White collar crimes are non-violent acts in which perpetrators use deceptive practices to cheat victims out of money for their own benefit, often resulting in significant financial gain. This brand of criminal is typically an astute business professional employed in a high-ranking position and with whom the victim placed their trust in, such as an accountant, business manager, financial adviser, or trustee. White collar crimes are estimated to cost the United States anywhere from $300-600 billion per year. Three common types of white collar crime often reported are Corporate Embezzlement, Investment and Accounting Fraud and Insider Trading.
Embezzlement is defined as the fraudulent obtainment and misappropriation of funds which were entrusted to an individual. In other words, the perpetrator first steals the funds and converts those monies into their own, or a third-party account. Examples of such action at the corporate level might include a money manager or financial planner stealing funds from company accounts, or a corporate trustee tapping funds from a corporate trust fund. Embezzlers often attempt to conceal their crimes through deceptive practices, such as falsifying financial records, creating false vendors to which companies send bills to and receive payment, thinking those entities are legitimate clients and through Ponzi-like schemes in which criminals scheme investors out of large sums of money by promising them large future returns.
Investment And Accounting Fraud
Investment fraud, also known as Securities Fraud occurs when perpetrators deceive victims by luring them into purchasing high-risk stocks and promising them significant returns. These criminals often target inexperienced investors who are also unfamiliar with financial markets. Victims often lose large sums of money. Another example by which criminals commit securities fraud is by setting up and having victims purchase stock from what are known as “dummy corporations,” which are phone establishments that are given the appearance of being closely associated to a specific legitimate corporation.
A very common White Collar crime is accounting fraud where perpetrators employ deceptive tactics like falsifying accounting statements, or by deliberately underestimating expense reports.
Insider trading is, arguably, the textbook definition of a white collar crime. This type of offense is carried out in two specific ways. The more commonly practiced method of insider trading involves a perpetrator obtaining specialized information about a particular company or stock, often referred to as a “tip,” which they turn around and offer to various individuals in the hopes of inducing them into making investments based on the knowledge they received. Insider trading can also be committed by persons holding fiduciary responsibility roles towards another individual, such as an accountant, trustee, financial adviser or attorney who buys or sells stock based upon insider information.
Why White Collar Criminals Get Away?
Arguably, the main reason white collar criminals go unpunished is because their crimes take a long time to be discovered and, in some cases, never are. Certain crimes like simple accounting frauds can be detected through financial audits. However, quite often, white collar criminals are highly intelligent, extremely careful and exceptionally clever individuals who understand the nuances and complexities of the systems they are defrauding and, moreover, know how to earn and maintain the trust of their victims.
How Can A Business Owner Avoid Being A Victim Of White Collar Crime?
Experts suggest the most important action any business owner can take is to keep a watchful eye out over employees in accounting or other financial departments. It also recommended that business owners carefully review banking statements and other financial records and, if they suspect any impropriety, to immediately contact a business attorney.
Business owners must know how to brand. Today, with the proliferation of the Internet, successful entrepreneurs need customers to be familiar with their image. Brands, and other identity markers, differ from actual physical property that a business owns. They are a form of intellectual property, which is a legal concept that most people know exists but never really understand fully.
To help demystify intellectual property law for business owners, and others, here is an explanation of the subject, followed by three examples of specific types.
What are intellectual property laws?
This branch of law deals with the rules that protect rights to property that cannot be visible seen. Intellectual property differs from “real” property. Houses, cars, boats and computers are examples of real property. People can see and touch them. In contrast, intellectual property consists of things that society recognizes as existing, yet are impossible to physically handle.
Brand names, books, computer operating systems, songs, iconic symbols and inventions are all examples of intellectual property. Some, are physical items, yet it is the idea behind them, such as the story of a book, that the law covers.
Inventions are unique in that there is usually one person who is first in conceiving of the idea. Now, this fact does not preclude others from thinking about and creating a similar, if not the same, product. The two people may have no knowledge of the existence of one another. Human brains just have similar capacities to solve problems by inventing products. Nevertheless, one person did create the product first and, under the law, deserves his or her just reward.
