White Collar Crime Good Copy

FRAUDULENT BUSINESS OPPORTUNITIES-Pyramid MLMs

MLM (Multi Level Marketing) Sales force is compensated for the sale of merchandise or goods plus compensated for sales by personnel recruited by them. MLMs can be form of direct selling which is legitimate is; "Tupperware" type (home) sales 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 Sales force is also required to purchase merchandise and training aids to keep their distributorship active.

Regulation vs Prosecution

Many consumer and financial businesses provide essential services and goods that would harm most consumers if these businesses were shut down by criminal or civil prosecution. What are they? Banking Communications Transportation Utilities Food and drugs Government (state and federal) regulatory agencies provide industry oversight and can investigate fraudulent allegations and assess fines and other sanctions for each specific industry. Government regulatory agencies will usually refer cases for criminal prosecution if fraud or serious injuries may or do occur.

Criminal Behavior

•CRIMES-Require Two elements: •ACT (action to create the "harm" or injury" INTENT ( the perpetrator intended to commit the harm/injury (Torts only require the "act")

Home repair scam remedies;

•Civil Lawsuits: individual and class action State consumer protection agency •Criminal The problem was always difficulty to prove "intent" vs. "breach of contract" Material misrepresentation

Problematic Areas

•Defining the behavior as a crime; what actually happened ??? •Prosecution Skill of prosecutor to prosecute (most handle "blue collar crime") •Delay in discovery of the crime and delays in investigation •Public perception (not physically harmful, difficult to understand, usually wants only restitution-not prison for offenders. Social acceptance???? Do we look at economic harm differently? •Alternatives? Civil actions (Tort or Crime)

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 Strict Liability 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 case

CONSUMER FRAUD-False Advertising

....."just because it's on television doesn't mean it's true.........." Types of advertising style 1.Informative ads; legitimate and reliable information 2.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 . Not usually enforced by regulatory agencies since the company can say it's an "opinion" 3. Deceptive ads: out right 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 Cosmetic and beauty products When does false advertising become a crime?? Usually when the representations of the performance is based on Fraudulent misrepresentation and/or Intentional adulterated testing "Laboratory testing" gives the consumer the belief ("clinically proven") that the product underwent some form of empirical examination that proves the product works as advertised. Customers may base their purchase decision; (i.e. reliance,) on the "material misrepresentation" of proof of effectiveness or safety "Bait and Switch" is another form of false advertising a product which doesn't actually exist to induce the sale of another sale

UNSAFE PRODUCTS-NEGLIGENCE

1. NEGLIGENT ACTIONS Inadvertently not conducting complete testing Advertising greater performance of a product than results indicate 2. 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) 3. 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

Law enforcement can obtain evidence;

1. Through voluntary compliance 2. Through the use of a "search warrant"- issued by a judge 3. Through the use of a "grand jury subpoena"- issued by a judge 5 th Amendment-protects against self incrimination, and provides for a speedy trial and right to be charged by a "grand jury" What is a "grand jury"? Jurors that DO NOT determine guilt BUT provides for an investigational and accusatorial legal action in criminal matters Most federal white collar crimes are extremely complex and law enforcement uses the grand jury process to obtain evidence and to determine if criminal charges are warranted. If criminal charges are indicated, the grand jury will issue a "INDICTMENT" which is a formal charging document 14th Amendment- requires states to adopt federal rights; due process

Primary Areas of White Collar Crime

1.Consumer Fraud 2.Public Corruption 3.Financial and Corporate Fraud

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 Sealed bid process is designed to ensure the lowest competitive bids are submitted for major constructions, goods or services In "Bid Rigging " 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. Especially when government procurement process is required for selecting a vendor. Government entities use taxpayer funds to obtain good or services Most notable case was between Westinghouse and General Electric Another variation of bid rigging is 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 CONSUMER FRAUD

UNSAFE PRODUCTS-REGULATORY AND ENFORCEMENT AUTHORITY 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" provision

Celebrity endorsements-

Are they persuasive? Can they be unethical if the celebrity believes the product "doesn't deliver"-or if the product is actually harmful ?

