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Week 4 Notes

by: Natasha Harvey

Week 4 Notes BUS-L201

Natasha Harvey
GPA 3.307
The Legal Environment of Business
Victor Bongard

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The Legal Environment of Business
Victor Bongard
Class Notes
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This 7 page Class Notes was uploaded by Natasha Harvey on Friday February 6, 2015. The Class Notes belongs to BUS-L201 at Indiana University taught by Victor Bongard in Spring2015. Since its upload, it has received 42 views.


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Date Created: 02/06/15
Chapter Five Terms and Concepts Criminal Law and Procedure Criminal Law The body of substantive law defining conduct that society deems so harmful that such conduct should be made illegal and punishable by a fine incarceration or both and setting forth the potential range of punishment for such acts Criminal Procedure The body of procedural law that dictates how criminal laws are enforced In the US many such procedures are related to certain rights guaranteed under various Amendments to the US Constitution Eg the rights to Due Process and trial by jury the right against selfincrimination protection from double jeopardy right to protection from unreasonable search and seizure right to a speedy trial right to counsel right to be adequately informed of criminal charges etc Presumption of Innocence A fundamental principal of English and US common law also recognized by many other nations and various social and religious traditions holding that the accuser not the accused has the burden of proving a criminal charge This gave rise to the notion of innocent until proven guilty Thus the government has the burden of proof with regard to each element of a charged criminal offense Beyond a Reasonable Doubt The burden of proof necessary for the government to prove each element of its case against an accused criminal defendant This standard is much higher than the preponderance of the evidence burden of proof generally applicable to civil trials If a jury finds that a defendant is guilty beyond a reasonable doubt it means that the prosecution has demonstrated to the jury that there is no reasonable interpretation of the facts presented at trial other than that the defendant committed the particular crime of which he or she is accused GuiltyNot Guilty The terms used to describe whether a criminal defendant is convicted or acquitted Analogous to the terms liable and not liable used in civil cases Note that not guilty is not necessarily the same as innocent Felony A serious crime for which a defendant can be sentenced to more than one year in prison Misdemeanor A less serious crime for which a defendant may be fined andor sentenced to incarceration of 12 months or less Plea Bargain An agreement between the prosecution and defense that in exchange for an agreed sentence sentencing recommendation andor reduced charges the defendant will plead guilty The punishment sentence imposed by the court following a plea bargain is usually less severe than the sentence might have been if the defendant had exercised his or her right to a trial and had been found guilty A plea bargain is analogous to settlement of a civil lawsuit As in civil cases the great majority of criminal cases do not result in trials Occasionally during the course of entering a guilty plea one might witness astonishing admissions such as Your Honor for many years up until my arrest on December 11 2008 I operated a Ponzi scheme through the investment advisory side of my business Bernard L Madoff Securities LLC which was located here in Manhattan New York at 885 Third Avenue I am actually grateful for this rst opportunity to publicly speak about my crimes for which I am so deeply sorry and ashamed As I engaged in my fraud I knew what I was doing was wrong indeed criminal When I began the Ponzi scheme I believed it would end shortly and I would be able to extricate myself and my clients from the scheme However this proved difficult and ultimately impossible and as the years went by I realized that my arrest and this day would inevitably come Bernard L Madoff lnstead of guilty a defendant might also plead no contest nolo contendere or not guilty but accept a finding of guilt an Alford plea named for the 1970 US Supreme Court case of North Carolina v Alford Named for the infamous Charles Ponzi who was convicted and sentenced to prison for promising high rates of return to investors in a postal reply coupons arbitrage scheme that ran for about a year in the early 19205 Instead of actual investment returns earlier investors were paid using money entrusted to Ponzi by later victims of the scheme A Ponzi scheme is defined at online dictionary merriamwebstercom as an investment swindle in which some early investors are paid off With money put up by later ones in order to encourage more and bigger risks On the civil side legal fallout from the Madoff ponzi scheme continues with settlements like this httpwwwbloomberqcomnews201402 04ipmorqans543 millionmadoff trusteesettlementaoprovehtml Ponzi schemes also continue to emerge httpdealbooknvtimescom20140710desoiteexposureof madoff fraudnewponzi schemesemerqe thtrueamp tvoebloosampemcedit dlbkam 20140711ampnlbusinessampnlid60758359amp r 0 White Collar Crime see text p 158 Crimes committed by businesspeople usually harmful to consumers other businesses governmental entities or the public at large Crimes that are generally not considered street crimes White collar crimes are sometimes thought of as less serious than street crimes but economically speaking the aggregate economic effect of white collar crimes amounts to tens of billions of dollars annually Embezzlement Theft of something one initially had lawful possession of or control over because of a position of trust Shrinkage Retail industry term of art that refers primarily to a combination of employee theft shoplifting vendor fraud clerical errors ie mistakes such as accounting and inventory errors basically the one component of shrinkage attributable to mistakes rather than criminal activity In 2011 total industrywide losses from shrinkage have been estimated as 345 billion dollars 141 quot0 of total retail sales Loss prevention is the industry term of art that refers to efforts to combat this problem See July 2012 press release describing the most recently available National Retail Security Survey an annual survey of loss prevention executives httpwwwnrfcommodulesphp nameNewsampooviewliveampso id1389 Interstate Crime Crime committed in one state which continues or leads to a result in another state Significant in that Congress can