To save the rights of the first inventor to the profits of their hard labor, there is the patent, a form of intellectual property. Inventors apply for a patent, issued by the government, to reserve exclusive ownership rights. The holder of a patent can choose to license out the use to others, including corporations for mass distribution of the invention.
Sometimes a company or individual business may want to prevent others from using the symbol that customers associate with them. The law refers to this unique identifier as a trademark, a symbol or name that the government allows one entity to use exclusively in its business affairs. Once a business registers a trademark, no other entity may employ it without expressed permission.
Original works of art, literature or music receive protection from illegal use or distribution under copyright law. In some cases, depending on the nation, copyrights expire. These rights keep others from claiming, as their own, the creative works of the entitled party, even if unintentionally.
The Value of Intellectual Property Laws
Without intellectual property laws it would be impossible for businesses to protect their financial interests in ideas, symbols and names. The laws prevent others from benefiting from the hard work of creative types. Society benefits as a whole because those who find solutions to problems that make life better, or more beautiful, feel free to do so. They know that no future business can come along and make use of the idea, without first paying them for permission.
Hedge funds are privately held investments that use resources pooled together from investors to capture particular market segment that offers high returns. Investors are therefore required to commit their monies for a minimum period after which they can redeem their investments. These funds are aggressively managed and are only open to the select investors with a minimum set net worth.
The original purpose of creating hedge funds was to capture equity securities investments and to utilize leverage and short selling to monitor the movements of the equity market. This purpose has however been overridden to accommodate other investments that can offer higher returns. The aggressive managers observe the market trends and make speculative investments that at times carry a bigger risk to that of the overall market.
Hedge fund strategies
Their approach to the market structure can take any of the following forms:
- Short selling
Short selling commonly referred to as shorting is a strategy whereby stocks that are not in use are sold and then bought later at a discounted price thereby making real returns. Only a few hedge fund managers can be entrusted with this high-risk venture.
- Equity market neutral
This is an asset stock-picking with the aim of hedging against volatility in the market using the long-short method. The hedge-manager can buy one stock and, on the other hand, short another stock in the same asset class. Regardless of the performance of the individual markets, the investors will still make some money from the investment.
- Market neutral arbitrage
This technique exploits the imbalances in the pricing of different securities. For instance, a manager may short sell a company’s stock and still buy the same companies bond.
- Merger arbitrage
Merger arbitrage focuses on the companies on the verge of an amalgamation. For instance when a corporation Y announces that it is buying company Z at $100 per share, the stock price for company Z will rise by a margin let’s say at $105 by share. The difference between the two stocks is called the spread. A hedge manager can use this chance to make a short term profit from the spread.
- Convertible arbitrage
It’s a corporate bond that is redeemed for a company stock in the future. The price of this bond can fall when the credit ratings fall or when the interest rates shoot up. Profit is achieved from the difference between the price of the bond and the stock it can be redeemed for.
Hedge funds are like a double bladed sword. When you make the right bet, then you are sure to smile all the way to the bank. If you are not lucky, then your lifetime savings can be swept with the speed of the lightning. In the 1990’s, Manhattan investment fund clearing through Bear Stearns lost close to $400 million of their investors assets. The firm, however, collapsed in the 2000s having made $2.4 million and with losses of up to $160 million which the court ordered they should pay.
What is the Sherman Anti Trust Law?
US history books tell that Senator John Sherman, an Ohio Republican, was the main author of the Sherman Anti Trust Act of 1890. Originally, Robber Barons of oil, steel, banking and railroads created “trusts.” These trusts were similar to today’s “cartels” where wealthy principals use hostile buyouts of companies to form “trusts.”
