White collar crimes are financially motivated and non-violent crimes majorly committed by people of high social status. The term “white collar crime” was coined in 1939 by Edwin Sutherland in his speech to the American Sociological Society.White collar crimes are difficult to detect and prosecute. Perpetrators employ highly sophisticated methods to commit crimes and hide the heinous activities through a chain of complex financial transactions. Punishment for these crimes involve: incarceration, restitution, community service, probation, criminal forfeiture, fines or disgorgement.
Bernie Madoff's $50 Billion Ponzi Scheme-Forbes Magazine
This prominent investor was involved in a Ponzi investment scam with the Madoff’s Hedge Fund. A Ponzi scheme is a fraudulent business operation that promises investors huge returns within a short period of time. Investors are lured into the scheme by the promise of abnormally high short term returns compared to other investments.
Consequently, they lose their money since they are not aware of the fraudulent nature of the investment operation. Seventy year old Madoff ran the prosperous Ascot Partners and Madoff’s Hedge fund. Investors clamored to be part of Ascot partners because of its stability in double digit returns and claims of serious wealth creation. The scandal would have escaped the eyes of the law had Madoff not faced $7 billion in redemption. The new investment funds were used to pay older members of the investment group. Most investors got nothing out of their investments.
The Winplop family, which owns the New York Mets baseball team, had reportedly invested $ 300 million in Ascot partners. Majority of the investors claimed that they were not informed of the investment ties to Ascot Partners. Madoff used charity organizations to evade tax collection. A charity organization in Israel is claimed to have received 12 % of the returns from Ascot Partners the previous year. A woman from California claims that she lost her entire saving through Ascot Partners. In the end a total of $50 billion was lost becoming the largest fraud scandal in history. Madoff is expected to be the first jailed investor of the 2008 market meltdown.
Milken Set to Pay a $600 Million Fine in Wall Street Fraud-New York Times
The 43 year old Michael Milken was one of the most prominent financiers in 1980. Between 1983 and 1986, he was paid a total of $ 1.1 billion by Drexel. The Forbes magazine in 1989 rated Milken to be worth $1.27 billion. Michael Milken was in the front row at the takeover battles that transformed America in the 1980s.
Milken was accused of improper use of knowledge. He was the head of the junk bond division at Drexel. Junk bonds are investment bonds that do not qualify the investment grade. They are highly risky and if successful bring high returns. Milken became the center of an investigation in 1986 when a fraudulent financial broker, Ivan Boesky agreed to settle insider trading charges with a $ 100 million settlement agreement and in turn expose the wrong doings in Wall Street. Milken vehemently denied the allegations and maintained that he was innocent.
Milken was later charged with 98 counts of racketeering, securities fraud, mail fraud and other related crimes. Conned investors and irate shareholders filed a flood of lawsuits against Milken claiming that their money had been fraudulently acquired. Milken, in an effort to escape a 20 year sentence and losing most of his wealth from the racketeering allegations, entered into a $ 600 million settlement. The settlement came after four months of negotiations between Milken’s lawyers and the government.
Peregrine CEO's Dramatic Confession-Wall Street Journal
For over two decades Mr. Russell Wasendorf was regarded as a business kingpin and a generous philanthropist. He was the founder and the chief executive officer of Peregrine Financial Group Inc. He ran the firm with his son Mr. Wasendorf Junior. Before his arrest, clients of Peregrine financial group had filed for bankruptcy under chapter seven of Bankruptcy Act.
Two weeks prior to his arrest, National Future Association dispatched a team of auditors to Peregrine Financial Group. They wanted to review the firm’s accounting books and pressured him to sign an online account verifying system. He thwarted their efforts by supplying them with a false post office box and failing to sign to the new online system. When he realized that his days of fraud were over, the seventy year old attempted to commit suicide, but was rescued by NFA regulators and hospitalized.
Unlike the majority of white collar criminals, Mr. Wasendorf admitted to defrauding his clients more than $100 million. He said that he fraudulently misrepresented Peregrine Bank’s accounts by doctoring them with the help of Adobe Photoshop and Microsoft Excel. When asked why he was involved in fraudulent activities, he responded that he was driven by the desire to overcome financial failure. He further asserted that his ego was too big to admit failure so he resulted in crime. He said he was the only one aware of his crimes since he solely accessed the firm’s post office box. Investigators discovered that more than $ 250 million was missing, which is half of what Mr. Wasendorf admitted to stealing.
Blagojevich Sentenced to 14 Years in Prison-New York Times
Some white collar crimes can only be committed by the high and mighty in the society. The poor and the intellectually inferior will be caught even before they commit the crimes. 55 year old Rod Blagojevich was the Governor of the State of Illinois before he was impeached as a result of gross misconduct. Prior to his arrest, he served as a legislator in both Springfield and Washington. The disgraced Republican governor was arrested and charged with 18 corruption charges; one of them being attempting to sell the vacant senate seat vacated by Obama on appointment to the presidency.
Rod Blagojevich accepted responsibility for his corruption crimes before a federal trial judge. He apologized to the people of the state of Illinois for betraying their trust. He also apologized to his friends and family for not behaving as expected of him. His 14 years sentence served as an example to all politicians and government officials who may be tempted to indulge in political corruption in the future
George Ryan's restitution-Chicago Tribune
The State of Illinois has a history of governors ending it badly. Most of them end up in prison after their terms of office. Such governors become an embarrassment to the electorate who voted them into office. In 2006, George Ryan was convicted of 18 counts of racketeering, mail fraud, tax fraud, filing false tax returns and lying to FBI agents. U.S Attorney Patrick Fitzgerald said that George Ryan was convicted of betraying the people of Illinois for almost over a decade.