REEBOK

Ads for Reebok's toning shoes boasted lab tests had proved the sole's special design would help lead to a more perfect body. Reebok's alluring promise that it's toning sneakers would "make your legs and butt look great." Reebok's claim...."It's the shoe proven to work your hamstrings and calves up to 11 percent harder and tone your butt up to 28 percent more than regular sneakers," a narrator said in one such TV ad. "Just by walking" FTC (Federal Trade Commission) sued Reebok resulting in a settlement statement that "laboratory tests do not show that when compared to walking in a typical walking shoe, walking in EasyTone footwear will improve muscle tone and strength by 28 percent in the gluteus maximus, 11 percent in the hamstrings and 11 percent in the calves." Reebok agreed to pay $25 million back to consumers who purchased Easy Tone athletic shoes

Law Enforcement Agency

An arm of a government (Federal, state , municipal) that is empowered and required to investigate and prosecute crime. All law enforcement is gover need and restrained by constitutional restrictions -BUT law enforcement enjoys "qualitative immunity" against lawsuits. Private, non -governmental, entities (banks, insurance companies, school boards, attorneys, private citizens, etc. may investigate criminal actions but cannot arrest or prosecute. If they are wrong, or commit harm during their investigation, they can be sued. "Jurisdiction": The criminal statute that was violated ( federal or state) determines the law enforcement agency that will investigate the inciden

PRICE FIXING-Archer Daniels Midland

Archer Daniels Midland (ADM) is a multinational corporation primarily engaged in the soybean and grain industry, food processing and commodities Company was founded in 1902 ADM is located in Decatur, IL but operates 270 plants worldwide with over 30,000 employees Lysine is a compound used in animal feed, soaps, and many food products Beginning in 1992-1993 ADM engaged other international companies (potential competitors) to control the price of lysine Mark Whitacre, Engineering VP at ADM became a whistleblower who revealed that ADM had conspuiraed with global companies to fix the price of Lysine. Case resulted in convictions of ADM Inc (the corporations) and three executives. Whitacre however was embezzling from ADM and also prosecuted-getting a greater sentence than the ADM executives. PRICE FIXING-Archer Daniels Midland An ADM senior officer, Mark Whitacre informed the FBI of ADM fixing the price of lysine. Consumers of food products paid higher prices for products that used lysine in the manufacturing process Secret wiretaps recorded top ADM executives engaged in the price fixing plot In 1999 three top ADM executives were charged with criminal violations of the Sherman Anti Trust Act; resulting in prison terms ADM was fined $100 million dollars in a negotiated plea. Whitacre was found to have embezzled from ADM Inc, which nullified his "proffer agreement" as an "unindicted co conspirator." He was subsequently convicted and sentenced to 6 years in federal prison.

CONSUMER FRAUD

Auto repair Home Repair and Remodeling- Fraudulent Business Opportunities; "MLM" Multi- Level Marketing (Pyramids) False advertising Price Fixing or price gouging On Line Auction Scams Adulterated drugs and food Unsafe Consumer Product

FORD'S COST-BENEFIT DECISION

BENEFITS of No Gas Tank Alterations Savings: 180 burn deaths, 180 serious burn injuries, 2,100 burned vehicles. Unit Cost: $200,000 per death, $67,000 per injury, $700 per vehicle. Total Benefit: 180 X ($200,000) + 180 X ($67,000) + $2,100 X ($700) =. $49.5 m

Bell Telephone-AT &T

Bell Telephone Company organized in 1877 by the family of Alexander Graham Bell Company expanded to Europe in 1879 (International Bell Telephone Company) Bell Telephone in 1881 acquired "Western Electric" from Western Union Company organized under what is now known as AT&T (American Telegraph and Telephone) in 1888 By 1945 50% of all households had phone service By 1969 90% of all households had phone service Bell-AT&T became the largest company in the world with one million employees; .......aptly named "Ma Bell" Before 1984 if you wanted any phone service or equipment it had to be an AT&T company Government Control of Communications Bell executives believed that telephone service would best be served by a one phone company with universal service For much of its history, Bell System functioned as a legally organized, regulated monopoly Was this service considered essential or irreplaceable? And did it effectively eliminate competitor companies from offering phone service? The Anti Trust Division of the US Justice Department thought so and in 1974 filed a suit alleging monopolistic violations of the Sherman Anti Trust Act In 1982 AT&T agreed to divest its control over all local phone service retaining only long distance January 1984 Bell-AT&T was broken up into multiple companie

What makes many MLMs a pyramid?

Commissions from recruitment is outlawed in most states because recent entrants can not mathematically earn what original distributors made. 99.9% of participants lose money after comparing profits with their continuing expenses "Market saturation" as distributorships increase decrease the amount of people to sell product to mathematically decrease MLMs have been associated with "cult- like" behavior; i.e. aggressive recruitment, protective attitudes, relationship based

What will CRJ 312 study?