The Sherman Anti Trust Act’s chief aim was to destroy monopolies by outlawing every business contract or combination, or conspiracy in “restraint of trade.” The Sherman Anti Trust Act was supposed to expose the evils of big business and to control big business in the public interest. In 1914, The Federal Trade Commission Act created a five-man Federal Trade Commission whose primary duties were to prevent unfair methods of competition in trade and business that included:
- Miss branding and adulterating goods
- False and misleading advertising
- Spying and bribery to secure trade secrets
- Closely imitating competitors’ products
Court Decides Apple is in Violation of Sherman Anti Trust Law
The circumstances surrounding court decision that Apple is in violation of Sherman Anti Trust Law are based on the Supreme Court case, the United States of America v. Apple Inc., et al., 12 Civ. 2862 (DLC). The court upheld the violation that Apple and five book publishing companies had conspired to increase the prices on e-books. The lawsuit was filed April 2012. The five co-conspirator publishers with Apple were: Harper Collins Publishers, Penguin Group, Inc. Simon & Schuster, Inc. Hachette Book Group, Inc. and Macmillan Publishers.
According to US Court records, these publishers sold these books from $9.99 to $14.99 as recommended in a meeting with the five publishers and Eddy Cue, Sr. VP of Apple’s Internet Software and Services for which Apple would receive a 30% commission. When Amazon.com discovered this Apple agreement with these publishers, it tried to discourage authors from selling their books directly to online buyers. Amazon later sent another letter to the US Federal Trade Commission regarding the agreements between Apple and the five publishers.
As the case proceeded, the court determined that the Sherman Anti Trust Act had been violated as a result of Apple creating an agreement that created unfair competition due to publishers withholding books from Amazon and fixing the prices to appear equal to that of the prices Amazon was selling their e-books.
The entire premise of the Apple and five publishers’ agreement was based on a mutual adoption of an agency “model.” Amazon hadn’t adopted the agency modeling allowing the publishers to withhold e-books from sale on Amazon. This is where the crux of the violation of the Sherman Anti Trust Act lies. By disallowing Amazon to sell the publishers’ e-books, this created unfair methods of competition in trade and business for related e-book sellers.
The Verdict by the Court
The court uncovered considerable evidence that clearly showed that Apple and five publishers had, as a result of their meeting with Eddy Cue, joined together in “a horizontal price-fixing conspiracy.”
Evidence also showed that “Apple violated Section 1 of the Sherman Act by conspiring with the Publishers to eliminate retail price competition and raise the price of e-books.” The court concluded through evidence that “Apple was a knowing and active member of the conspiracy, proving by the Plaintiff, “a per se violation of the Sherman Act.”
What is a Patent Troll?
The most basic definition of a patent troll is an individual or company that obtains patents in bad faith and then proceeds to misuse them to assist with business strategy. Often, they gain their patents through purchasing them; the most common sellers are companies facing bankruptcy. They will then use the patents they’ve obtained to launch infringement lawsuits against companies in order to gain a profit. Patent trolls also commonly lay on their patents in hopes of halting the productivity of other establishments.
History of the Term
Although not definite, other common terms for patent trolls are patent-holding companies (PHCs), patent assertion entities (PAEs), or non-practicing entities (NPEs). The term “patent troll” itself gained notoriety in the early 1990s when a video depicting a troll rushing into offices and swiping patents from their original owners was released to companies. The goal of the film was to alert people to the growing presence of unethical litigants in the business world, and how it may harm them.
The Effect of Patent Trolls on Business
Patent trolls are a hot topic of debate, but their effect on companies and the overall economy of the United States is no mystery. Not only are they a plague to large corporations, but they have played a big part in discouraging start-up businesses. People grow fearful of the infringement lawsuits perpetrated by trolls, and for good reason. In 2011 alone, they cost U.S companies over $27 billion in cost. Not only that, but a study out of MIT’s Sloan School of Business indicated that investment in startups and otherwise smaller establishments would have been $21.772 billion dollars higher if it had not been for the frequency of patent trolls’ litigation.
