Economic & White-Collar Crime Impact on Business & People

In all of American history as far back as we have recorded, crime has been prevalent. It has taken place nearly everywhere. There are no exceptions. As technology advances and corporations grow, new crimes begin to surface that not only impact people, but businesses and the economy as well. Economic crimes as well as white collar crime and blue collar crimes continue to impact our society and structures of life in many different ways and are displayed throughout our everyday lives.

So, what exactly is white collar crime in the first place? White collar crime is, “the full range of frauds committed by business and government professionals. These crimes are characterized by deceit, concealment, or violation of trust and are not dependent on the application or threat of physical force or violence” (FBI.gov) Like every crime, there is usually a contemporary motive. The motive that usually resonates itself with white collar crime is financially based. These criminals wish to obtain or avoid losing money, property, or services or to secure a personal or business advantage. These crimes are usually labeled as fraud, identity theft, money laundering, exploitation and embezzlement. As technology continues to advance, white collar crimes become more sophisticated. These scams that are orchestrated can destroy whole companies as well as families and major investors. An example of white collar crime displaying this destruction is the Bernie Madoff Ponzi scheme. This case involved the former chairman of NASDAQ. Madoff managed to build a multi-billion dollar investment firm with false trading reports. It had appeared he had a business making billions, when in fact he was in a major embezzlement and the firm was in major debt, but stocks showed otherwise. Although he had been suspected of being fraudulent before, it wasn’t until 2008 that he was arrested after his corruption was reported by one of his sons. In 2009, he was sentenced to 150 years in prison and $170 billion in restitution. Due to this major scam, investors lost billions of dollars, and three people involved with the business committed suicide. This shows that white collar crime really can affect more than just the person who's committing the crime. It tears investors lives apart because they’re essentially putting money into a broke company and evidently makes the investors broke. It hits the economy extremely hard as well, because once the business truly goes under, the stock market then takes a major hit. This then effects families because if the economy isn't performing well, prices rise, unemployment rises and families cannot support themselves.

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While white collar crime is involved with fraud, there is another criminal activity known as blue collar crime that reflects on the opposite. Blue collar crime is any crime committed by an individual from a lower social class as opposed to white-collar crime which is associated with crime committed by someone of a higher level social class. Blue collar crime has no definite legal classification because it holds to a specific group of crimes. Although blue collar crime is on a smaller scale, it still affects the economy, families and investors just as white collar crime does. Some crimes that are known as blue collar crime are labeled as drug production or distribution, sexual assault, theft, burglary, assault or murder. Blue collar crimes are significantly more common than white collar crimes. Impoverished or lower class people are typically the ones committing to these crimes. There are many aspects as to why these people commit these crimes, but many theorize that it has to do with low income, psychological problems, the broken windows theory or emotional issues. Blue collar crime doesn’t affect businesses or economy as much as white collar crime does, but it does affect families a great deal. Blue collar crime doesn't affect businesses and the economy as much as other crimes because these crimes simply aren't involved with business practices or the stock market. Blue collar crime is involved with small scale operations and tend to be located within the lives of lower income individuals. While these crimes don't affect the economy as much, they do affect families. These crimes affect families, because the crimes can take the lives of many people living in families whether it be through murder, drugs burglary or sexual assault. These crimes are traumatizing and are on a much more common scale than white collar crime because there are a lot more people in lower classes than very high classes in our country.

Finally, the last type of crime regarding businesses, the economy and families is known as economic crimes. Economic crimes are the most similar to white collar crimes because they are more focused on money and the upper class are the ones committing these crimes. Economic crimes are simply defined as corruption. The corruption occurs within the economy and is mainly associated with finance. Economic crimes are also mainly called financial crimes because of their association with money. Economic crimes are opinionated to be some of the most dangerous crimes. They are believed to be some of the most dangerous crimes because they not only affect the upper class, but all people involved in the workforce, real estate, stock market and much more. The country can take a major hit and put itself into even more debt due to stupidity. One example of a major economic crime is when the HealthSouth founder ordered to pay nearly $2.9 billion to shareholders because of a massive accounting deceit that nearly bankrupt the rehabilitation chain. Scrushy was sentenced to 6 years and 10 months from a separate case for bribing his governor from Alabama. His mansions, luxury cars and boats are being auctioned off to pay the his massive fine. Corruption like this takes away money from hard working class families and major business as well. Crimes like this always tend to exist in our society and will always continue the trend of impacting our economy, businesses and families.