Consumer Fraud (telemarketing, unsafe products, multi level marketing-pyramids, false adv.) Medical Fraud (pharmaceutical misbranding, ancillary services) Corporate Fraud ( Enron-Arthur Andersen) Investment Fraud (ponzis-Bernie Madoff) Anti Trust Violations (Microsoft) Price Fixing (ADM-Archer Daniels Midland) Bid Rigging 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)

United States vs. Microsoft Corporation

Developed "Windows" operating system for PCs by 1991 Windows OS installed on 90% of PCs By 1998 Windows OS was installed on 97% of world PCs In 1991 the FTC (Federal Trade Commission) filed an action against Microsoft as a monopoly; then turned over prosecution in 1994 to the Anti Trust Division of U.S. DOJ 1995 Microsoft forced major PC manufacturers to accept Windows operating systems that can only access "Internet Explorer" (IE) as the internet browser; thereby marginalizing a competing browser "Netscape" 1997 U.S DOJ-Anti Trust Division filed action against Microsoft regarding the IE internet browser product in that Microsoft used monopolistic tactics to harm competitors Gates asserted that Microsoft was being punished for being too successful and actually a value to consumers Gates asserted that the government brought action on the behest of competitors-not the consumers. In the trial both plaintiff (U.S.) and defendant (Microsoft) used economists from MIT to bolster their claims During the trial, Microsoft offered "video demonstrations" that they believed supported their legal arguments BUT the videos were found to be "doctored" to mislead the court In Nov. 1999 the federal courts found Microsoft to be a both "monopoly" and in violation of the Sherman Anti Trust Act by engaging in anti-competitive and predatory tactics by controlling consumers' use of web browsers. Disposition of the anti trust violation by the court was consideration to breaking up company into smaller "Baby Microsofts" but then decided to split company in two; one to produce operating systems and the other to develop other software products. Microsoft appealed to the U.S. Supreme Court but remanded the case to the appellate court who vacated the trial judge order to split Microsoft but In a 2001 agreement between the government and Microsoft, Microsoft desisted from developing systems that prevented other software companies running their product on Windows OS. Microsoft also agreed to over $1 billion settlement plus $750 million to Netscape.-and 2.5 billion to the European plantiffs

Federal Trade Commission (FTC)

Federal Trade Commission Act 1914 Enacted to address deceptive business practices Enforces False Advertising and deceptive practices Violations of the Sherman Anti Trust Act Monopolies Price Fixing Bid Rigging Provides investigative and civil enforcement through Administrative Hearings (civil subpoena power) Company compliance Fines Injunctive relief Criminal enforcement of false advertising and violations of the Sherman Anti Trust Act are referred to the U.S. Dept of Justice

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 "Safety doesn't sell".............Lee Iacocca, CEO Ford Motor Company Ford released the Pinto without gas tank modifications in 1971, production ran till 1980, 2 million were eventually sold. Internal conflicts existed within FORD between engineers, who wanted gas tank defects corrected, and sales force who addressed issue through "cost-benefit analysis" Guess what corporate decision Ford made?

FORD PINTO

In May 1972, Lily Gray was traveling with thirteen year old Richard Grimshaw in a 1972 Pinto when their car was struck by another car traveling approximately thirty miles per hour. The impact ignited a fire in the Pinto which killed Lily Gray and left Richard Grimshaw with devastating injuries. A judgment was rendered against Ford and the jury awarded the Gray family $560,000 and Matthew Grimshaw $2.5 million in compensatory damages. The surprise came when the jury awarded $125 million in punitive damages as well. This was subsequently reduced to $3.5 million. On August 10, 1978, in Elkart County, Indiana, three teenage girls stopped to refuel the 1973 Ford Pinto sedan they were driving. After filling up, the driver loosely reapplied the gas cap which subsequently fell off as they headed down U. S. Highway 33. Trying to retrieve the cap, the girls stopped in the right lane of the highway shoulder since there was no space on the highway for cars to safely pull off the roadway. Shortly thereafter, a van weighing over 4000 pounds and modified with a rigid plank for a front bumper was traveling at fifty five miles an hour and struck the stopped Pinto. The two passengers died at the scene when the car burst into flames. The driver was ejected and died shortly thereafter in the hospital. The main controversy surrounding the Ford Pinto case was The Ford Motor Company's choices made during development to compromise safety for efficiency and profit maximization Ford crash tested 11 cars prior to production, in rear collisions 8 of the 11 resulted in ruptured gas tanks which would certainly cause catastrophic (deadly) results. September, 1978, at the suggestion of the Department of Transportation, Ford recalled 1.5 million Pintos for gas tank adjustments 1979 Ford Motor Company became first U.S. corporation to be indicted for criminal homicide. (State of Indiana vs. Ford Motor Company) Prosecutor presents that Ford knew that design defect will result in deaths; used a cost vs. benefit formula to justify failure to correct the gas tank. 1980 Ford was acquitted of criminal homicide charges; cited they followed NTSB guidelines for repair of defects. Also presented was evidence that driver of van had controlled substances in the van; victims stopped Pinto in the running lane because there was no shoulder to pull over.