Laws Regarding Patent Trolls
There has been a variety of legislation, both proposed and passed, with goals of limiting the power of these companies. A notable example is the Innovation Act of 2013, which would have made it more difficult for non-practicing entities to file frivolous or vague lawsuits. It passed in the House, but was put on indefinite hold in the Senate in 2014 and left to collect dust.
A version of a bill known as the Patent Act has recently been approved by the Senate Judiciary Committee. Although it has the same goal as the Innovation Act, its proposals are a little different. First, it raises the requirements necessary to file a legitimate patent lawsuit. Plaintiffs must clearly indicate which of their patents are being infringed upon and explain why, among other things. Not only that, but it lays out conditions stating that the loser in an infringement suit must pay for the winner’s legal fees. This will weed out the patent trolls who like to file lawsuits despite knowing they will lose in court. Furthermore, it sets limits to the amount of “discovery” that occurs during lawsuits. Discovery is the amount of work that either side involved in a lawsuit must do to produce evidence in their favor. Startups and smaller businesses must often settle during infringement lawsuits because they cannot afford to produce favorable evidence. If passed, this legislation will hopefully put an end to a lot of unsavory patent abuse and improve economical conditions.
A trademark is a unique or distinctive sign of origin or authenticity that identifies a product or service as coming from a specific manufacturer or service provider. The trademark allows the product or services to be distinguished from those of a competitor. It might also be called a service mark.
What Makes a Trademark?
A trademark can be a brand name. Included as trademarks by the U.S. Patent and Trademark Office are words, names, symbols or any combination of them that are intended to distinguish and indicate the source of certain goods and services from those of competitors. Think of a Campbell’s Soup label. The specific cursive writing of the name of the maker of the product with the red background operates as a trademark. We don’t have to pick the can up and read the fine print on the back to know that it’s Campbell’s Soup. Think of the Nike “swoosh” on a pair of shoes or a shirt. That’s a trademark too. Trademarks are acquired by using them, not by registering them, but registering a trademark enhances the owner’s rights.
What Trademarks Are Used For
Trademarks are used to claim, protect or enforce specific proprietary rights of goods and services. Trademarks can have tremendous monetary value because of the products or services that stand behind them. Apple has the world’s most valuable trademark. Google and Coca Cola are right behind it. Products of all of these businesses are identified by their trademarks in highly specific manners. By identifying these products and services through their trademarks there is no likelihood of confusing them with those of competitors.
Trademarks vs. Copyrights
A trademark is an insignia, stamp or symbol that specifically identifies where certain goods or services originated from. Copyrights provide an entirely different form of protection that’s focused on original creative works like literary works, music, theater, paintings, sculptures or even dance and pantomimes. A copyright doesn’t protect the name or title of a creative work, nor does it protect any symbols or logos one might use to promote the work. It protects the creative work itself. Like a trademark, a copyright isn’t required to be registered either, but registration enhances the copyright owner’s rights.
How Trademarks Are Protected
If a person or entity owns a trademark, they’re permitted to sue an infringer. Infringement is caused when a likelihood of confusion has arisen as to the source of the goods or services. Courts will look at a variety of factors in an infringement suit to determine whether a likelihood of confusion has arisen. Those include but aren’t limited to the strength of a trademark, the similarity of the marks and the alleged infringer’s intent. Products or services that can amicably exist with each other involve completely dissimilar products like Apple Computers and Apple Records.
Notwithstanding the fact that registration of a trademark isn’t required for protection, registration does avail the owner to specific legal benefits. It provides constructive notice to all of the United States of ownership of the trademark. After five years, the trademark becomes incontestable so long as it’s properly maintained. Trademarking permits an infringement action to be brought in federal court where treble damages, attorneys fees and costs can be awarded.
What are the Motives of the Case?
When there is a dispute, every client wonders whether they should file suit. You have to decide why you want to sue: to gratify emotions, for the principle of the matter, or to gain money. You must consider your motives very carefully.
To Gratify Emotions?
