Business crimes Summary

  • Last updated on November 10, 2022

White-collar crimes such as embezzlement, fraud, tax evasion, false advertising, and unfair labor practices have occurred with regularity throughout the history of businesses and corporations. Whether committed at the individual or corporate level, these crimes can destroy companies and the lives of employees and investors as well as hurt customers and everyday Americans.

Although business crimes can be perpetrated by business owners, most white-collar crimes are committed by individuals who work for or manage businesses. Therefore, business crime in the United States has developed hand in hand with the growth of large businesses. As businesses grow too large for every aspect of their operation to be overseen by their owners, the opportunities for fraud and embezzlement multiply. Corporations, in which ownership and management are separated, are especially vulnerable to white-collar crime. One of the earliest forms of corporations, the Railroads;regulation ofrailroads, were subject to fraud for a number of reasons: They had lots of cash, assets were spread out over miles of countryside, and the business was too large for a single manager to oversee operations. Therefore, the early railroad companies experienced numerous instances of fraud. By the 1870’s, half of the railroads in America were in receivership, many because of the illegal acts of corporate managers.Business crimes

Historical Frauds

The largest railroad fraud of the nineteenth century involved Scandals;Crédit Mobilier of AmericaCrédit Mobilier of America scandalCrédit Mobilier of America, the construction company that built the transcontinental railroad. An 1872 article in the powerful New York Sun accused noted politicians of accepting stock in Crédit Mobilier in exchange for their influence in Congress. The company’s objective was to ensure that Congress would not delay federal money being funneled into railroad construction. To make the matter worse, it was determined that Crédit Mobilier intended to defraud the government by overcharging for construction of the tracks. Insiders at the Union Pacific Railroad had created the construction company so that they could pay themselves millions of dollars.

The most widely held securities in the United States during the 1920’s were the stocks and bonds of Kreuger & TollScandals;Kreuger & TollKreuger & Toll, a Swedish match conglomerate. In 1932, the bankruptcy of Ivar Kreuger, IvarKreuger’s empire of shell companies following his suicide led to a national outcry that resulted in congressional passage of the 1933 Securities Act. Before 1933, companies that depended on stockholder financing were not required to have audits. That changed largely because of Kreuger.

In 1938, the McKesson & Robbins[MacKesson & Robbins]Scandals;McKesson & RobbinsMcKesson & Robbins drug company was the victim of insider fraud perpetrated by Philip Musica, PhilipMusica. As president of the drug company, Musica had used a facade of false documents to conceal the fact that $19 million in inventory and receivables were nonexistent. During the 1960’s, the news centered on the salad oil swindle at the Salad oil swindleAllied Crude Vegetable Oil Refining CorporationScandals;salad oil swindleAllied Crude Vegetable Oil Refining Corporation and the misdeeds of Texan Billie Sol Estes, an associate of Lyndon B. Johnson.

The salad oil swindle was perpetrated by Anthony “Tino” DeAngelis, Anthony “Tino”DeAngelis, who moved a small amount of soybean oil around in hundreds of large tanks. He then got the American Express Field Warehousing Company to certify that all the tanks were full of oil, when in reality the tanks were full of water with a small amount of oil on the top. Based on the phony warehouse receipts, DeAngelis was able to get bankers to lend him hundreds of millions of dollars.

Texas businessman Estes, Billie SolEstes fraudulently collected federal subsidies on cotton that he claimed to have grown and stored by purchasing allotments from other farmers. He also had used nonexistent fertilizer tanks as collateral in the allotment scheme. An investigator in Estes’s case died, and although the death was originally believed to be a suicide, it was later determined to be a murder. Some of Estes’s business associates also died. Estes later claimed that Johnson was involved in the scandal, and perhaps even involved in the deaths. The salad oil swindle tended to give big business a bad name, as many people believed that all business deals were at least somewhat shady, and the Estes case led some people to believe that government was involved in business crime.

Modern High-Tech Frauds

The 1970’s witnessed the dawn of computer fraud, with extensive news coverage of the use of computers to defraud shareholders at Equity Funding Corporation of AmericaScandals;Equity Funding Corporation of AmericaEquity Funding Corporation of America, a Los Angeles-based financial firm that sold life insurance and mutual funds to individuals. At Equity Funding, top management created nonexistent insurance policies on the computer, deceiving investors and regulators. At that time, auditors were not familiar with computers and failed to uncover the fraud. Two former employees revealed the company’s misdeeds.

During the 1980’s, hundreds of financial institutions, primarily savings and loan associations, failed because of insider fraud, leading to a congressional investigation headed by Michigan congressman John Dingell. The oddest part about the cases of the 1980’s was that so many companies were involved, and most of them were in the same industry.

Former head of Qwest Communications, Joe Nacchio, arrives at the federal courthouse in Denver for sentencing on insider trading charges in July, 2007. He was one of many top-level executives targeted by a government task force established in 2002.

(AP/Wide World Photos)

In the twenty-first century, HealthSouth, Global Crossing, Tyco International, Enron, and WorldCom were all involved in scandals that were reminiscent of the nineteenth century railroad cases and the Kreuger debacle. In every case, the corporate governance system broke down or did not exist, and greedy individuals either took corporate assets for their personal use or manipulated stock prices to defraud stockholders. The seemingly endless string of financial frauds in public corporations has cast doubt on the credibility of even untarnished corporations. Such trust, once lost, is slow to return. The result of these highly publicized white-collar crimes was doldrums in the financial markets during the 1870’s, 1930’s, the 1960’s, the 1980’s, and the early years of the twenty-first century.

Further Reading
  • Cooper, Cynthia. Extraordinary Circumstances: The Journey of a Corporate Whistleblower. New York: Wiley, 2008. The full story of the downfall of WorldCom by the internal auditor who uncovered the fraud.
  • Fox, Loren. Enron: The Rise and Fall. Hoboken, N.J.: Wiley, 2003. Examines Enron’s culture and what led to the fraud there. Also discussed are the impacts on the financial markets and the U.S. economy.
  • Miller, Norman C. The Great Salad Oil Swindle. New York: Coward McCann, 1965. Tells the story of how one man manipulated millions of gallons of nonexistent salad oil, resulting in the bankruptcy of two Wall Street brokerage houses; caused the demise of a subsidiary of American Express Company; and destroyed the stability of the stock market.
  • Minkow, Barry. Clean Sweep. Nashville, Tenn.: Thomas Nelson, 1995. Autobiographical work describing the author’s leadership at ZZZBest, involcing one of the largest frauds of the 1980’s.
  • Pilzer, Paul Zane, and Robert Deitz. Other People’s Money: The Inside Story of the S&L Mess. New York: Simon & Schuster, 1989. The story behind the frauds at savings and loan associations during the 1980’s.
  • Shaplen, Robert. Kreuger: Genius and Swindler. New York: Alfred A. Knopf, 1960. Explains the role of Ivar Kreuger in what at the time was the largest corporate bankruptcy in history. Kreuger’s securities were the most widely held in the world.

Computer industry

Enron bankruptcy

Gambling industry

Identity theft

U.S. Department of Justice

Organized crime

Ponzi schemes

Private security industry

Racketeer Influenced and Corrupt Organizations Act

U.S. Secret Service

U.S. Department of the Treasury

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