White Collar Crime - Research Paper Example

White Collar Crime: Lessons to be Learned Table of Contents Abstract 3 Introduction 3 Literature Review 4 Methods of Research 7 Findings 7 Conclusion 8 Annex 10 References 11 WHITE COLLAR CRIME: LESSONS TO BE LEARNED Abstract There are lessons to be learned from the study of white collar frauds. It is not a one day happening, but sometimes it takes long periods of time to be discovered. Most often, it is committed by respectable persons in the business and industry, which people trusted financially. White crimes are committed because of the opportunity granted by their positions. Bernard Maddof ‘s scandal is an example. An insight of the Maddof’s financial scandal is presented in this report and how it has affected victims is highlighted. This study also figured out financial schemes going around so that investors are forewarned. Introduction Stock Exchanges are sources of financial income for some, but also a source of distress for many who have been fouled up. White collar or corporate criminals have gotten away with the billions of dollars of the public and helped weaken our economy. It is a high profile and stylish fraud case that one could not imagine is happening. Take for example, the headline- grabbing news of Ponzi scheme of Bernard Madoff, a financial advisor, who pleaded guilty to 11 federal crimes after milking out billions of dollars from unsuspecting investors. In certain situations, victims are helpless as it destroys a company, wipe down investments and savings of families. White collar criminals have destroyed the trusts of the public and have ruined our financial system and perhaps it is about time that we look into it. Literature Review White collar crime is described as a crime committed by someone for financial gain (Investopedia). It is typically committed by someone of authority, like a fund manager, business worker, or executive. White collar crime is punishable by fine or imprisonment. Huff, Rodney, et. all , in a study that completed a national public survey on white collar crimes, defined this crime further, as it states: “as illegal or unethical acts that violate fiduciary responsibility of public trust for personal or organization gain. The definition spans both organizational and individual offenders and encompasses not only traditional forms of economic crime(e.g. embezzlement, money laundering, insurance fraud), but also high-tech crimes (such as internet fraud), as well as crimes committed inside and outside of occupation setting” (Huff, Rodney, 2010) In a nutshell, FBI defines white collar crimes as lying, cheating, and stealing committed by business and government professionals (2010-2011 Financial Crimes Report). Knowing these crimes creates different reactions from people. Huff, Rodney, et. al. in their study, found out that the public views white crime as “slightly serious” than traditional offenders”. The said report concluded that “public opinion fall more harshly on organizational offenders than on individual offenders, while crime involving high-status offenders tends to be seen as more than crime involving low-status offenders.”(Huff. Rodney). The depth and breadth of white collar crimes has become a daily headline of news such as the breaking news of Bernard Maddof’s scandal. A Daily Mail Reporter (20 September 2012) reported 1,230 fraud victims of Maddof’s Ponzi scheme have lost an estimated $9.15 billion. Out of this amount only a portion or $2.48 billion will be recovered from what was lost. A payment scheme is being arranged whereby check payments will be mailed to claimants, with an average payout of $2.02 million. Report said that Bernie Maddof, after pleading guilty on the charges was charged to serve 150 years in prison. Meanwhile, his son, who was his co-accused, hung himself, and his brother Peter, also played guilty on same charges, source said. To show how victims are affected by this particular fraud scandal, two fraud victims interviewed by Adroitis, Annamarie (12, March 2009) in the court hearing said, in their own words: Said Bocchinfoso, Jason, a Security Officer: Says he has no relationship to Madoff. "He really messed things up for everybody in this country. The guy is going to get what he deserves, but really at 70 years old, how much is he really going to serve? The faith in our nation is shattered. If this is going on with these guys that we re supposed to trust how could anybody want to invest in anything? I m a young guy and I m just starting out. It s really shattered me and my entire generation to be honest. If this was a blue-collar crime, the book would have been thrown at him. I think he’ s going to get a country club treatment and I bet he ll end up [with] a Martha Stewart-type deal” Another sentiment comes from Helen Chairman, 57 years old, as she said: "Justice was served. I lost my entire savings, it was a lot of money I think we’ ve all learned that we can’ t trust the SEC. That was the big mistake I made. [Madoff] was recommended to me and I recognized after looking at his program that the only risk was that he [could be] a fraud, and I took great comfort in the fact that the SEC had investigated him and found him clean. I would not have invested had I not seen the SEC stamp of approval... He was earning 10% [returns] at a time when hedge funds were earning 20, 30, 40%. He wasn’ t offering extraordinary returns, but he was offering reliable returns with the SEC stamp of approval. " Fraudulent fund scandals have been the focus of the Criminal Investigation Division of the Federal Bureau of Investigations. Accordingly, at the end of 2011, FBI was investigating 1,846 cases of securities and commodities fraud and had recorded 520 indictments/information and 394 convictions against this criminal threat (Fig. 1). (See Annex). Additional notable accomplishments in FY 2011 include: $8.8 billion in restitution orders; $36 million in recoveries; $113 million in fines; and $751 million in forfeitures. Corporate fraud investigations of FBI involve activities found in Fig. 2 (Annex) The said activities fit in to the following fraudulent designs that according to NBI are “Advance fee schemes, health insurance fraud, identity theft, letter of credit fraud, Nigerian letter, Redemption fraud, Ponzi schemes, Prime bank notes, pyramid scams, and telemarketing fraud” (FBI Report) It is speculated that manipulators see the influx of investments into the financial system as an opportunity to carry on fraudulent activities, such as using Ponzi schemes. Ponzi scheme was used by Madoff in his activities. Ponzi’s definition is needed here in order to know how Madoff operated. Ponzi Schemes: is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi schemes often share common characteristics, such as offering overly consistent returns, unregistered investments, high returns with little or no risk, or secretive or complex strategies. This arrangement gives investors the impression there is a legitimate, money- making enterprise behind the subject’s story, but in reality, unwitting