Suing to gratify your emotions is a temporary relief. When you file suit, your emotions may be gratified, however, this has happened at a great cost. You are now in a lawsuit and the cost of that suit can be very high. How much money would you pay to gratify an emotion? Tens of thousands? A hundred thousand? Do you think such a trial will gratify your emotions? In the end, you will have to decide if the emotion was worth the financial cost. I will not file a lawsuit for you based upon your emotions alone. It never turns out well. In hindsight, you regret having spent the money.
For the Principle of the Matter?
The same is true, if you want to sue “on principle”. I will not file a lawsuit for you on principle alone. In practice, I usually find that you want to sue upon both—emotion and principle. The two are intimately tied together. When one undertakes a great cost based upon these emotions, one usually regrets having spent the money. I will not file a suit for you based upon emotion and principle alone.
You must have a financial goal to justify a suit. Or at least one that I will file. You must think—not believe—that you will get more money than you will spend. To reach this conclusion, you must have some idea of your chances of winning, how much you can collect, and what the cost is.
Evaluating your chances of winning is a challenging task. One cannot say 60-40 or 70-30, with a degree of accuracy. I will tell you if you have a strong case, and are more likely to win, than not. In contrast, I may say the outcome is 50-50. If I say that you have a weak case, it is probably best to not sue.
You measure your chances of winning against how much you can collect, if you win. Notice that I did not say that the measurement is against how much a judgment will be, if you win. Many judgments are worthless-because nothing can be collected. You do not sue an insolvent defendant. You had better sue someone who has more assets than you can reasonably expect a judgment to be. I can also help with this assessment.
Lawsuits cost a lot of money. You may think that you can file one, and then drop it, if a settlement does not occur quickly. What if the defendant countersues you? Then you cannot just drop it, on your own. To get the defendant to drop the suit with you, you will most probably need a settlement, even if it is not on the terms you would like. Let’s say that you file, and negotiate a settlement. Including the draft of the settlement documents, you may have spent ten thousand dollars. Many people think that mediation is a low-cost means to reach a settlement. It is true that mediation usually results in a settlement. However, it will probably take five thousand dollars or more to participate in a mediation. So, let’s say the total cost is fifteen thousand. But wait, the defendant must also want to mediate right away—which is usually not the case. Some discovery will have to be done, before both parties are prepared to mediate. Some discovery will cost at least ten thousand dollars. Maybe thirty. You get the idea. If you try the case, depending upon its complexity, you may altogether spend from seventy-five thousand to two hundred thousand. I will also help you through this phase of your evaluation.
Once you have judged whether proceeding is a good financial decision, you must acknowledge the personal cost to you of filing suit. Lawsuits may take as little as three months, if the defendant is willing to mediate. Perhaps fourteen months, if you have to try the case. Along the way, you must devote time to the suit. And, the suit always causes some stress. You do not know what the outcome will be. This is just not stressful; it is also a distraction.
Whether to sue is a joint decision—of you and your lawyer.
It seems like everyone knows what mediation is like. Within a mediation case, there is the plaintiff with lawyer, the defendant with lawyer, and the mediator who stands between them. Most people think that mediation is where disputes are resolved, through discussion of the issues between the parties, through the mediator. There is, in fact, a joint meeting session to start the day. But I have never seen it resolve the issues. Typically, people just say what’s strong about their case.
In practice, there is little to no attempt to resolve disputes throughout the mediation. Mediation is an all-day negotiation session, in an attempt to arrive at a settlement. Some mediators try to point out the strengths of the other party’s case. However, the party and his/her lawyer have already evaluated the strength of each party’s case, before the mediation commences. A good lawyer will also help her/his client determine the party’s bottom-line, as to how low they are willing to go, to reach a settlement. A good lawyer will also advise his/her client that negotiation can continue, through the lawyers, even if a settlement is not reached during the mediation.
It would seem that the mediation would end within a few hours. However, it is not uncommon for the settlement negotiation to take all day. The time-consumer may be when the party and her/his lawyer discuss, all alone, what size of offer the party wants to make next.
