To appear in:
Robinson, Matthew B. (2005).  Justice Blind? Ideals and Realities of American Criminal Justice (2nd Edition).  Upper Saddle River, NJ: Prentice Hall.

Next to the terrorist attacks that shook our country on September 11th, 2001, the largest crime story of the past two years has been the massive frauds committed by dozens of major corporations – whom I refer to here as the “corporate bandits.”

According to CNN, the accused corporations include Arthur Anderson, Enron, WorldCom, Qwest, Tyco, ImClone, Global Crossing, Dynergy, CMS Energy, El Paso Corp., Halliburton, Williams Cos., AOL Time Warner, Goldman Sachs, Salomon Smith Barney, Citigroup, J.P. Morgan Chase, Schering Plough, Bristol-Myers Squibb, Kmart, Johnson & Johnson, Adelphia, Merrill Lynch, Rite Aid, and Coca-Cola.

Many of these corporations are accused of the same basic fraudulent activities -- essentially “cooking the books” in order to inflate profits by hiding debts so that investors would be more likely to invest money in the corporations. Many of the corporations allegedly treated debts as revenue in order to make them look more profitable. Think of it this way -- imagine you wanted to get a loan from your local bank and you treated every check that you wrote in the past month not as debts against your account but as payments made to you by the companies you sent the checks to – this is what many companies in the United States allegedly did.
Several of the corporations have been accused of more, including Coca-Cola. Coca Cola has been accused of knowingly allowing malfunctioning machines to leave metal residue in their products, rigging marketing tests to win business with Burger King, racial discrimination, anti-trust violations, and accounting irregularities that boosted its net worth.

According to CNN/Money’s “Fraud Inc.” this is what the following companies are accused or convicted of:
 

• Adelphia Communications – This major cable company filed for bankruptcy protection after it was discovered that the Rigas family used billions of dollars in loans to cover investment losses. Adelphia filed its own racketeering lawsuit against Rigas and other members of his family. The company faces civil charges by the SEC and an ongoing Justice Department investigation.

• AOL Time Warner – This major corporation is under investigation by the Security and Exchange Commission (SEC) and the Justice Department for questionable accounting practices at the company's America Online unit in 2000 and 2001.

• Arthur Andersen – This major accounting firm was found guilty by a jury of obstructing justice for shredding Enron documents and received the maximum sentence of a $500,000 fine and five years' probation. This firm also served as the accounting agency for other numerous companies accused of crimes.

• Bristol-Myers Squibb – This drug-maker has restated sales by $2 billion, and federal regulators are investigating whether it purposely inflated sales by offering incentives to wholesalers.

• Citigroup – This financial services company agreed to pay $240 million to settle “predatory lending” charges in the largest consumer protection settlement in the history of the Federal Trade Commission (FTC). It has also been charged with helping Enron manipulate its finances to deceive investors.

• Credit Suisse First Boston Corporation – This company agreed to pay $100 million for taking millions of dollars from customers through inflated commissions in exchange for allocations of "hot" initial public offerings.

• Enron -- This large energy company is accused of obscuring its finances with business partnerships (invented companies to hide debts) and questionable accounting practices that fooled debt-rating agencies, Wall Street analysts and investors. Enron was forced to file for bankruptcy, causing billions in dollars of losses for investors and Enron employees, many of whose company retirement accounts became worthless. Many Enron rivals (including Dynergy, El Paso Corp., CMS Energy, Halliburton and Williams Cos.) are also under investigation because of questionable accounting and trading activities. The Halliburton case concerns an accounting practice introduced at the company when it was headed by now Vice President Dick Cheney.

• Global Crossing – This telecommunications company is being investigated for using "swap deals" with other telecom carriers to inflate sales. The company is suspected of selling capacity on its fibre-optic network to other carriers and then buying back a like amount, which is improper. Global Crossing filed for Chapter 11 bankruptcy protection and agreed to sell a majority stake in its fibre-optic network to two Asian investors for about $250 million in cash.

• Goldman Sachs – This investment bank has been asked to turn over documents to the House of Representatives, which is investigating potential conflicts of interest and the distribution of stock as companies went public.

• ImClone – This company’s former CEO was convicted on charges of insider trading for allegedly trying to sell his stock and tipping off family members after learning the federal Food and Drug Administration (FDA) would refuse to review the company's application for promising cancer drug Erbitux.

• Johnson & Johnson – This company is under investigation by the Food and Drug Administration (FDA) for false record-keeping at a plant that makes an anemia drug linked to serious side effects.

• J.P. Morgan Chase – This company is charged with helping Enron with $8 billion in financial dealings that made Enron look rich in cash rather than heavily indebted.

• Kmart – This major retailer filed for Chapter 11 bankruptcy protection. It is under investigation by the FBI and the SEC and has closed hundreds of stores and cut 22,000 jobs.

• Merrill Lynch – This Wall Street brokerage firm agreed to pay $100 million to settle charges from New York that its research analysts knowingly promoted stocks they privately ridiculed in order to win business for Merrill's investment banking unit.