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

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 Expanded the power of the Sherman Anti Trust Act Mergers What's a merger? Why are they important to the consumer? Anti-Trust Violations Sherman Anti-Trust Laws Federal law which governs Monopolies that are harmful to the consumer and competitors Price Fixing and Price Gouging Bid Rigging States have enacted individual anti-trust laws which may be prosecuted by the Attorney Generals of each state. Most anti trust laws are prosecuted federally since large companies that provide irreplaceable services or goods operate in multiple states and global

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-protects against unreasonable search and seizure

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 A member of Merk's safety board discloses ownership of Merck stock (inherent conflict of interest) Trade publications regarding Vioxx left out additional deaths and cardiovascular problems January 2002 through August 2004 numerous independent studies link Vioxx to increased risk of cardiovascular problems, 80 million patients had already taken Vioxx September 2004, Merck withdraws Vioxx from distribution after publication reveals Vioxx responsible for 88,000 heart attacks resulting in 38,000 deaths. August 2005 first liability case to go to trial in Texas. In a deposition testimony reflected that Merck withheld critical information from public Merck contends there was no risk from Vioxx unless patients took it more than 18 months. Studies found that to be untrue November 2007, Merck agrees to pay $4.85 Billion to settle claims but never admits fault-also litigation revealed inferences of cozy relationships between Merck and the FDA approval staff 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

Auto Repair Scams

Most fraud committed by mechanic shops are for 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 solution

Unsafe Product Liability

Negligence (inadvertent mistakes or omissions) Gross Negligence (intentional or extreme carelessness) Criminal Negligence (likely to cause death or serious injury) Liability-"Legally Responsible" "Strict Liability" Products that involve ULTRAHAZARDOUS activity Most involve food, drugs, driving, infant care Intent or negligence NOT required to be held liable

THE "DALKON SHIELD

On the 60s and 70s, an alternative birth control device was developed called the "IUD" (intra-uterine device) IUDs are inserted into the uterus by a physician, and prevents pregnancy by blocking the embryo from embedding. Hugh Davis, a gynecologist, invented the "Dalkon Shield " in 1967-1968, an IUD believed to be safe and effective. Davis with three others created the Dalkon Corporation A.H. Robbins, a pharmaceutical company purchased Dalkon Corporation on June 12, 1970 and began to market the Dalkon Shield; but retained Davis as a consultant and stockholder Weeks later, after purchase of the Dalkon Corporation, corporate officers at A.H. Robbins received a memo questioning the safety of the "wick" portion of the IUD citing the likelihood of the device to cause pelvic bacteria infection. January 1971, A.H. Robbins began marketing product citing safe and effective. 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 Between 1971 and 1974, 2.2 million units were sold in the U.S., 1.5 million sold abroad Reported effects: 18 deaths 200,000 illnesses 60% miscarriage rate when device failed to prevent pregnancy Under pressure from the FDA, A.H. Robbins voluntarily withdrew the device from the market in June 1974 300,000 lawsuits were filed; A.H. Robbins defended itself by asserting that physician negligence in insertion was the cause of the problems Davis, the inventor, conducted the clinical trials; (testing) and declared the device safe but continued to earn a profit from each device sold. This was never disclosed in marketing or advertising. $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 Largest single payment was $2.2 million to the family of a severely deformed girl who was conceived while the mother used the device. The Dalkon Shield became the largest product liability case since asbestos liability. BUT.......................................................... The interest on the profit made from the device was able to payoff all claims, and filing for bankruptcy quadrupled the stock value making the company a profitable acquisition. A.H. Robbins was sold to American Home Products 1976, Congress amended the Food, Drug, and Cosmetic Act to require FDA testing and approval of "medical devices" Unsafe Products-Tobacco Industry 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. Discussion? What is more offensive? Withholding negative testing-"rat findings" Adding nicotine to keep smokers addicted Advertising that the product is safe Are we too paternalistic if smokers know the risk

•HOME IMPROVEMENT FRAUD

One of the most common of consumer complaints Con artist provide inducements or material misrepresentations to furnish construction or repair: We have "extra material left over" leading to a promise to provide deep discount Shoddy workmanship, minimal work, or provides deficient material to complete job Perpetrators are often transient and difficult to locate after the work was completed Types of work: Driveway paving Fences Concrete Siding & Roofing Landscaping

DID FORD REALLY SAVE MONEY

Pinto production halted five month after the criminal trial in 1980 due to negative publicity ESTIMATE 60 PEOPLE DIED BY PINTO CRASH FIRES Ford never achieved the goal of 11 million units Expense of recall Expense of multiple tort actions (deaths & injuries) Ford perceived as morally and ethically bankrupt; a company that placed a dollar value of human life; able to prevent the problem for $11. per vehicle Do we consider withholding a safety product to maximize profits a white collar crime?