The term ponzi scheme is a widely known fraudulent scam where investors are promised a large sum of profit if investments are made without much risk. The term ponzi scheme came from the person known as Charles Ponzi. Charles Ponzi, an Italian college dropout, born in Lugo, Italy, came to the United States at age 21 in the 1920s and committed multiple schemes that are considered fraudulent. In the early 1900s, people would use International Reply Coupons which were a method of used by people in order to send postage to each other in different countries. He realized that due to post-war exchange rates from World War I, International Reply coupons are worth alot more in the United States than any other country, especially Europe, resulting in his most notorious Ponzi scheme. He was known for being a very charismatic talker and promised investors will make a 100% profit in 90 days by giving him start-up money, which was completely false. The money he used was for buying International Postal Reply Coupons and redeeming them in the United States which would lead him to a richer and more successful life.

Charles Ponzi would be involved in other schemes, such as using funds from his new investors in order to pay off his old investors. The Postal Offices in the United States started becoming more and more skeptical of Charles Ponzi as he gained more investors and notoriety. An investigation was made to see whether or not he is making a profit off the International Postal Reply Coupons, but not enough sales were made to prove if that was the case. Postal inspectors knew he was most definitely doing something illegal with knowledge that he is convincing his victims by mail, but they cannot arrest for committing fraudulent acts because nobody has complained about being scammed.

Ensuing the investigation, many newspaper articles were published with headers which questioned Charles Ponzi’s actions. Ponzi wished to refute his negative public outlook by having a meeting with the local, state, and federal authorities. The authorities heavily recommended Ponzi to audit his books, Ponzi agreed and began to stop taking investments in order to make the auditing easier. Although he wanted to make his reputation better, it actually has worsened. The day after the meeting, swarms of infuriated investors stormed his office and demanded their money back due to fear of Ponzi possibly running away with their cash.

The downfall of Charles Ponzi has just begun, he attempted to repay his a few of his investors back and tried to comfort the ones who he hasn’t paid back yet. Numerous investors started to retract their investments, causing extreme financial loss for Charles Ponzi. It wasn’t until August 9th, Joseph Allen, the Massachusetts Bank Commissioner, demanded the private bank, Hanover Bank Company, to no longer fulfill Ponzi’s checks. Three investors of Ponzi’s have created a petition in court to officially consider Charles Ponzi as bankrupt. Still unable to pay these investors back, Charles Ponzi was charged with mail fraud, but released on a $25,000 bail, he was later arrested again for larceny. The public feared due to these releases, Charles Ponzi might escape the United States and seek freedom from his fraudulent crimes. Later on, Ponzi was federally indicted and charged with 86 counts of mail fraud, intended to face a lifetime in prison. Instead he was charged with a single count and was sentenced to five years in federal prison. He was released 2 and a half years early and was once again indicted for larceny.

After multiple trials regarding his larceny, he was proven guilty on his third State trial and continued to receive requests to invest with Ponzi and Christmas cards in his jail cell. He was sentenced seven to nine years in 1925. When Charles Ponzi was free on bail, he moved to Jacksonville, Florida where he promised investors small amounts of land and a 200% profit in 60 days, which yet was another fraudulent scam. Ponzo was again indicted in Florida, in 1926 and sentenced for a year in Florida State Prison. Ponzi reversed his conviction and was freed by paying a $1500 bond, shaved his head and grew facial hair and moved to Tampa, Florida. While disguising himself, he tried getting on a merchant crew ship, on its way to Italy, in an attempt of escaping the United States.

Unfortunately, he wasn’t successful and was caught in New Orleans, where he was sent back to Massachusetts to finish his prison sentence, spending another seven years. In 1934, Charles Ponzi was released, but as soon as he was released, an order was made to deport him to Italy, eventually leading to his deportation on October 7th of 1934. He attempted to continue his fraudulent schemes in Italy, but weren’t successful. During World War II, Ponzi found a job in a Brazilian airline which he worked for some time. Unfortunately, the airline went out of business as the war went on. Charles Ponzi spent the rest of his days in misery and poverty, until Charles Ponzi’s death in Rio de Janeiro, Brazil on January 15, 1949. Although Charles Ponzi may be no longer living, the term Ponzi scheme lives on as the definition of a well orchestrated financial scam.

Economic crimes is a growing issue in today’s society. Many individuals are accused and sentenced by the federal government. Throughout the years there has been many businesses and individuals that have committed economic crimes. These crimes range from money laundering to selling fake stocks, and even printing fake money. Nowadays there many groups monitoring and preventing economic crimes. From the SEC monitoring the stock market to the secret service removing conterfits from our economy. One of the most well known accused of economic crimes was Jordan Belfort. Jordan belfort was accused and charged with money laundering and securities fraud. Money laundering is the crime of transforming money which you illegally obtained into legitimate assets through a business. Securities fraud also known as stock fraud is a practice used by stockbrokers to persuade a investor into buying stocks through false information. Investors are later to believe that the investment they made lost money when really it made money and the stockbroker pockets the money the believe they lost. These are examples of economic crimes.

