Transcript White-Collar Crimes

C H A P T E R 12
Criminal Law
for the
Criminal Justice Professional
Norman M. Garland
Third Edition
McGraw-Hill/Irwin
Copyright © 2012 The McGraw-Hill Companies, Inc. All Rights Reserved.
C H A P T E R 12
White-Collar Crimes
Slide 12-2
12.1
12.2
12.3
12.4
12.5
12.6
12.7
Understanding White-Collar Crime
Tax Evasion
False Advertising
Mail Fraud
Securities Fraud
Crimes against the
Food and Drug Act
Antitrust Crimes and Monopoly
CHAPTER OBJECTIVES
Slide 12-3
1.
2.
3.
4.
Define white-collar crime.
List the elements of tax evasion.
List the elements for a civil
action for false advertising.
List the elements of mail fraud.
CHAPTER OBJECTIVES
Slide 12-4
continued
5.
6.
7.
8.
List the elements of securities fraud.
List the elements of an FDCA action.
List the main federal antitrust acts
and the elements of an antitrust action.
Explain a monopoly.
Slide 12-5
12.1 Understanding
White-Collar Crime
• Examples are:
white-collar crime
– Tax evasion
– False advertising
– Mail fraud
– Securities fraud
– Crimes against the
Food and Drug Act
– Monopolies and
antitrust crimes
A broad category of
nonviolent misconduct
involving commercial and
financial fraud.
12.2 Tax Evasion
Slide 12-6
• Three elements:
– Existence of
a tax deficiency
– Affirmative act
constituting an
evasion or
attempted
evasion of a tax
– Willfulness in
commission of
affirmative act
tax evasion
The willful attempt to
avoid paying legally due
taxes; a specific intent
crime. Also called tax
fraud.
Existence and Proof of a Tax Deficiency
Slide 12-7
• Must show:
– Defendant received
income in addition
to what
was reported
– Unreported income
was taxable
tax deficiency
When the proper amount
of tax to be paid is greater
than the amount shown on
a taxpayer’s tax return.
Existence and Proof of a Tax Deficiency
Slide 12-8
• Direct Evidence
– Involves examining and searching through
defendant’s records for all taxable income,
then comparing it to the tax return filed
– Commonly known as specific items method
• Circumstantial/Indirect Evidence
– Three indirect methods:
• Net worth method
• Cash expenditures method
• Bank deposits method
Affirmative Act
Slide 12-9
• Must perform affirmative act
– Examples include:
• Filing false tax returns
• Keeping a double
set of books
• Concealing assets
• Placing assets in the
name of a third party
• Lying to IRS agents
Willfulness
Slide 12-10
• Voluntary, intentional
violation of a known legal duty
– Government must show that:
• Law imposed a duty on the defendant
• Defendant knew of this duty
• Defendant voluntarily and
intentionally violated this duty
– Supreme Court has established
that ignorance of the law is a
defense when it comes to tax evasion
Defenses
Slide 12-11
• Cash Hoard Defense
– Asserts that there may
seem to be a tax deficiency
but, in actuality, alleged
unreported income is not
taxable for some reason
Defenses
Slide 12-12
• Defense against Element of Willfulness
– Government must show that act
or omission of tax evasion was done
with an awareness of its illegality
• Third-Party Defense: Defense
against the Element of Affirmative Act
– Defense shifts the blame of the
alleged evasion to a third party,
such as an accountant or attorney
Application Case
Slide 12-13
– 12.1
– 12.2
Friedberg v. United States
Spies v. United States
12.3 False Advertising
Slide 12-14
• Like tax evasion,
false advertising can
be a violation of
both state and
federal laws
• Unlike tax evasion,
it can lead to
both criminal
and civil liability
Federal Law
Slide 12-15
• Trademark Law Revision
Act of 1988 (Lanham Act)
– Plaintiff must show:
• Advertiser made false or misleading statement
• Statement or representation actually deceived
• Deception is material
• Goods or services travel in interstate commerce
• Deception resulted or is likely to
result in injury to the plaintiff
Federal Law
Slide 12-16
• Federal Trade Commission Act
– Illegal to create or cause to be created
any false advertisement that is used
for the purpose of inducing, or is
likely to directly or indirectly induce:
• Purchase of food, drugs,
devices, services, or cosmetics
• Purchase of commerce relating to food,
drugs, devices, services, or cosmetics
• Creation of any false
advertisement affecting commerce
State Laws
Slide 12-17
• Defendant may be civilly or
criminally liable under state laws
– In California, criminal violation must:
1. A statement
2. Made by disseminator in connection with sale
or disposition of goods or services
3. Which is untrue or misleading
4. And which statement is known, or should have
been known, to be untrue or misleading
Application Case
Slide 12-18
– 12.3
– 12.4
Truck Components, Inc. v. K-H Corp.
