Week 6: Materials

Business Crime, Antitrust, and Bankruptcy

Introduction

This week, we will consider a number of criminal acts that occur in the business world. Such crime in the business world varies from casually stealing office supplies from your employer to massive, billion-dollar fraud such as Enron’s phony financial statements (which led to huge losses for investors and employees, and ultimately 25-year prison sentences for its executives).

We will also consider is the introduction of antitrust laws that developed in 1890 and 1914 to combat business monopolies. We will also look at the legal structure controlling debt and credit cards.  Laws of debtor-creditor relations on the international market increased business competition throughout the world. In the United States, it triggered the passage of the Federal Bankruptcy Code that changed personal and business life in our country dramatically.

We will review consumer protection acts such as the Truth in Lending Act, the Credit Card Accountability Act, the Fair Credit Reporting Act, the Electronic Fund Transfer Act, the Dodd-Frank Act, and other consumer protection legislation.

Elements and Features of White-Collar Crime

Like any type of crime, white-collar crime involves a violation of federal, state, or local statutes that prohibit any type of action that are averse to the well-being of our society. White-collar crimes are those committed in a commercial context. These crimes result in millions of dollars of damages and have become more prevalent, or at least more publicized, in the aftermath of the Enron fiasco of 2001.

Distinguishing features of white-collar crime center around the question of whether the corporation commits the crime, and should be held liable in dollars, or if it was the actions of the company executives and managers who should be subjected to prison time. Obviously, the major difference is that business organizations can be subject to loss of financial value, but cannot be sent to jail. The flow-through of charges to executives leading to prison sentences has increased dramatically since 2001. The text outlines factors that have facilitated the prosecution of corporate executives, including granting immunity to lower-ranking employees so they will bring evidence against the executives.

Types of White-Collar Crime

The types of white-collar crime have increased in recent years, many of which have been tied to the development of information technology (i.e., cybercrime, which was covered in earlier units). But the main list of crimes committed by the executives are based on time-honored violations of what is right and what is wrong. The list of white-collar crimes includes

· bribery;

· direct violation of federal and state regulations;

· criminal fraud;

· larceny;

· embezzlement; and

· various computer crimes.

Unfortunately, this list of white-collar crimes keeps growing, although the new federal and state criminal statutes noted below have introduced effective measures to restrict such crime.

Corporate Crime

The federal government, and to a lesser degree state and local governments, have become very aggressive in prosecutions under existing statutes and establishing new criminal prevention laws since 2001, in efforts to block corporate crime. Perhaps the best example of revised enforcement to go after business crimes is the federal government’s use of the Racketeer Influenced and Corrupt Organization Act of 1970 (the RICO statute), which was originally aimed at organized crime, specifically the mafia. This effort activated the 141-year-old False Claims Act, among others.

New federal and state statutes aimed at corporate crime have gotten a lot of publicity, but have had limited success in putting business personnel in jail. The new statutes include the following.

· Sarbanes-Oxley Act of 2002

· Whistleblower Protection Act of 1989 (amended in 2011)

· Various federal statutes aimed at cybercrime

Enforcement and Exemptions to Antitrust Law

In reviewing the history of antitrust legislation, it quickly becomes obvious that, unlike product liability, civil rights, environmental protection, and many other regulatory issues that emerged in the last half of the 20th century, the concern about concentrated economic power dates back more than 100 years. The first piece of significant legislation, the Sherman Act of 1890, was directed at the heart of John D. Rockefeller's Standard Oil Trust. The aspects of the Sherman Act defining a monopoly were used by President Theodore Roosevelt to dissolve the Standard Oil Trust through the federal court system. This federal statute came into play again in 1999 in an attempt to dissolve Microsoft Corp. The initial attempt by the Clinton administration appeared headed for success in dissolving Microsoft, but politics got involved and the company was rescued by the George W. Bush administration in 2001.

Later legislation, specifically the Clayton Act of 1914, attempted to prevent large companies from concentrating their economic power, and the Federal Trade Commission Act sought to curb unfair methods of competition. Present in all this legislation is a conviction that the growth of economic power must be regulated to ensure that competition remains the integral force of the free market system.

The Federal Trade Commission (FTC) was also created by the Clayton Act of 1914. The FTC’s major function is to prevent the future building of monopolies and other interbusiness structures that reduce competition. These federal actions are aimed at limiting the effects of price discrimination, tying arrangements, and mergers, whether vertical or horizontal, interlocking directorates, or other types. The FTC carries the major burden of protecting consumers and promoting competition.

Rights and Remedies for Debtor-Creditor Relations

The basis for this area of business law is the definitions and relationship of debtor versus creditor. The creditor is the entity who provides funds in the transaction, and the debtor is the entity who borrows the funds. The laws surrounding debtor-creditor relations are extensive and critical to the current social and financial world. The various elements, rights, remedies, and laws of this interaction include

· liens (mechanic or artisan);

· attachments;

· writs of execution;

· garnishments;

· suretyships;

· mortgage foreclosures; and

· various guaranties.