• Qwest – This telecommunications company is being investigated by the Securities and Exchange Commission after admitting that it had improperly accounted for about $1.2 billion in revenue for part of 2000 and all of 2001, most of it from "swap deals" it made with other companies. It restated $950 million in revenue derived from making sales to other carriers and them buying back a similar amount.

• Rite Aid – Three former executives and one suspended executive of this drug store company were indicted on charges that they cooked the books to make it appear more profitable. It restated results going back three years.

• Tyco -- Former CEO and former CFO have been charged with looting $600 million from Tyco but both men have pleaded not guilty. Tyco has sued its former CEO for at least $730 million.

• Xerox – This major company was forced to restate earnings to reflect $1.4 billion less in pre-tax profits over the past five years as part of a settlement with the SEC. It was forced to pay a $10 million penalty.

• WorldCom – This company, now known as MCI, filed the largest bankruptcy in U.S. history. It has admitted that it overstated profits by hiding more than $7 billion in expenses over five quarters. Several former WorldCom executives have been charged and others have pleaded guilty.

The total combined harms of the above corporate crimes are unknown, but estimates are in the hundreds of billions of dollars. Additionally, tens of thousands of people have lost their jobs, hundreds of thousands have lost money from their retirement accounts, and millions have lost money from the resulting stock market crash.

Ariana Huffington (2003), in her book, Pigs at the Trough, reports the following statistics related to the above scandals:
 

• K Mart CEO Charles Conaway received about $23 million compensation over two years, after which K Mart filed for bankruptcy, 283 stores closed and 22,000 people lost their jobs;

• Tyco CEO Dennis Kozlowski received nearly $467 million compensation over four years, after which Tyco’s stock holders lost $92 billion; and

• Enron CEO Kenneth Lay earned more than $100 million in cash in the year before Enron’s collapse, after which Enron lost $68 billion in market value, 5,000 people lost their jobs, and workers lost $800 million.

Additionally, Huffington reports that American corporate executives earned $66 billion by selling company stocks “even while their companies crashed and burned” (some even forbade their employees from selling their stocks). This amount could buy 66,000 homeless people houses, each worth $100,000. She also claims that the total loss in market value caused by Enron, Global Crossing, Tyco, Qwest, and WorldCom alone was $427 billion. With this money, we could get every state in the country out of debt several times over, or we could give every man, woman, and child living in poverty on the Earth $356!

Whatever the actual harms, there is no doubt that the financial harms exceed those caused by street crime in any year by dozens of times (and numerous people have committed suicide as a result of losing all their money and/or killed their spouses and family members as a result of the stress of losing their jobs).

Keep in mind that these corporations are not nameless, faceless entities. Each is run by Chief Executive Officers (CEO), Chief Financial Officers (CFO), and a Board of Directors – in other words, real people who made real decisions and who can be held accountable for their actions. So far, the toughest sanction handed down was for ImClone’s CEO, Sam Waksal, who was sentenced to 87 months in prison for his role in an insider trading scandal that has shed negative light on Martha Stewart. Waksal pleaded guilty to obstruction of justice, perjury, bank fraud, and sales tax evasion. He also was sentenced to pay a fine of $3 million and more than $1.2 million in restitution. The most serious alleged offenders have not even gone to trial yet.

In response to these crimes, Congress passed the Sarbanes-Oxley Act, which doubled the potential sentences that such corporate criminals can face. President George W. Bush (the second) signed the bill into law, appointed a corporate fraud task force (to be headed by the director of a credit card company that paid more than $400 million to settle fraud lawsuits), and allocated millions to the SEC to conduct investigations. Yet, Jeffrey Reiman and Paul Leighton (2003) claim that mostly our response has been “huff and puff and … do little” in responding to these actions. According to their analysis of the law, it will now be more difficult to prosecute alleged offenders in similar cases because the law raised the standard of proof from recklessly to knowingly.

In fact, most of the companies have, as of this writing, paid fines to get out of trouble. For example, World Com is now to pay $750 million to settle the case against it, an alarmingly high figure. Yet considering that investors lost $175 billion because of World Com, we learn that the company is being charged about 0.4% of the amount of financial harm they caused. Imagine going to a bank and robbing it of $100,000 and being forced only to pay back 0.4% of it (which is $400)!

The banks that were involved with illegal loans to help these corporations hide their losses and the accounting firms that oversaw them and turned a blind eye are each facing their own investigations. One notable example is that federal and state regulators settled with ten Wall Street investment firms (including Citigroup, Merrill Lynch, J.P. Morgan Chase, and Credit Suisse First Boston) because of knowingly pushing bad stocks, conducting and publishing flawed research, and for conflicts of interest. They have agreed to pay $1.4 billion in fines and to separate their investment banking activities and research activities. Most of these firms have not admitted guilt and some have changed their names to distance themselves from these scandals.

Although these scandals have left the front pages of the paper, Caffrey (2003) reports that the Federal Bureau of Investigation (FBI) has launched about 4 new investigations of fraud per month, each of which has surpassed $100 million in damages. The FBI is, at the time of this writing, investigating about 100 new cases, and the Corporate Fraud Task Force is investigating another 100 cases.