criminalize interstate crime through its power to regulate interstate commerce Wire FraudMail Fraud Federal crimes involving the use of interstate mail electronic transmissions telephone radio or television to obtain money or property by deceit Frequently wire fraud and mail fraud charges are included in federal prosecutions of both white collar and street crimes Purposes of criminal sanctions and civil enforcement penalties punishment A Prevention i Deterrence a Specific or special deterrence deterring the criminal wrongdoer from reoffending by imposing unwelcome sanctions fines andor prison time b General deterrence deterring everyone from offending by making examples of the potential consequences by punishing wrongdoers ii lncapacitation Prevent the wrongdoer from reoffending by removing them from society imprisonment or suspending or revoking their licenses to participate in particular activities iii Rehabilitation Criminal sanctions and civil penalties can serve a secondary function of causing wrongdoers to reflect on the negative consequences of their wrongful behavior so that they might improve their behavior in the future B Retribution Similar to revenge theories of retributive justice include notions of punishing wrongdoers in proportion to their crimes and compensating victims Money Laundering Any type of business activity intended to hide the origin of money obtained through illegal means Federal statutes mandate that financial institutions report certain types of cash transactions and follow know your customer policies as one means to prevent money laundering activities 4 Knowingly receiving dirty money money obtained through criminal activities and laundering it depositing it or passing it along so that its criminal origins become hidden is a serious federal offense Foreign Corrupt Practices Act FCPA see text p 163 Federal statute that prohibits bribery of foreign officials See eg relatively recent 2012 WalMart bribery scandal httpwwwforbescomsitesabrambrown20120423spookedinvestorssink walmartnearlv5afterbribervrevelationsatleast45bpenaltvlikelv httpwwwbbccouknewsbusiness20457456 Corporate Criminal Liability see text pp 158160 More broadly known as enterprise liability the notion that a corporation or other entity as a whole may be prosecuted and found guilty of a criminal offense just as a natural person can be for the actions of one or more of its constituents See eg BP s liability related to the summer 2010 Deepwater Horizon oil spill in the Gulf of Mexico httpvosemiteepadovooaadmpressnsfO2AAF1C1 DC80C969885257ABF006 DAFBO Civil Enforcement Actions civil analogues to regulatory offenses described briefly in our text p 163 The government may choose to pursue criminal charges for alleged statutory violations or it may choose to pursue enforcement of its laws and regulations through lawsuits that may lead to civil penalties most notably fines It can also choose to do both Administrative agencies are usually who brings and prosecutes civil enforcement actions For example httpdca1booknytimcscom20130916sincclehmanscollapsecompanics moreforthcomingoncompliancc n1businessampcmccdit dlbkpm 20130916amp r0 httpwwwcftcdovPress Room Press Releasespr64721 2 Sometimes there are prosecutions that are both civil and criminal see the following link regarding SAC Capital and related links under insider trading below httpwwwnorthiersevcomnews203212911 Judde approves SAC Cap ital s insider trading settlement with SEChtml Similar enforcement actions are undertaken in other nations httpdealbooknvtimescom20140204redulatorcomparescurrencv investidationtoliborcasenlbusinessampemcedit dlbkam 20140205 Insider Trading A particular variety of securities laws violation whereby one impermissiny engages in securities transactions using insider knowledge which can be any material information not generally known to the public See eg other news items in the matter involving SAC Capital http on1inewsj comarticlesmartoma sentencedtonincyears 1410208 845 httpWWWnewyorkcrcommagazineZO141013empircedge Mr Martoma s case is of the rare sort that actually goes to trial rather than resulting in a plea agreement Here is how Mr Martoma was introduced to the readership of Forbes magazine when the charges first arose httpwwwforbescomsiteswalterpavlo20130104thisisaccused insidertradermathewmartomaslifenow Another SAC insider was also charged tried and convicted httpdealbooknvtimescom20131218exsactraderisconvictedof insidertradind The combination of civil and criminal actions has proved crippling to SAC Capital which radically altered and pared down its business operations in order to survive httpdealbooknvtimescom20140202afterscandalsaccapitalbedins tofadetoblacknlbusinessampemcedit dlbkam 20140203 Criminal Fraud see text p 163 Fraud can be both civil and criminal The usual elements necessary to prove a civil fraud case are 1 a material misstatement or omission of fact 2 made intentionally by the defendant to induce reliance 3 upon which the plaintiff reasonably relies and 4 the plaintiff suffers harm as a result Similar elements can also create criminal liability on the part of a defendant A wide variety of state and federal statutes criminalize intentional misstatements or omissions made with the intent to deceive another and profit thereby In general criminal fraud statutes have elements similar to those described above which related to civil cases though variation exists with regard to the particular elements pertaining to each statute For example it is not always necessary to prove harm to any particular person Also unlike torts and breaches of contract one may be guilty of attempted fraud evidence of intent to commit fraud plus an overt act in furtherance of the crime can be enough to convict for attempt Any Ponzi scheme defined above would be a type of fraud SarbanesOxley Act of 2002 see text p 163 Key provisions of SarbanesOxley include i All members of the board s audit committee must be independent ii CEO and CFO must personally certify that the company s financial statements are accurate criminal penalties for violations iii If a company must restate earnings CEO and CFO must reimburse the company for any bonus or profits they received from selling company stock within a year of the release of the flawed financials iv Financial statements must disclose all offbalancesheet transactions v No personal company loans to directors or officers vi Requires a code of ethics for senior financial officers vii Public Company Accounting Oversight Board established to develop stricter accounting standards and oversee the auditors of public companies viii Protection for employee whistleblowers


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