Given the current business atmosphere, legislators continue to press for more consumer protections in debtor-creditor relations. Those measures together have a significant impact on how a business must relate to its customers who purchase on credit. The Equal Credit Opportunity Act, or ECOA, was designed to make sure credit decisions are made based on an individual’s ability to pay, not on extraneous factors.

The Federal Bankruptcy Code

The U.S. Constitution specifically provides a debtor's right to petition for bankruptcy. Article I of the Constitution gives Congress the authority to establish uniform laws on bankruptcy throughout the United States. The strongest and most recent passage of such laws were the Bankruptcy Reform Act of 1978 and the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, as amended in 2011. These statutes formalize the bankruptcy provisions, and established the three key chapters of today’s bankruptcy code.

· Chapter 7: can be assumed voluntarily by the debtor or forced upon the debtor by creditors through the court system. This chapter requires the court appointment of a trustee who assumes total control of the debtor’s assets, liquidates said assets, and distributes the resulting funds to the creditors in a clearly defined order. The procedure closes with the original debtor being deemed totally free from the original claims filed.

· Chapter 11: is available to business organizations that have become overloaded with debt, and allows the business to file for protection from its creditors. It allows the debtor to continue to manage its assets and debts as what is legally defined as  debtor-in-possession. This activity continues under the direction of the bankruptcy court judge until the debtor either succeeds in discharging all its debts or it becomes obvious that this is not possible. In that case, the judge will transfer the case to Chapter 7 for appointment of a trustee, liquidation of the assets, distribution of the proceeds, and release of all claims against the debtor.

· Chapter 13: is available only to an individual and allows him or her protection from action by creditors for a fixed period of time while he or she tries to restructure his or her debts. If the individual is unsuccessful in restructuring debt, the bankruptcy court will move the case to Chapter 7 for appointment of a trustee, liquidation of assets, distribution of the proceeds, and release of all claims against the debtor.

Other Federal Statutes Governing Credit and Debt Law

Until 1969, the states were primarily responsible for protecting the rights of consumers in the United States, but with the passage of the Consumer Credit Protection Act that year, Congress seized control of debtor-creditor relations. This led to a series of federal statutes regarding consumer rights against creditors and their activities. The other federal statutes are as follows.

· Truth In Lending Act of 1968 (Amended 1982)

· Fair Credit Reporting Act of 1970

· Equal Credit Opportunity Act of 1974

· Fair Credit Billing Act of 1974

· Effective Fund Transfer Act of 1978

· Fair Debt Collection Practices Act of 1987

· Fair and Accurate Credit Transaction Act of 2003

· Credit Card Accountability, Responsibility, and Disclosure Act of 2009

· Dodd-Frank and Consumer Protection Act of 2010

The Dodd-Frank Act expanded the Fair Credit Reporting Acts and gave consumers the chance to set their records straight and to collect damages against credit-reporting agencies. It established unacceptable conduct on the part of a credit-reporting agency and the remedies available to the consumer.

The Fair Debt Collection Practices Act restricts the activities of third-party debt collectors (hired guns). The restrictions placed on debt collectors include

· restrictions on the time and place when and where debt collection efforts can take place;

· restrictions on contacting third parties about the debt; and

· prohibitions on harassment, such as oppression, physical force, misrepresentation, or threats of prison.

The courts use the  least sophisticated consumer standard to protect consumers. The least sophisticated consumer is identified as the “hypothetical consumer whose reasonable perceptions will be used to determine if collection messages are deceptive or misleading” ( Gammon v. GC Services Limited Partnership, 1994).

References

Gammon v. GC Services Limited Partnership, 27 F. 3d 1254 (U.S. Ct. App., 7th circuit, 1994)

Q. I have to post the same examples ones but on different research topics, can you please send me the research topic and descriptions of what my team needs to do on the topic? Choose one research topic from the above course materials

Examples 1

Hello, Team 4-

Please research  United States v. Elizabeth A. Holmes and provide your thoughts on the case. For example, should the court have considered Elizabeth Holmes' plea about alleged sexual and emotional abuse by her domestic partner Romesh Balwani? Holmes claimed that her ability to make concerted decisions as CEO of Theano’s was hindered due to Balwani's control over her by disparaging her and forcing her to have sex with him. Should Holmes'plea, under her alleged conditions, relieve her of the charges she was found guilty of?

I look forward to hearing your thoughts. 

.

Have a great week-

Example 2

Please research Authors Guild, Inc. v. Google Inc. and provide a short summary of the facts. Do you agree with the court decision? does it mean that anyone can digitize copyright-protected books, and provide snippets of them online? Was the bilateral agreement between Google and the research libraries, made in order to provide content for the Google Book Project,  a violation of copyright as well? 

 

References:

Justia Us Law. (n.d.). Retrieved from 

Quimbee. (n.d.). Retrieved from https://www.quimbee.com/cases/authors-guild-v-google-inc-804-f-3d-202-2015