There is pressure from the mediator, and the other party, to settle on the day of mediation, and sign a settlement agreement. That’s why you are present at the mediation, to make a binding settlement. Courts also pressure settlement through mediation. Indeed, in most counties, such as Travis, mediation is required, before trial.
And the mediation system works, for the parties who really are interested in reaching a settlement, and therefore are willing to substantially discount what they have requested in the suit. In the past, the parties’ lawyers negotiated settlements between themselves. But with mediation, many more suits are settled.
As you know, fraud is generally a misrepresentation of facts. There are, of course, other requirements. The misrepresentation must be intentional, and made to obtain a benefit, such as money. Lawyers generally call intent to misrepresent scienter. Frequently this is the most difficult requirement to prove
To be actionable, the misrepresented fact must be the reason why you gave something of value to the perpetrator. If the fact were true, you would have gone forward with the transaction. If the fact were untrue, you would not have gone forward with the transaction.
Of course, you must pay a lawyer to pursue your claim. You may find a good lawyer who will represent you, for a contingent fee. If you lose, you do not have to pay. If you win, you pay a percentage of your recovery to your lawyer. However, frequently fraud is just a cause of action thrown into the mix, along with causes of action based upon other reasons, such as breach of contract. You may have to pay a lawyer an hourly rate for this type of case.
Retrieving what you lost due to the fraud is one aspect of recovery. Everybody knows about punitive damages. You may also be able to recover this type of damages, as the fraud may be particularly egregious. Scienter is important in the jury’s decision about punitive damages. A thorough discussion of the subject of punitive damages is beyond the scope of this blog entry.
There are some other causes of action based upon misrepresentation that you may plead, in addition to the active misrepresentation. Instead of saying something false, the perpetrator can hide something that, if known, would cause the victim to make a different decision, such as whether to pay the perpetrator for something. This cause of action is known as “fraud by nondisclosure”.
Another cause of action based upon a misrepresentation is “negligent misrepresentation”. This cause of action is not fraud, but is related to fraud. Both contain a misrepresentation. However, this cause of action does not require that the misrepresentation be intentional. Scienter is not necessary here. Instead of intent, we have a misrepresentation made due to negligence. The defendant should have known that her/his representation was not true. The defendant did not investigate to determine the truth, when a reasonable person would have.
The cause of action for negligent misrepresentation is frequently plead along with fraud. If you can’t prove intent, then argue that the behavior was negligent. In fact, I plead, when I can, all three causes of action—fraud, fraud by nondisclosure, and negligent misrepresentation.
Dell Inc. has been rather busy this year when it comes to acquisitions in this 2013 fiscal year, which began in February of 2012. Having already purchased AppAssure Software Inc., SonicWall Inc., Wyse Technology Inc., Make Technologies, and Clerity Solutions Inc.
Deal number six comes with the closing of a $2.4 billion acquisition of Quest Software, Inc. and investor reactions were not of a positive note. Dell has already seen a decline in their stock of 31 percent for the year. The purchase of the California-based company came only three short months after Dell agreed to buy it, although the month of July had been a month-long bidding war.
In the end, with the bidding war sending the acquisition price to $28 per share, Dell officials believe Quest Software has just the type of data management, protection package and server management that they’d like to be able to offer their customers.
Dell ranks number three in the world of computers and employs approximately 12,000 people in Texas. In an effort to move up in the ranks, the computer manufacturer is looking to expand it’s offering to a full service technology company.
Earlier acquisitions this year were also geared at changing the face of Dell, which is apparent from previous acquisitions this year. Make Technologies, for example, provides cloud-based systems which would upgrade potential clients who were still using conventional applications. This acquisition alone allows them to diversify in areas such as higher margin storage, software and services.
The new business plan and acquisitions have already increased the number of Dell employees by 1850 workers. There has been a shortfall however as August numbers reported an 18 percent decline in their second-quarter profit on revenue from the same quarter of the previous year.