merck stock (inherent conflict of interest -2012 Merk Inc. is criminally indicted for "misbranding" and pleaded guilty in federal court; the criminal fines totaled an additional $1 billion. Considered to be the worst drug disaster in history

THE "DALKON SHIELD" -

-On the 60s and 70s, an alternative birth control device was developed called the "IUD" (intra-uterine device) -Almost immediately after marketing began, reports of severe pelvic infection, ectopic (tubal) pregnancy, and "septic spontaneous abortion" Septic spontaneous abortion has resulted in fetal death and death of the woman.......a condition only seen before in situations of criminal abortion -18 deaths 200,000 illnesses 60% miscarriage rate when device failed to prevent pregnancy -$485.6 million was paid out in settlement and legal costs. -Another $2.5 billon was placed in a trust fund to settle 325,000 additional claims. In 1986, A.H. Robbins declared bankruptcy Unsafe Product- Tobacco Industry - -Intentionally withheld scientific studies (rat studies) which proved nicotine is harmful and addicting Intentionally added nicotine to increase addiction levels in teens. -Increase in class-action litigation led to admission and restrictions on advertising