Corporate and White Collar Crime
Thomas Jefferson School of Law
I. MAIL AND WIRE FRAUD
A. D engaged in scheme to defraud-whts scheme directed towards? Engagement in deception / deceit, false or misleading statement/omission intended to trick V.
B. D acted w/specific intent / purpose to defraud. Distinguish aggressive business behavior v fraud behavior. Purpose isn’t to get bad business people–intent to deceive (no) v intent to defraud (yes).
C. Scheme resulted / would result in loss of $, prop. / honest services.
D. U.S. mail, private courier / interstate / intl wires (financial fraud schemes)
E. Classic Ponzi scheme=fraud investment operation involves promising/paying abnormally high returns (“profits”) to investors out of money paid in by subsequent investors, rather than from net revenues generated by real business. Similar to pyramid scheme though the two are different.
F. Lulling Rule – using M&W to lull V into false sense of security (D had bldgs burned to get fire ins. After rec’ing final payments from ins D mailed form to co listing expenses claimed & attached false invoices. This is “in furtherance of” even though D completed primary deception & got $.
II. CONSPIRACY inchoate. Some stat req “overt act” in furtherance of conspiracy which doesn’t need to be crim. Conspiracy’s a primary means to charge & punish uncompleted crim conduct under Fed law. It doesn’t merge w/obj crime-if obj’s successful, coconspirators punished for obj crime & conspiracy. Look 4 1 overall conspiracy / several small ones!
A. Joinder – can join all Ds together (Resources: efficient, saves time & $). If couple big guys & bunch of smaller guys, if jury hears evid about all Ds in 1 trial then more likely to get smaller players too. If separate trials then smaller guys prob get off b/c coconspirator statement’s hearsay & inadmissible. Venues where any frauds’ committd
B. 2 / more people agree either: 1) to commit any offense against U.S. OR 2) defraud U.S./any agency in any manner / for any purpose. Coconspirator doesn’t need to know scope of crimes, as long as u agree to obj of conspiracy
1. AGREEMENT (meeting of minds) existed (Arch Trading) – proving physical act isn’t req
2. Ds INTENT –knowledge / specific intent. Difficult to prove b/c must show by circumstantial evid
a) Enter into agreement AND
b) That object offense / fraud be committed AND
C. Vicarious Liab: Conspiracy charge can increase scope of D’s liab. Not only may D be guilty of both conspiracy + substantive offense but all co-conspirators may be guilty for addl substantive crimes of co-conspirators under Pinkerton unless u w/draw. Elements – 1) Aided, abetted / encouraged principal’s commission of crime and 2) Acted w/purpose to aid & abet & w/purpose that object crime be committed
III. CORPORATE LIABILITY no body to act (actus reus) & no mind to think (mens rea). 1) Liab to ensure corps adeq supervise agents & ees, 2) encourages corp to develop gen’l policies to deter wrongdoing & 3) places responsibility on entity that benefits from wrongdoing rather than solely on indiv
A. CL Fed Respondeat Superior imposes liab on corp for acts committed by corp agents acting: 1) On behalf of corp; 2) To benefit corp and 3) W/in scope of agent’s authority
B. MPC Test more restrictive than Fed Respondeat Superior test. Only applies to high managerial agent (firm P’ner). Responsible Corp Officer Doctrine
1. Offense is a violation / defined by stat other than MPC in which legisl purpose to impose liab on corp plainly appears & conduct’s performed by agent of corp acting on behalf of corp w/in scope of his office / employment…; or
2. Offense is omission to discharge specific duty of affirmative performance imposed on corps by law or
3. Most important: commission of offense was authorized, requested, commanded, performed / recklessly tolerated by BoD / high managerial agent actin
B. Civ & crim fraud provisions of these statutes only apply when there’s been a purchase/sale of security. Theory’s that full disclosure of info’s critical or else market won’t work properly. Both stats criminalize violations of either act. Each stat has “catch-all” fraud provisions in initial issuance / trading.
1. Securities Act of 1933 = regulates co’s original registration & issuance of securities known as “primary” / “new issue” securities market. Governs disclosure of info to potential purchasers of those securities.
a) Most crim cases fall under the willful violation of statute’s “catch-all” anti-fraud provision in §17a
2. Securities Exchange Act of 1934 = governs trading in the “secondary” / “trading” market.
C. § 10b and 10b5.
1. Govt must prove:
a) D engaged in fraudulent scheme or
b) Made a (untrue statement of) material misstatement or
c) Omitted material info to one to whom D owed a duty
(1) Omitted statements are problem area b/c most transactions are “arms-length” Caveat Emptor transaction. Actionable only when D owed duty.
2. Scheme, misstatement/omission occurred in connection w/purchase or sale of security and
3. Mens rea: D acted “willfully”
a) O’Hagan – “Willful” = intentional doing of a wrongful act – no knowledge of the rule / regulation’s req. Cts say “recklessness” meets willfulness standard.
b) Prison rule=Affirm defense: crim cases, if D can show he doesn’t know what rule is then no prison. Thus, no knowledge of rule’s needed
4. Prof’s addl element: Must trade “on basis of” misstatement / omission