Famous White Collar Crime Cases

White collar crime is the term used to characterize crimes that are economic in nature and non-violent. It typically involves fraud committed by a business or government professional. However, offenders can also come from outside of the business and government world. Specific examples of white collar crime include, but are not limited to: insider trading, bribery, security fraud, identity theft, and Ponzi schemes.

Ponzi schemes

Many people have heard of a Ponzi scheme, but how exactly does it work? In the simplest terms, a Ponzi scheme is payment of money to earlier investors from funds contributed by later investors, rather than from actual returns. The scheme fails if there are not enough later investors to pay off the earlier investors or if too many current investors withdraw and demand payment. However, Ponzi schemes can be extremely complex, and not all of them are created equal. Also, note that Ponzi schemes are slightly different than Pyramid schemes. The main distinction is that a Pyramid scheme also provides commission for participants that recruit new participants.

The namesake of the Ponzi scheme comes from the famous con artist, Charles Ponzi. In 1920, he promised investors a 50 percent return rate on investments within 90 days and eventually accumulated $15 million in stolen money. Yet, the most notorious Ponzi scheme in U.S. history to date was executed by criminal mastermind, Bernard Madoff, who procured $20 billion in stolen money.

Famous White Collar Crime Case #1: Bernard Madoff’s Ponzi scheme

It is unclear when exactly Madoff’s disparaging Ponzi scheme began, but the Federal Bureau of Investigation suspects around the mid-1980s. Madoff’s scheme involved soliciting clients to open trading accounts, with the promise of limited risk and high returns. Madoff gained trust from his clients by paying them what he had promised. Unbeknownst to those clients, the money was coming from the funds of later acquired investors. To hide this fraud, Madoff created a false portfolio for his clients and filed false statements to the Securities and Exchange Commission (SEC).

Over the decades, the scheme developed into a massive, global operation. It continued up until 2008, when the economy crashed and investors began to pull out and demand payment. Madoff lacked the funds to pay out the retreating investors, and subsequently confessed the scheme to his sons. His sons turned him in to the police and Madoff was arrested for one count of securities fraud. In 2009, he was charged and pleaded guilty to 11 counts of fraud, money laundering, theft, and perjury.

At the sentencing hearing, Madoff’s attorney requested a prison sentence of 12 years and, in the alternative, a 20-year sentence. In support of this request, Madoff’s attorney asserted three arguments. First, Madoff’s advanced age of 71 years old and his estimated life expectancy of 13 years, should be considered in the sentencing process. Second, the sentencing judge should consider Madoff’s guilty plea and cooperation with authorities. Third, that the average prison sentence for white collar criminals, who steal over $400 million and confessed, is eight and a half years.

On the contrary, the United States Attorney’s Office (USAO) requested the maximum prison sentence of 150 years. In support of this sentencing request, USAO also asserted three arguments. First, Madoff defrauded thousands of people and institutions, including charitable foundations. Second, the extensive nature and long duration of his crimes implores a maximum sentence. Madoff continued to allow the wrongdoings to occur over a long period of time, even though he had the power to stop it at any point. Third, Madoff waited to confess until the very last minute, only when he became incapable of upholding the scheme.

The sentencing judge sided with the USAO and sentenced Madoff to 150 years in prison, plus probation and forfeiture of assets. The court based its decision on the “extraordinary evil” nature of the crimes, the amount of money stolen, the effects on the victims, and Madoff’s use of the stolen money to support an extravagant lifestyle.

Famous White Collar Crime Case #2: The Enron Scandal

Of course, there is more to white collar crime than just Ponzi schemes. Another famous white collar crime case derives from the Enron scandal. Enron, a former American energy company, became the largest company in history to file for bankruptcy, with $63.4 billion in assets. The CEO and founder of Enron, among many other officials, were charged with an extensive range of white collar crimes, including: fraud, conspiracy, false statements to banks and auditors, and insider trading.

The Enron empire began to deteriorate from financial losses and increasing debt in 2000. To hide these shortcomings, the company committed a series of complex crimes to create the appearance of financial stability. For example, the company committed fraud by shifting any liability from Enron to another company, but not recording this loss in its books. In addition, Enron lied to its employees and the public by significantly overstating the value of the company, causing employees and shareholders to lose money, and even go bankrupt. Another illustration of Enron’s wrongdoings was by the CEO, who intentionally misrepresented the accuracy of financial statements to auditors. This allowed Enron to be portrayed better, but painted a false financial picture to the public and financial institutions.

The CEO and founder of Enron were both found guilty of conspiracy and fraud. The result of this monumental breakdown of Enron? The Sarbanes Oxley Act: federal law that created new white collar crimes and new standards for public accounting firms, corporate management, and corporate boards of directors.

Joffe Law, P.A. provides aggressive criminal defense on both the state and federal level. If you’ve been charged or arrested with a crime and are looking for representation, call our attorneys in Fort Lauderdale, Florida today at 954-723-0007 for a free case evaluation. We will fight for you to defend your reputation and protect your rights.

Sources:

https://archives.fbi.gov/archives/news/stories/2006/december/enron_121306

http://www.businessinsider.com/how-bernie-madoffs-ponzi-scheme-worked-2014-7

Expanding the Ponzi Scheme Presumption, 64 DePaul L. Rev. 867

http://www.investopedia.com/updates/enron-scandal-summary

Lessons Learned from Bernard Madoff, 42 Ariz. St. L.J. 783

http://money.cnn.com/2013/12/10/news/companies/bernard-madoff-ponzi/index.html

Securities Arbitration Procedure Manual § 5-6 (2016)

The “Green” Effect on White Collar Sentencing, 61 Mercer L. Rev. 1221