White collar crimes are unethical or illegal acts that infringe public trust or the fiduciary relationship that exists between members of public and organizations or individuals in organizations for the benefit of the organizational or personal gain. Ponzi schemes are white collar crimes because they are often committed by people within organizations or people who create organizations with the aim of committing financial fraud.
A Ponzi scheme is a fraud relating to investment where investment organizers make payments of alleged returns to current investors from funds that new investors contribute. The investment organizers usually attract new investors by undertaking to invest their funds in opportunities that they allegedly generate high returns within a short period of time and which do not pose any risks. In Ponzi schemes, the organizers concentrate on attracting new monies in order to make pledged payments to investors who joined at an earlier stage as a way of deceiving them that they are profiting from a genuine commercial investment (Friedrichs 205).
Notably, Ponzi schemes do not have legitimate earnings they need constant flow of funds from new investors to carry on. However, when there are no new investors or in the event that a majority of the investors seek to withdraw large amount money the Ponzi schemes are likely to collapse.
Ponzi scheme relates to the organizational culture in that it involves ethical or moral violation. The underlying principle for organizational cultures which tame individual behaviors and activities within organizations is ethics. As such, when people violate the ethical principles by not adhering to a given culture of an organization they commit a white collar crime. The nature of an organizational culture may reduce or increase fraud risk. For instance, in organizations where there are no collective reassurances from the senior management that boosts the ethical character of the organization and the moral fiber of the staff members may be prone to organizational crimes such as Ponzi schemes. Though criminal minds are not likely to be deterred by organizational culture, a formidable culture would inspire co-workers to expose Ponzi schemes or other crimes within organizations instead of allowing illegal deeds to go unreported. An ethical culture is the bedrock of good corporate governance and possibly one of the most influential controls within an organization and without such control, Ponzi schemes will surely emerge.
An example of a Ponzi scheme that stem from poor organization culture is the 2010 case of Robert R. Anderson and Rosand Enterprises, Inc. Anderson claimed through his company the Rosand Enterprises that he was capable of generating investor profits ranging between 10 to 20 percent every month. He deliberately gave false information to the investors that Rosand Enterprises was purchasing, constructing, rehabilitating, and selling homes in Chicago and various other locations. However, Anderson was not generating any profits but was conducting a Ponzi scheme whereby he used funds from new investors to pay earlier investors. He used the investor money to make hefty payments, pay for the wedding of his daughter, and buy cars. Tellingly, the Rosand Enterprises had poor organizational culture as there was no employee that was willing to expose Anderson’s scheme.
The Wall Street financial crisis is because of predominant corporate culture that encourages rampant risk-taking, unchecked powers, and greed. This form of culture has time and again led to financial crisis. For instance, during the 2008 financial crisis and housing collapse was mainly because of the prevalent culture of financial institutions throughout the United States which enabled these institutions to engage in risk-taking while exercising unhindered power. It is these rampant corporate cultures that provide perfect conditions for criminal activities within the housing, banking, and securities industries. As such, it is the poor corporate cultures within the Wall Street banking industry that has led to the financial crisis as banks use investor money to make unreasonable investments as they seek to maximize profits for their own gain. When the profits are not forthcoming then then a financial crisis is ensues since Wall Street financial industry influences the stock market and the nature of employment because it determines the value of employees. As such, poor corporate cultures on the part of Wall Street financial industry instigate a financial crisis.
Friedrichs, David. Trusted Criminals: White Collar Crime In Contemporary Society. Cengage