Criminal law is a body of law that deals with crimes as described under the penal code. Also known as the penal law, this body regulates social conducts and proscribes whatever is deemed harmful, threatening or otherwise a danger to property, life, health, safety and the moral welfare of the people. Criminal law is broad and it basically refers to the state and federal laws that render certain behaviors illegal and punishable through fines, imprisonment or both (Emanuel45). Criminal law is a part of the national legal system that also includes civil laws, which address issues to do with legal duties and responsibilities. In criminal laws the punishment that fits the people who disrespects the laws is also included (Jefferson 34).
White collar crimes are a term used to refer to financially motivated economic crimes that are committed by individuals, businesses, and governmental professionals. This term was first defined in 1939 as a crime that is committed by a person of respectable high social status during his or her term in office (Emanuel, 21). Criminology describes examples of white collar crimes as those that include bribery, fraud, pyramid schemes, fund embezzlement, money laundering, forgery, identity theft, insider trading, cyber-crimes as well as copyright infringement (Schnabel et al. 43). In addition, crime classification also includes tax evasion, bankruptcy, trade secret theft, economic espionage, kickbacks, and securities frauds among others.
According to Emanuel (41), the penalties available for white-collar crimes include fines, community confinement, home imprisonment, restitution, forfeiture, imprisonment or supervised release. In the United States, these punishments have grown harsher after the Enron and Jeffrey Skilling scandals which saw the enactment of the Sarbanes-Oxley Act in 2002 that was passed by the US congress. The crimes were redefined and the penalties for mail and wire fraud crimes increased, while in China, white collar crimes attract a death penalty (Bevans 29). In Canada, there has been a consideration featuring the capital punishment between parties where a breach of trust is involved. However, the disparity involved in the degree of sentencing of white collar criminals continues being debated all over the world.
The Enron Scandal
This was one of the biggest securities scandals in the history of the United States. Until 2015, the investigation of the extent to which the Enron scandal was committed still continued. Enron was a Houston based energy company formed after the merger between InterNorth and Houston Natural Gas. Its main business was trading energy related products on both domestic and international basis. After a period of domestic and international expansion, which involved complicated contracts and deals, Enron entered billion dollar debts. However, all these debts were concealed from the company’s shareholders through fraudulent accounting, illegal loans and partnership with other companies (Sterling54). Some of the organizationsand partners that provided a criminal environment to Enron and assisted in hiding its debts and dubious activities included the following.
This was a group of companies that secretly benefitted from the funding of Enron. The company bought windmills from Enron for the purpose of generating its own power. However, the mills were later sold back to Enron with the highest proceeds being transferred to Enron’s officials’ personal accountsand those of their proxies.
This company was formed by Enron’sexecutives for the purpose of buying out CalPERS interests jointly with JEDI. The company’s intention for buying out CalPERS interests was to maintain JEDI out of the main accounting books.Nonetheless, ChewCo and Enron did not meet the required principles of accounting when recording the transaction. Instead, they claimed that they were entitled to some profits for the transaction. When ChewCo’s interest was purchased, the prices were driven.Thus,the original investors, who were basically Enron executives, realized very huge profits.
In a limited partnership with Credit Suisse First Boston, Enron also purchased the stocks of National Westminster Bank and paid a lump sum of $20 million. However, in the company’s books of accounts, only one millionof dollars was recorded as being spent on NatWest and the remainder went to some Enron’s executives’ personal accounts in addition to NatWest’sstaff who were accomplices in the scandal (Sterling29). The announcement of Enron’s net worth in 2001 prompted the SEC to launch investigations to unearth the source and cause of the disparity. This investigation revealed numerous illegal and deceptive practices conducted by eminentdirectorsof Enron in collaboration with partners in the investment banks and Arthur Anderson, the accounting firm of Enron.