ADM............ What did we learn??

Price Fixing is a conspiracy or intentional agreement between companies that acts like a monopoly The act is criminal since "it's a conspiracy to defraud" consumers But for whistleblowers like Whitacre, this crime can easily go undiscovered Federal investigations can take years to solve and prosecute Corporations (ADM Inc) 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 the price fixing The case against ADM was saved because of wiretap evidence

Government Regulation of Industry Pricing

Regulation vs. Deregulation by the government are major economic AND political issues in the US. Deregulation philosophy believes that competitors will compete with each other to keep consumer prices down Obviously price fixing by competitors does not accomplish better consumer pricing Deregulation also allows for price gouging, such as in the energy markets (ENRON) In deregulation government can still regulate safety and environment ( health and transportation) Regulation by the government is a philosophy where the government controls pricing to protect the consumer. The problem with government regulation is that it 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 regulations; stifling their ability to lower consumer cost Who pays for the additional government oversight?Taxpayers

WHITE COLLAR CRIME FACTS

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 Impact Estimate loss at $300 to 660 Billion/yr vs. (FBI) VS. $17.6 Billion for street crime (Rosoff, et al-Text)

PA HOME IMPROVEMENT CONSUMER PROTECTION ACT , HICPA (2009)

Requires registration of contractors; including all personal and business information; any history of prior lawsuits or criminal action Requires proof of insurance Grading of crime is enhanced if victim is over 60 years old "strict liability" for accepting payment and not performing' and failure to return money.

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

The Economics of White Collar Crime

The usual and customary goals of fraud are to obtain wealth; or control of wealth through some form of deceitful behavior or misrepresentation of fact The 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 A fraudulent misrepresentation can be "committed" or "omitted" E.g. Any intentional omission to conduct safety or quality inspections to maximize profits are also considered fraudulent misrepresentations.

UNSAFE PRODUCTS LIKELY TO HARM

Tobacco Industry Automotive Industry Food Baby Products Cribs, strollers, car seats, toys Medical Pharmaceutical Medical devices Screening or diagnostic tes

COSTS if Gas Tanks are Sales: 11 million cars, 1.5 million light trucks.

Unit Cost: $11 per car, $11 per truck. Total Cost: 11,000,000 X ($11) + 1,500,000 X ($11) = $137 million.

Price Fixing

What is Price-Fixing? Companies involved in collusion with each other to control (usually raise) prices of essential products or services Opposite of the usual commercial philosophy to undersell competitors. Competition favors consumers- price fixing does not. Why is price fixing a violation of the Sherman Anti Trust Act? Deprives the consumer the advantages of market competition Involves a conspiracy between companies to defraud

PRODUCT LIABILITY

What is the application of "strict liability" to consumer products?? Any product which may jeopardize the health or personal safety (ULTRA HAZARDOUS ACTIVITY) 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 system

MONOPOLIE

What's a monopoly???? e.g. Microsoft "single company provides a irreplaceable item or service; allowing that company to charge exorbitant prices to the detriment of the consumer" Regulated vs. Unregulated Monopoly Regulated: government controls pricing to protect consumer Unregulated: monopoly can operate without government oversight.

"Fraud"

White Collar Crime is a term we closely associate with "Fraud" What words do we associate when we use the term "fraud" ?? Deceit? Lies? Greed? Something of value? (money, wealth) Fraud for our purposes is "The Intentional Misrepresentation of material facts or beliefs to obtain something of value"

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 others ( and sometimes they are)

UNSAFE PRODUCT

Why do we study "unsafe products" as a "white collar crime? Can there be a "a material misrepresentation" by a company to obtain something of value? Product Performance Requires a 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 result 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

Price Fixing vs. Price Gouging

•Price Fixing Involves collusion with two or more companies Can involve any product or service Is always a crime since there is always a conspiracy to defraud consumers •Price Gouging Can be only one or several companies Usually involves exploitative price increases in ESSENTIAL products and services Occurs often after periods of EMERGENCY or incident making the product scarce (water, fuel, food, housing) Most states have passed criminal statutes against price gouging