investors are the only source of funding (FBI Report). Methods of Research This paper uses qualitative research to study concerns of people on a problematic situation and uses primary sources coming from news articles and published information that includes actual interviews from victims. It is a primary source because it used the direct words spoken by victims. News articles and reports are considered primary source because it is stating an information and not an interpretation. News articles used in this research came from trusted newspapers, of wide circulation, and trusted newspapers while report comes from the organization itself. Findings The study focused on three areas: victimization of Bernard Madoff; how it affected the victims. and the FBI’s Criminal Incidence Report as well as related fraud schemes that people should avoid. News stories carrying Ponzi incidences were researched, and the greatest incidence that I think has the most significant effect to investors is the Bernard Madoff’s crime of fraud. Madoff is a respectable person in the financial community, being a well known financial advisor. Using the Ponzi scheme approach, he was able to invite numerous investors to invest a sizeable amount of money to his company. In the length of time it was discovered that there was no more money left to return to investors. He was found guilty on 11 counts of frauds and was sentenced to 150 years in prison. In conjunction with the case hearings, a news report carried interviews from victims on what they felt on the punishment. Two victims are not quite satisfied because they feel deprived, disappointed, and had lost trust on the Securities and Exchange Commission. A respondent, a senior citizen is worried over her lost savings, while the younger one signified the voice of the youth who lost interest on investments. FBI criminal incidence report showed undertakings done to solve white collar incidences. Fig. 1 illustrates a rising incidents of fraud cases, rising to 1,846 in 2011. Although a good deal of the cases in the past resorted to indictment, forfeitures and convictions, the seriousness of the crimes committed cannot be discounted. People are alarmed such that they consider white collar crime more grievous offense than traditional crimes.. Corporate cases is said to be due to volatility of financial markets and growing trends of overseas investments. The report of FBI outlined several other fraud schemes that investors should be aware of in order to avoid victimization. Many victims become prey of this celebrated fraud. The number of victimized investors who lost their money in Madoff case is 1,230, with a total invested amount of $9.15 billion. Madoff uses the Ponzi scheme of cheating. Only a portion of this or $2.48 million is recovered. Perpetrators are judged guilty of the crime and sentenced 150 years of life imprisonment. However, one victim claims this is not enough punishment since Madoff is already 70 years old that means he will not live long enough to serve his sentence. Another victim, a senior citizen, blamed and lost trust to the Securities and Exchange Commission. Conclusions General conclusions. Based from research data, too many people are still victimized of fraudulent financial schemes. Innocent people put their money and hope for investment returns. FBI records shows increasing incidents, and percentage of cases solved are low. Some are slow-moving cases that almost deny hope of victims to recover their money. Victims of Madoff cases are not yet fully repaid, and it will take time before they will recover their losses, and because of this, it could be concluded here that justice delayed is justice denied. Meantime, victims settle in frustrations and hopes shattered. As shown, frauds fool persons from all walks of life. Victims are young and old alike. Frauds today are high profiled and are observed to be done by professionals in the highest ladder of the corporation. The financial security of investments is put to position where trust is shaken, and the future too risky. Too many numbers of people have been victimized by various financial schemes of fraud, or to say it, by wolves hiding under sheep’s skin. Reactions to articles and how it fit to findings. The news report from Mail Online , in my opinion, is a candid appreciation of the result of the hearing of Madoff’scase. The news did not make an impression or voiced out an opinion but was only factual on the details of the story. I was especially moved by the interviews of the victims who related their stories, their grieves, and frustration. I joined the frustration of the senior citizen who had lost her life’s savings and a future of pleasurable retirement. There is no way she can go back to earn lost savings because she is growing old. I can feel the disappointment of the young security guard who symbolized disturbance of the young generation and lost of faith in the government institution. These reactions fit in my findings since it draws on the significance of the lost of trust on the financial institutions and its impact to the economy. The image presented by the FBI is a clear indication of a sick financial society and the fraud schemes is a message that reader should be aware of. Investments are vulnerable to risks, and it about time that the government securities agencies like SEC put more teeth to the laws. People should learn their lesson from examples of these people so that history will not be repeated ANNEX FIG. 1 FBI FRAUD PENDING CASES FIG 2. FBI LIST OF FRAUDULENT ACTIVITIES Falsification of financial information of public and private corporations, including: False accounting entries and/or misrepresentations of financial condition; Fraudulent trades designed to inflate profit or hide losses; and Illicit transactions designed to evade regulatory oversight. Self-dealing by corporate insiders, including: Insider trading—trading based on material, non-public information—including, but not limited to: Corporate insiders leaking proprietary information; Attorneys involved in merger and acquisition negotiations leaking info; Matchmaking firms facilitating information leaks;Traders profiting or avoiding losses through trading; and   Payoffs or bribes in exchange for leaked information. Kickbacks; Misuse of corporate property for personal gain; and Individual tax violations related to self-dealing. Obstruction of justice designed to conceal any of the above-noted types of criminal conduct, particularly when the obstruction impedes the inquiries of the SEC, other regulatory agencies, and/or legal agencies. References Androits, Anna Marie, March 12, 2009. Madoff’s Victim, in their Own Words. Smart Money. Retrieved 11 September 2012 FBI – Federal Bureau of Investigation. Financial Crimes Report 2010-2011. Retrieved 11 November 2012 Huff, Rodney, Diselets, Christian, and Kane, John. “The 2010 National Public Survey on White Collar Crime”. National White Collar Crime Center. Retrieved 11 November 2012. Investopedia. White collar crime definition Retrieved 10 November 2012 Read More