Under his watch, nine people lost their lives with six of them being children. The crime spree involved over two thousand truck drivers who bribed his (the governor) employees to get driver’s license. The money from the corrupt drivers was directed to his political fund.
U.S District Judge Rebecca Pallmeyer sentenced the unapologetic governor to six and half years in prison. He would have spent ten years in prison had it not been for his advanced age and his widowed state. George Ryan was incarcerated for six years in Indiana Prison Camp. Nevertheless, he spent his last six months of the prison sentence at his home under house arrest. The Supreme Court of Illinois ruled that Ryan was not entitled to a pension from the tax payers; he had betrayed and failed to apologize to the citizenry.
Tough Justice Persists in White-Collar Crime Cases-NY Times
The Justice Department requested the court to sentence Mr. Frakas for three hundred and eighty five years in prison for his offences. However, under the Federal Bureau of Prisons guidelines, Mr. Frakas was sentenced to 24 years in prison. At his current age of 58 years old, Mr. Frakas will be released in his eighties.
Lee’s sentence is just but a part of an ongoing trend in the United States of America to bring all white collar crimes to an end. Almost a decade ago, the United States Sentencing Commission set very tough sentencing rules for the white collar offenders. These measures have seen chief executive officers like Jeffrey Skilling of Enron and Bernard Ebbers of WorldCom receive sentences exceeding twenty years for their involvement in accounting fraud.
The courts have repeatedly sent warnings to the Hedge fund universe to no avail. The sentences received by Mr. Dreier and Mr. Rothstein for their frauds are not sufficient yet for the members of the Hedge universe. Mr. Rajaratnam who is currently waiting for his sentence on 27th September 2010 may end up being incarcerated for a quarter a century.
Sophisticated crooks elude radar in trading probes-Washington Post
Not all white collar criminals are captured. Some criminals are careful not to leave trails or patterns that will help law enforcers to capture them. They are devising new and sophisticated methods of committing fraud. US Securities and Exchange Commission has made it a special priority to help the law enforcement agencies stop the proliferation of hedge funds abuse. Insider trading is generally hard to prove because it depends on circumstantial evidence. Hedge funds managers are now cautious of the emails they use, compared to market neophytes; they avoid sending incriminating email tips to family and friends where they can easily be accessed.
US Securities Exchange Commission has increased the number of insider police to more than 1,100 as compared to the number that was there is 1997. In March 2007 the SEC and criminal prosecutors brought to law Washington banks and Hedge funds that were involved in the illegal trading of securities. SEC and the final exchanges, patrol the market for out of the ordinary traders especially ahead of big mergers. Stock market commentator and CNBC television host Jimmy Carter stated that the SEC had to deal with the rumors generated by market manipulators in order to control stock levels. The rumors may be passed to an unwitting reporter.
In conclusion some crimes can only be committed by the rich and intelligent. White collar crimes require a certain level of intelligence and broad knowledge of the markets. Due to the complexity of the crimes, savvy white collar criminals escape justice. The few who are caught and convicted are served with prison sentences that are meant to act as a lesson to all white collar criminals.
Chicago Tribune. (2013, January 31). George Ryan's Restitution. Chicago Tribune, pp. 14-34. Retrieved January 26, 2014, from Chicago Tribune: http://articles.chicagotribune.com/2013-01-31/opinion/ct-edit-ryan-20130131_1_decade-on-state-business-george-ryan-crime-spree
Davey, M. (2011, December 7). Blagojevich Sentenced to 14 Years in Prison. The New York Times, pp. 51-58. Retrieved January 26, 2014, from New York Times: http://www.nytimes.com/2011/12/08/us/blagojevich-expresses-remorse-in-courtroom-speech.html?_r=0
Eichenwald, K. (1990, April 22). Milken Set to pay $ 600 million in Wall st. Fraud. The New York Times, pp. 8-36. Retrieved January 26, 2014, from The New York Times: http://www.nytimes.com/1990/04/21/business/milken-set-to-pay-a-600-million-fine-in-wall-st-fraud.html
Graybow, M. (2007, August 8). Sophisticated Crooks Elude Radar in Trading Probes. Washington Post, pp. 12-32. Retrieved January 26, 2014, from Washington Post: http://www.washingtonpost.com/wp-dyn/content/article/2007/08/08/AR2007080801505_pf.html
Henning, P. (2011, June 30). Tough Justice Persists in White-Collar Crime Cases. Washington Post, pp. 12-30. Retrieved January 26, 2014, from The New York Times: http://dealbook.nytimes.com/2011/06/30/tough-justice-persists-in-white-collar-crime-cases/?_php=true&_type=blogs&_r=0
Jacob, B. (2012, July 16). Peregrine CEO's Dramatic confession. Wall Street Journal, pp. 12-48. Retrieved January 26, 2014, from Wall Street journal: http://online.wsj.com/news/articles/SB10001424052702303740704577524873909864282
Legal Information Institution. (2012, May 6). White-collar crime:An Overview. Retrieved January 26, 2014, from Legal Information Institution: http://www.law.cornell.edu/wex/white-collar_crime
Lenzner, R. (2008, December 12). Bernie Madoff's $50 Billion Ponzi Scheme. Forbes, pp. 12-50. Retrieved January 26, 2014, from Forbes.com: http://www.forbes.com/2008/12/12/madoff-ponzi-hedge-pf-ii-in_rl_1212croesus_inl.html