Before Jordan Belfort began is period of securities fraud he was a meat salesman which eventually failed. He got entered the stockbroker business through a family friend. He started as a trainee at L.F Rothschild which we would eventually be fired due to the black monday crash of 1987. After being fired from L.F Rothschild Jordan Belfort founded Stratton Oakmont through Stratton Securities that mainly focused on penny stocks. Jordan Belfort stole from his investors through the pump and dump method of stock sales. The pump and dump method a form of securities fraud is illegally increasing the price of a stock that is owned through false statements so the stockbroker could sell the cheaply purchased stocked at a higher price. Then the stockbroker will dump sell their shares so the price falls and investors lose their money.

Jordan Belfort was extremely successful with this method. Stratton Oakmont was continued growing and at its peak once employed one thousand stockbrokers and had issued stock totalling over one billion dollars. Jordan Belfort made it easy for law enforcement to catch on what he was doing. He was living a lifestyle of drugs and parties which lead to his downfall. Ever since Jordan Belfort founded Stratton Oakmont they were always monitored by National Association of Securities Dealers. They are a non government organization who regulates, and enforces operation of the new york stock exchanged. They mainly regulate brokerage firms and exchange markets. The main enforcer in securities that is supported by the government is the Security and Exchange Commision (SEC). The SEC hold many responsibilities such as creating new laws for the economy, enforcing the laws, and regulating the United States stocks and exchange. The SEC monitors financials reports for large companies to make sure they are not committing any illegal law they have created. The SEC was created in 1934 in order to prevent the possibility of economic crash to occur.

With the National Association of Securities Dealer catching up what he was doing it was only a matter of time until they found out. In December 1996, the Nation Association of Securities Dealers expelled Stratton Oakmont from dealing in the stock market putting it out of business. Soon enough the Federal Bureau of Investigation soon looked into what Stratton Oakmont was doing and pressed charges on Jordan Belfort for money laundering and securities fraud. Through interviewing former employees from Stratton Oakmont and wiretapping Jordan Belfort years of partying, drugs, and stealing from investors have all come to a end. In 1999, Jordan Belfort was indicted for his crimes. He was sentenced to four years in prison. Jordan Belfort only served twenty-two months in prison in exchange of a plea deal with the the Federal Bureau of Investigation. For the scam he ran the led investors to lose close to two hundred million dollars. Jordan Belfort was ordered to pay one hundred and ten million dollars to those he stole. Jordan Belfort was required to pay 1,513 clients by 2009.

Jordan Belfort was just a meat salesman before he founded a brokerage firm that issued stocks totaling more than one billion dollars. From 1989 to 1996 Jordan Belfort was able to scam investors and obtain two hundred million dollars. Jordan Belfort left a model for the SEC to follow so no one could ever do this again. Popular in today cultures movies of Jordan Belfort crimes are told shown in The Wolf of Wall Street. Today he is a motivational speaker talking about his successes and his failures to others teaching them the wrongs. After the end of Stratton Oakmont the SEC heavily monitors the stock market and businesses to prevent money laundering and security fraud like this from ever happening again. The trial of Jordan Belfort shows the precaution the United States takes to prevent economic crimes from happening as billions of dollars flow from it. From its government funded organization the Securities and Commision Exchange to its non government funded organization the National Association of Securities Dealers there are plenty of eyes looking at our economy. The Jordan Belfort founded Stratton Oakmont brokerage firm showed a great example of how a economic crime occurred through securities fraud and showed who are those responsible in enforcing these laws to prevent it from happening.

Throughout United States history white collar crimes, blue collar crimes, and economic crimes have affected our nation. Starting from Charles Ponzi crimes in the 1920s to Jordan Belfort crimes in the early 1990s and finally to Bernie Madoff billion dollar scheme which is known as the biggest economic crime. It is very important to secure the investments, and finances of our nation. Without it being secured it could collapse businesses, ruin our stock market and ruin families. We learn from these crimes occuring and we grow stronger and smarter in stopping it from ever happening again. As a nation we have many divisions to help prevent the crimes of our finances. With the SEC it ensures that our stock market will always be monitored. With obtaining financial statements they make sure all the money is going to the right place. It creates rules and regulations to help prevent and business or individual from ever committing a white collar, blue collar, or economic crime. Our nation is the best in fighting these crimes and will continue to grow for the future.

Works Cited

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