What is white-collar crime?


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We all recognize so-called street crime: it’s someone breaking and entering and robbing your home, or stealing your car or other possessions. It’s murder, physical and sexual assault, human trafficking, selling illegal narcotics. 

These sorts of crimes involve police forces, criminal trials and a possibility of long prison sentences. Street crime is often the crime of the poor, working class and those with addiction and mental health problems.

On the other hand, white-collar crime is usually seen as crime of the upper classes, businesspeople and the rich. 

Yet white-collar crime often does far more damage to societies than street crime. 


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Take the 2007-’09 credit crisis, which led to the destruction of up to $15-trillion in wealth, the failure of 165 financial institutions in the US – including storied investment houses like Bear Stearns, Lehman Brothers and the sale of Merrill Lynch – high unemployment and the loss of millions of people’s homes. AIG, America’s largest insurer, had to be rescued by the federal government. It led to the largest bailouts of banks and financial institutions by taxpayers in history.

People in the financial industry would say the credit crisis was caused by a bit of reckless investing and not rampant criminality. But they would be wrong.

Part of securities law is you can’t lie to investors about what you’re selling them. You can’t say you are selling them a horse when you’re really selling them a pig.

Yet at the heart of the credit crisis was a scheme by the financial industry to take toxic debt, in the form of over-extended mortgages, and slap triple-A ratings on it before selling securities based on this deteriorating debt – all the while claiming it was a safe and secure investment.

In fact, the granddaddy of all investment houses, Goldman Sachs, engaged in outright criminality in one case when they attracted investors to an investment fund, and then conspired with a short seller to ensure the bonds underlying the fund would collapse in value. They would then profit from the catastrophe by taking out insurance on the crashing fund. In fact, to guarantee the pool imploded, Goldman Sachs allowed the short seller to pick the worst quality bonds. Investors lost (US) $1-billion when the fund blew up. Eventually Goldman was forced to pay a (US) $550-million fine for engineering this scam.

White-collar crime comes in many guises. 

It can be a lawyer stealing money from a client’s trust fund, a broker stealing his client’s money and investing it in something they’ve not approved.

It can be insider trading, whereby people with inside knowledge about a publicly-traded company’s situation, can buy or sell stock before the public knows about it (as Martha Stewart did and went to jail as a result). There can be, such as in the case of former media baron Conrad Black, helping yourself to money that should have gone to shareholders.

It can be establishing elaborate schemes to fool the public, such as claiming you have created a new invention, and raising money on that lie – as Elizabeth Holmes and her blood-testing company Theranos are accused of doing.

There are Ponzi schemes, whereby you attract investors with promises of high returns. But instead of investing their money, you’re simply paying back to investors their very own money. As long as new investors are pouring in money, Ponzi schemes can exist for years, as seen with Bernie Madoff.

There are pump and dumps, whereby crooks find a publicly-listed company and raise money on the markets based on fraudulent claims of the company’s performance, and then cash out their own shares before the stocks fall.

And there are many variations of these themes. But ultimately, white-collar crime is separating investors from their cash with false promises about the health of companies, or fraudulent and non-existent investments or inventions.

Unfortunately, with the demise of strong regulatory regimes around the world, a weak business press and conflicted-out auditors, investors often have no idea whether they are being misled about various investments. (Related: Can people go to jail for committing white-collar crime?)

This article originally appeared on i20research.com and was syndicated by MediaFeed.org.

Featured Image Credit: DepositPhotos.com.