American Home Products Corporation
v. Johnson & Johnson
12.4 Mail Fraud
Slide 12-19
• Four basic elements:
1. A scheme
mail fraud
to defraud
A form of fraud that uses a
2. With intent
mail service to disseminate
to defraud
materials that deceive
people.
3. While using
U.S. Postal
Service or private
interstate commercial carrier
4. In furtherance of that scheme
Scheme to Defraud
Slide 12-20
• Resulted in most litigation
because federal statute neither
defines what constitutes a “scheme”
nor states what types of schemes
fall within the purview of the statute
intangible rights theory
A type of prosecution under mail fraud that was primarily
used to protect citizens from dishonest public officials.
Intent to Defraud
Slide 12-21
• Element of mail fraud is
same as any fraud case:
– Defendant must have
intended to defraud
victim through
defendant’s scheme
– Some courts have
found intent if
defendant was
merely reckless
Intent to Defraud
Slide 12-22
• Use of the U.S. Postal Service
or Private Interstate Carrier
– Originally, federal mail fraud statute
only applied to use of U.S. Postal Service
– Private carrier included if interstate carrier
• Furtherance of the Scheme to Defraud
– Using mail must be part of the fraud
– Two main defenses:
• Good faith
• Statute of limitations defense
Application Case
Slide 12-23
– 12.5
McNally v. United States
12.5 Securities Fraud
Slide 12-24
• Securities fraud can be
criminal, civil, or administrative
– Sarbanes-Oxley Act of 2002
securities fraud
A criminal, civil, or administrative offense with
the following elements: substantive fraud that is
found in the offer, purchase, or sale of a security
or in connection therewith; the use of interstate
commerce or the mails; and willfulness.
Substantive Fraud
Slide 12-25
• Material Omissions and
Misrepresentations
– Government must prove:
1. The defendant made
false statement or omission
2. That is material
3. That is made with knowledge
4. And that caused the injured party’s damages
5. And defendant had a duty
to disclose the information
Substantive Fraud
Slide 12-26
• Insider Trading
– Important question:
who qualifies
as an insider?
insider trading
A type of substantive fraud
that involves the purchase
and sale of securities
based on material,
nonpublic information.
parking
Any sale of securities
that are purchased
with the understanding
that they will be
repurchased by the
seller at a later time,
to manipulate stock
prices or avoid
reporting requirements.
Substantive Fraud
Slide 12-27
• Broker–Dealer Fraud
churning
– Government must
When a stockbroker
excessively purchases and
establish that:
sells securities for a client
• Broker exercised
without regard or concern
control over trading
• Trading was excessive for the client’s investment
objectives but rather to
• Broker showed
advance the stockbroker’s
intent to defraud
own interests, usually by
or willful and
generating commissions.
reckless disregard
Slide 12-28
Offer, Purchase,
or Sale of a Security
• 1933 and 1934 acts require substantive
fraud discussed above be “in the offer
or sale” or “in connection with
the purchase or sale” of a security
– Sale is “every attempt or offer to dispose
of, or solicitation of an offer to buy, a
security or interest in a security, for value”
– Purchase is “any contract to buy,
purchase or otherwise acquire”
Slide 12-29
Use of Interstate
Commerce or Mails
• Securities fraud scheme must
include the “use of any means or
instrumentality of interstate commerce
or of the mails, or of any facility
of any national securities exchange”
Defenses
Slide 12-30
• Three common defenses
to securities fraud:
1. No Knowledge
2. Good Faith
3. Reliance on Counsel
Application Case
Slide 12-31
– 12.6
Dirks v. SEC
Slide 12-32
12.6 Crimes against
the Food and Drug Act
• Underlying purpose of act is to protect the
health and safety of the public by
prohibiting all adulterated and
misbranded goods from entering
the stream of interstate commerce
– Any violation of the FDCA can be a
misdemeanor or a felony and can
result in criminal liability, injunctions,
or seizure of the illegal merchandise
Slide 12-33
12.6 Crimes against
the Food and Drug Act
• Misdemeanor convictions require:
– There must be a “food,”
“drug,” “cosmetic,” or “device”
– Object must be
“adulterated” or “misbranded”
– Object must be introduced
into interstate commerce
– When defendant is corporate
officer, officer must bear a
“responsible relation” to the violation
Definitions
Slide 12-34
• Food
– Includes articles used for food or
drink for humans or other animals,
chewing gum, articles used for
components of any such article
• Drug
– Includes any “articles intended
for use in the diagnosis, cure,
mitigation, treatment, or prevention
of disease in man or other animals”
Definitions
Slide 12-35
• Cosmetic
– Includes “articles intended to be
rubbed, poured, sprinkled, or
sprayed on, introduced into, or
otherwise applied to the human
body or any part thereof for
cleansing, beautifying,
promoting attractiveness, or
altering the appearance”
Definitions
Slide 12-36
• Device
– Any “instrument, apparatus,
implement, machine, contrivance,
implant, in vitro reagent, or other similar
or related article, including any
component, part, or accessory, which is:
• Recognized in official National Formulary
• Intended for use in the diagnosis
[…] or in the cure, mitigation,
treatment, or prevention of disease.