Legal Issues Related to the Case
The collapse of Enron raised more questions about integrity even after Andersen, the company’s auditor, admitted to errors of judgment in the treatment of debt in Enron’s balance sheet and overstatement of the profits. The overstatement was against the principles of the GAAP standards. The five-year investigation led to the conviction of Enron’s top officials who enriched themselves by erroneously providing the investors with sham accounting. Being a high ranking white collar crime, it was administered by the highest levels of FBI, Department of Justice and Securities and Exchange Commission (Gledhill37). What emerged after the investigation was a pattern of inter-related schemes that toppled the company and boasted of more than $1.5 billion in annual revenues. The company’s fledging broadband ventures were overstated by the officials hitching the company’s stock prices to the stars. The company also overvalued its international assets to generate the required cash flows and manipulate the quarterly earning statements in order to please the Wall Street and maintain the stock prices afloat.
As a result of the prosecution,Skilling and Lay, former Enron’s CEOs,were accused for purposefully turning a blind eye to the three-card Monte game perpetuated by Enron for a period of about seven years. SEC discovered a series of fraud schemes committed by high ranking officials and most of them were charged with money laundering, wire fraud, securities fraud, conspiracy and mail fraud. The top management saw no evil because the actions allowed them to get money from Enron’s fluffed-up stock prices. If the two executives were more competent and curious, Enron would never contort its business practices to conceal its failure.
The former CEO of Enron, Jeff Skilling,was sentenced to 168 months in prison for security fraud, conspiracy and other charges related to the collapse of the Enron Company. In addition, he was ordered to forfeit $42 million as restitution to the victims of the fraud he was involved in. Arthur Andersen was also found guilty of destroying the case documents that were relevant to SEC’s investigation, which led to voiding its operating license to audit public companies, thus closing its business (Gledhill41). The employees and shareholders received very little returns from the lawsuit in addition to losing billions in stock prices and pensions. As a result of the scandal, Sarbanes-Oxley Act was passed to increase the penalties for altering, destroying and fabricating records for criminal investigations or any attempt to defraud the shareholders.
Applying Criminological Theory to the Enron Case
Greed is one of the best terms that can be used to describe and explain the Enron case, because it played a major role in the development of the scam. Enron scandal can be explained as the outcome of a complex collaboration of a number of individuals operating from different levels in the company. Enron occurred within a context of a consumeristpartisan economy that established the fundamental conditions for the operations of private companies linking them with definite cultural values. These values promoted free competition, pursuit for profits, market expansion and growth (Schnabelet al. 56). During the same period, the expansion of stock option plans, bonuses and other forms of reward by top executives were developed. This development led to the escalation of stock prices, which was arguably the surest way for corporate managers to get wealthy and encourage blatant fraudulent bookkeeping related to the production of corporate financial statements.
The legal and political context can also be taken into account when considering white collar crimes in the United States. Although many legislators and political leaders expressed their disappointment and outrage over Enron, they played a key role in providing a legal environment in which such crimes thrived. The legal support facilitated the unethical and illegal activities of these corporations (Li 34). For example, in 1995, a legislation that shielded companies and accountants from investors’ lawsuit was passed, and in 2000, the regulators were forced dilute the proposed restrictions on the accountants (Gledhill 44).
In order to avert such problems, the legislation related to investors’ lawsuits was enforced to put tougher burdens on the part of the plaintiff, provide proof of criminal intent and also shorten the limitation statute for filing such lawsuits. The laws put limits on pretrial discovery and accountants liabilities as well as impose the obligations on the plaintiff who losses such a suit to meet the legal costs. The effect of such regulations was to provide accountants, auditors and the company’s management with a sense of relative immunity against any form of financial manipulation that may cause harm and loss to the investors.Therefore, investor confidence, which had declined due to such cases as Enron, improved as a result of these amendments.
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Emanuel, Steven. Criminal Law. New York, NY: Aspen Publishers, 2010. Print.
Gledhill, John. Corporate Scandal: Global Corporatism against Society. New York: Berghahn Books, 2004. Print.
Jefferson, Michael. Criminal Law. Harlow: Pearson Longman, 2007. Print.
Li, Enshen. Business and Corporate Law. Place of publication not identified: Thomson Lawbook Co, 2015. Print.
Schnabel, Vito, Agnes Gund, David Rimanelli, Rita Ackermann, Tauba Auerbach, Dan Colen, Rashid Johnson, and Josh Smith. White Collar Crimes, 2013. Print.
Sterling, Terry. The Enron scandal. New York: Nova Science Publishers, 2002.Print.