Whether it’s insider trading, money laundering or general financial gimmickry, white-collar crime takes a heavy toll on society. Here are 7 famous white-collar crime cases that shaped history and criminal law.
Martha Stewart’s insider trading
The well-known retailer entrepreneur owned stock in ImClone, a biotech company. She was given a tip that ImClone’s experimental cancer drug was going to be denied FDA approval. One day before the denial went public, Stewart sold her stock. The gambit netted her $230,000 and also protected her from the losses other investors were hit with.
The tip came from stockbroker Peter Bacanovic. The Securities & Exchange Commission took a dim view of the idea that Stewart had just gotten lucky and began an investigation of insider trading. Stewart was convicted, for both the crime itself and for obstruction of justice. She served 5 months in prison.
Al Capone’s tax evasion
The Chicago mobster made a fortune during Prohibition through bootlegging alcohol, extortion, murder and other mafia rackets. Capone’s control of his organization was tight enough that authorities could never pin him down, not even on the famous St. Valentine’s Day Massacre. But an accounting mistake did.
Capone had $215,000 in taxes that were unpaid. It was federal agent Eliot Ness and his investigative team that uncovered the delinquent taxes. Capone was sentenced to 11 years in prison. As justice goes, it was less than perfect, but it was something. The 1987 movie The Untouchables, with Capone portrayed by Robert DeNiro and Ness played by Kevin Costner, tells this story.
Enron
The energy company was grossing revenue in excess of $100 billion and named as “America’s Most Innovative Company” by Fortune Magazine in the early 2000s. But there were rumors of shady accounting practices, involving Chief Financial Officer Andrew Fastow and the accounting firm of Arthur Anderson.
It turns out the rumors were true and it was more than a misplaced decimal point. Accounting loopholes had been used to hide billions of dollars in debt from Enron’s board of directors. Fastow, as the instigator of the tactics, was charged with using so-called “special purpose vehicles” away from the balance sheet to hide the company’s true financial position.
Fastow was convicted and received a 6-year prison sentence. Enron stock, once worth as much as $90.75 per share, fell to $0.26 just prior to the bankruptcy filing.
WorldCom
The telecommunications industry was in a downturn in 2000. The response of WorldCom CEO Bernard Ebbers? An accounting scheme that entailed underreporting costs and inflating claimed revenues.
The use of the fraudulent methodology was aimed at deceiving investors and its cost was estimated at nearly $4 billion in just over a year. The fallout reached Washington D.C., where legislation was enacted to close loopholes that companies might use to defraud investors. Ebbers was sentenced to a 25-year prison term.
HealthSouth
A rehabilitative services company, HealthSouth had been viewed with a skeptical eye going back to the 1980s. It was the 7-year period from 1996 to 2002 where HealthSouth finally got caught.
Richard Scrushy, the founder of HealthSouth, reportedly refused to admit the company had missed its earnings targets by a lot. The company was found guilty of defrauding government healthcare programs, most notably Medicare. They had falsified nearly $3 billion in profits.
Justice came up short on the first go-around in court, with Scrushy acquitted of all 84 counts filed against him. But 3 years later, he was convicted on separate charges of money laundering, extortion and racketeering, among other crimes. He was sentenced to 6 years in prison.
Bernie Madoff
Madoff holds the dubious distinction of introducing the phrase “Ponzi scheme” into the American lexicon. In a nutshell, a Ponzi scheme uses the money from recent investors to pay off investors who came on board earlier. The scheme, rather than earn a legitimate return on investment, simply keeps money flowing in and out while skimming off the top.
Madoff’s Ponzi scheme was the biggest in American history, estimated at nearly $65 billion. He was arrested in 2008, pled guilty to 11 counts of securities fraud and money laundering and was sentenced to 150 years in prison. Madoff was also ordered to make $170 billion in restitution to the investors. He remains in prison and, tragically, his son Mark committed suicide.
Marcus Schrenker
Schrenker was an investment advisor responsible for multi-million dollar pension funds. He lost it all, failed to inform investors of high fees for switching annuities and lost a quarter of a million dollars.
On its face, the Schrenker case has nowhere near the financial implications of others discussed in this space. It does have a bizarre plot twist. Schrenker tried to escape by faking his own death. But it turns out, such plans work better in Hollywood than in the real world. He was captured and his current 4-year prison term may increase as further charges on securities fraud continue to be brought forward.