CORPORATE FRAUD (2001)
What is FRAUD?
In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and is also a civil law violation. Many hoaxes are fraudulent, although those not made for personal gain are not technically frauds. Defrauding people of money is presumably the most common type of fraud, but there have also been many fraudulent "discoveries" in art, archaeology, and science.
Types of FRAUD:
* Fraud as a criminal act
* Fraud for profit
* Marriage fraud
* Academic fraud
* Fraud as tort
Elements of fraud:
Common law fraud has nine elements:
1. a representation of an existing fact;
2. its materiality;
3. its falsity;
4. the speaker's knowledge of its falsity;
5. the speaker's intent that it shall be acted upon by the plaintiff; 6. plaintiff's ignorance of its falsity;
7. plaintiff's reliance on the truth of the representation; 8. plaintiff's right to rely upon it; and
9. consequent damages suffered by plaintiff.
In criminology, corporate crime refers to crimes committed either by a corporation (i.e., a business entity having a separate legal personality from the natural persons that manage its activities), or by individuals that may be identified with a corporation or other business entity (see vicarious liability and corporate liability). Note that some forms of corporate corruption may not actually be criminal if they are not specifically illegal under a given system of laws.
On October 16, 2001, Enron, the seventh largest corporation in the U.S., announced a $638 million loss in third-quarter earnings. On November 8, 2001, the company publicly admitted to having overstated earnings for four years by $586 million and to having created limited partnerships to hide $3 billion in debt. As investors lost confidence in the company, Enron stock, which had been worth as much as $90 per share in 2000, plummeted to less than $1 per share. Thousands of Enron employees lost their jobs and retirement savings, which had been invested in corporate stock through a 401(k) retirement plan. Banks and lenders lost millions of dollars in loans made to Enron based on the fraudulent earnings reports. Enron Corporation started as a pipeline company in Houston, Texas, that delivered gas at market price. Over the next 15 years, Enron expanded into an energy power broker that traded electricity and other commodities, such as water and broadband Internet services. Enron became one of the nation's most successful companies, employing 21,000 people in more than 40 countries. The senior executives at Enron attributed their success to their corporate strategy, which was to be light in assets but heavy in innovation. The innovative business practices of overstating profits and concealing debt increased the company's stock value, thus allowing the company to borrow more money and to expand. It also led to some top executives selling their stock and making over one billion dollars. Those former executives were later indicted for Fraud, Money Laundering, and conspiracy, and they also face dozens of civil lawsuits filed by Pension funds and former employees. The company's accounting firm, Arthur Andersen, admitted to having shredded Enron documents after it had learned that the Securities and Exchange Commission (SEC) was conducting an investigation of the corporation. The accounting firm was convicted of Obstruction of Justice, lost hundreds of clients and employees, and went out of business. After the Enron scandal became public knowledge, many wondered how such an overstatement could have escaped notice. What the public soon would learn was that Enron was only one among many such stories. In March 2002, the world learned that WorldCom, the...
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