Introduction: Why It’s Important to Learn about Cases
White collar crime continues to be some of the most nuanced and impactful areas of law and business in the United States. From million dollar Ponzi schemes to concealed insider trading and money laundering, cases impact regulation, influence corporate governance practices, and leave lasting marks on companies and individuals alike. Here at White Collar Crime News, we strive to keep our subscribers up to date on the most consequential cases with an eye towards digesting lessons learned and offering insight into new directions for white collar crime in America. In this post, we follow up on a few high profile cases, detailing their ins and outs, legal outcomes, and broader impacts on compliance, regulation, and more.
Enron Corporation: The Quintessential Form of White Collar Crime
Enron Corporation’s 2001 bankruptcy remains one of the largest accounting fraud cases in history. Once touted as one of the most innovative companies in America, Enron utilized questionable accounting loopholes, special purpose entities, and mark-to-market accounting to conceal billions of dollars in debt from failed water projects and other deals. It was all part of an elaborate scheme designed by senior management, including CEO Jeffrey Skilling and CFO Andrew Fastow, who were later convicted for their actions on multiple counts of fraud and conspiracy.
The scandal surrounding Enron’s collapse resulted in shareholders losing more than $74 billion, thousands of employees losing their jobs and retirement savings, and public trust in corporate America plummeting. It also directly led to the enactment of the Sarbanes-Oxley Act of 2002, which established strict new requirements on financial reporting and disclosures, auditor independence standards, and the internal controls corporate officers must submit to.
Bernard Madoff: The Biggest Ponzi Scheme Ever
Bernard L. Madoff Investment Securities LLC was once regarded as a legitimate investment firm until it was revealed in December 2008 that Bernard Madoff had perpetrated a multi-decade long Ponzi scheme. Total losses in the fraud reached more than $65 billion dollars, affecting thousands of investors, charitable foundations, and institutions around the globe. Two main planks of the fraud were steady high rates of return paid to co-investors over time which were funded by new investor contributions and little real investment activity. The subsequent plummeting of top tier institutional investment vehicles from trust caused by Madoff’s demise exposed significant deficiencies in regulatory oversight (the SEC failed to act despite numerous credible warnings). Madoff pled guilty to 11 federal felonies and was sentenced to a maximum of 150 years in prison. The Madoff affair led to major shifts in SEC enforcement activity and inertia, and investor due diligence. It has served as a vivid warning of the consequences of relying on blind trust and the failures of appropriate regulatory oversight for financial systems.
The Wells Fargo Scandal: Incentives and Systemic Issues
Between 2002 and 2016, employees at Wells Fargo Bank created millions of unauthorized bank and credit card accounts in customers’ names, driven in large part by sales targets and incentive compensation. The sales scheme, which resulted in widespread customer harm and reputational damage to the bank, included activities such as forging signatures, moving money without permission, manipulating customer data, and using access codes without authorization.
Federal regulators imposed more than $3 billion in combined fines, and the bank’s CEO and other senior management resigned or were terminated. The Department of Justice and the Office of the Comptroller of the Currency noted the contribution of corporate culture to the abuses. Currently, Wells Fargo is undertaking structural reform in the areas of governance, incentive compensation, and internal controls. This case shows risk stemming from incentive misalignment and highlights the importance of ethical leadership at all levels of a large organization.
Insider Trading: Raj Rajaratnam, the Galleon Group, and the SEC
Few cases in U.S. history reshaped the prosecutor’s approach to insider trading like that of Raj Rajaratnam, founder of the Galleon Group. In 2009, Rajaratnam was indicted for allegedly masterminding one of the largest insider trading rings ever prosecuted. He relied upon a vast network of company insiders and consultants to achieve a continual flow of material information about publicly-traded companies, and then reaped vast personal and corporate rewards. It was a case built entirely on wiretap evidence (the first ever in a white-collar case) and resulted in a conviction – 14 counts of securities fraud and securities conspiracy – and sentencing to 11 years incarceration in federal prison, and over $150 million in fines. This case highlighted the power of advanced investigative techniques, but it helped to promote an aggressive strategy against insider trading that led to dozens more prosecutions in the years that followed.
Volkswagen Emissions Scandal: A Global Corporate Fraud
Though primarily a non-US company, Volkswagen’s activities related to its 2015 emissions scandal had a significant effect on the United States market and regulatory landscape. In short, Volkswagen admitted that it installed “defeat devices” in diesel vehicles to cheat emissions testing in the United States while deceiving regulators and consumers about the cars’ impact on the environment. The fraudulent scheme impacted approximately 600,000 U.S. automobiles and resulted in $25 billion in fines, penalties and compensation.
Senior officers, including former CEO Martin Winterkorn, were charged criminally and the scandal led to numerous changes in automobile regulation and corporate compliance. In the United States, the EPA and Department of Justice stepped up emissions and product claim oversight. The Volkswagen case is a stark example how corporate bad behavior bleeds into legal, financial, and reputational consequences.
Lessons and Continuing Issues
Each of these signature cases highlights how white collar crime can take many forms. Whether it is accounting fraud, investment fraud, systematic abuse in institutions, securities fraud, or fraud perpetrated in corporate contexts worldwide, each of these cases shared failures in oversight, concerns about the risks posed by ethically challenged leadership, and tragic consequences for victims. Significantly, these cases have prompted substantial change in law, regulation, and compliance systems to make white collar crime harder to commit but also harder to identify and analyze.
At the same time, challenges remain. As commercial instruments, technology, and corporate formations evolve so too do the schemes of those who would abuse them. Ongoing focus, training, and reform are the price of the integrity of the financial and business markets.
White Collar Crime News: For Insight & Information
At White Collar Crime News, we aim to deliver authoritative coverage of both the headline-making and the under-the-radar developments in white collar crime from all points of view. Our team of legal practitioners, journalists and researchers collaborates to inform readers – whether you are an attorney, a compliance professional, an executive, a student, or a taxpayer – so that you can stay ahead of the game when it comes to emerging threats and risks. We invite you to browse our pages and take advantage of the storehouse of materials within: commentary, news items, information about specific cases and guidance on conformity with regulations, as well as articles on fraud prevention and corporate best practices. Sign up for our newsletter for fresh alerts delivered directly to your inbox.
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