• Intended to affect the structure
or any function of the body.”
Definitions
Slide 12-37
• Adulterated Goods
– An item has been subject to adulteration
adulteration
When the ingredients of a
food, drug, cosmetic, or
device are poisonous,
filthy, putrid, otherwise
unsanitary, or have been
contaminated.
Definitions
Slide 12-38
misbranding
Any branding of a food,
drug, cosmetic, or device
that includes the use of
false or misleading
information, labels,
packaging, or containers.
Definitions
Slide 12-39
• Interstate Commerce
– Not limited “to the actual transportation
of articles across state lines, but
includes the whole transaction of
which such transportation is a part.”
Definitions
Slide 12-40
• Felony: Intent or Prior Violation
– Government has
burden of proving either:
• Defendant had the intent to introduce
adulterated or misbranded foods, drugs,
cosmetics, or devices into interstate commerce;
or
• Defendant has done this in the
past and is now being prosecuted again
Defenses
Slide 12-41
• Fourth Amendment
– Administrative searches, however,
may be valid without a warrant if:
• Inspection is made pursuant to a
regulatory scheme for which there
is a substantial government interest
• Owner is aware of the periodic inspections, and
inspection furthers this regulatory scheme
• Scheme’s predictable regularity leads the
owner to expect it, which creates an
awareness that substitutes for a warrant
Defenses
Slide 12-42
• Impossibility
– U.S. Supreme Court requires
government to show that a
corporate officer whose business
violated the FDCA had the
authority or power to prevent
or correct the FDCA violation
Application Case
Slide 12-43
– 12-7
United States v. Dotterweich
United States v. Park
Slide 12-44
12.7 Antitrust Crimes
and Monopoly
• Antitrust laws protect trade and
commerce from restraints, monopolies,
price- fixing, and price discrimination
antitrust laws
Laws that protect trade
and commerce from
restraints, monopolies,
price-fixing, and price
discrimination, to ensure
and preserve a competitive
economy.
Key Federal Acts
Slide 12-45
• Sherman Act
• Clayton Act
• Robinson-Patman Act
• Federal Trade
Commission Act
The Sherman Act
Slide 12-46
• Government must satisfy 3
elements for civil judgment
and 4 for criminal conviction:
– Two or more entities formed
a combination or conspiracy
– Combination or conspiracy produces, or
potentially produces, an unreasonable
restraint of trade or commerce
– Restraint is on interstate trade or commerce
– General intent (for criminal charges only)
The Robinson-Patman Act
Slide 12-47
– One “engaged in commerce” can be
subjected to criminal liability if s/he
is involved in any sale of goods “at
unreasonably low prices for the
purpose of destroying competition
or eliminating a competitor”
• Known as pricing
• Creates high risk of being sued
The Clayton Act
Slide 12-48
• Prohibits certain types of activities that
harm competition, such as
– Exclusive dealing arrangements
– Mergers damaging competition
• Provides private citizen’s right to sue for
injury caused by violation of antitrust laws
Other Issues
Slide 12-49
• Price-Fixing
horizontal price-fixing
Direct or indirect agreements made between market
participants at the same level within a given market,
regarding the prices they will charge for a similar product
they both sell.
vertical price-fixing
Direct or indirect agreements made between market
participants at different levels within a given market,
regarding the price at which their product will be resold.
Other Issues
Slide 12-50
• Market Allocation Agreements
– Agreements involving market
allocation made between competitors
within a given market to divide up markets
by territory, product line, or customers
• Boycotts
– Klor’s, Inc. v. Broadway-Hale Stores
Other Issues
Slide 12-51
tying arrangement
An agreement that a purchaser must buy additional (or
tied) products along with the one product that he or she
desires; at the very least, the purchaser must agree to not
buy this tied product from any other supplier.
– Illegal if:
• There are actually two separate products
• Seller has substantial market
share in one of the products
Other Issues
Slide 12-52
• Price Discrimination
(Robinson-Patman Act)
– Prohibits price discrimination
that does one of the following:
• Unfairly eliminates competition
by another manufacturer
• Unfairly causes one or more
customers to go out of business
Other Issues
Slide 12-53
• Monopolies
monopolize
To jointly acquire and
maintain the power to
control and dominate
interstate trade and
commerce in a commodity
sufficient to exclude actual
or potential competitors
from the field.
attempt to monopolize
Engaging in behavior and
business practices that, if
successful, would create a
monopoly and that come
close enough to so doing
to create a dangerous
probability that it would
have occurred.
Other Issues
Slide 12-54
• Monopolies
– Conviction requires:
1. Specific intent to obtain
monopoly power in a given market
2. Use of unlawful means
to increase market share
3. Dangerous probability that
monopoly will be obtained