1. McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 5 Criminal Law and Business

2. 5-2 Chapter 5 Case Hypothetical and Ethical Dilemma Warren Delaney believed that his home was his “castle,” and during the summer months every year, his “castle” was a tiny cabin nestled in the woods of upstate New York. Delaney was an Economics professor at a small college in Florida, and for him, there was no better way to “rest and recharge” after a hectic academic year than to head north for the cozy confines of his cabin. For several consecutive years, Warren’s cabin had been vandalized and/or burglarized during the winter months while he was in Florida. During the winter of 2006, several windows had been shattered. In the winter of 2007, several pieces of furniture had been stolen. At some point during the winter of 2008, the bedroom mattress had been ripped apart for some unexplained reason, with foam and fabric scattered about the bedroom floor. On each of these occasions, the perpetrator had forced the front door lock open, and had entered the cabin through the front door. Warren envisioned a way to stop the criminal(s) responsible for these violations. He spring-loaded a shotgun in the living room of the cabin, and pointed it directly at the front door. The shotgun was configured so that if someone opened the front door while he was away, it would fire at the intruder. Warren returned to his cabin in May 2010 and came upon a grisly scene. The front door had been opened, and at the threshold was the partially-decomposed body of what appeared to be a middle- aged man, dead of a shotgun blast to the chest. Warren immediately called the local sheriff, Officer Brian Mulholland. Upon arriving at the scene and briefly questioning Warren, Officer Mulholland arrested him. Was the arrest valid? Did Warren Delaney commit first-degree murder? Did Warren use justifiable force in this situation?

3. 5-3 Chapter 5 Case Hypothetical Thomas Townsend has an embarrassing criminal past. In 1985, he was convicted of pedophilia, having had sexual relations with a 15-year-old child (at the time, Townsend was 29 years old.) By all accounts, Townsend has led a relatively uneventful life over the years since 1985, spending most of his time building and selling musical instruments to earn a living, and reclusively “keeping to himself” on his property on the edge of town. Local police investigators are curious whether Townsend has truly learned from “the error of his ways.” The local sheriff has received a number of complaints from area citizens, who are appalled that a child sex offender is “among their midst.” Working in collaboration with the Federal Bureau of Investigation (FBI,) local police authorities devise and implement a plan to determine whether Thomas is leading an innocent life. Over the course of an eighteen-month period, police investigators mail Townsend a circular they have created, advertising a fictitious publication called “Lustful Lads and Lasses.” Among other pronouncements, the circular entices readers to “order now before publication ceases; see young boys and girls aged 12-16 engaged in all sorts of acts only big boys and girls should be allowed to do!” Having received the circular each month and having declined on seventeen occasions, Townsend finally responds to the circular on the eighteenth occasion, mailing in the $39.95 purchase price. Local, state and federal authorities immediately intervene, arresting Townsend for solicitation of child pornographic materials. At Townsend’s arraignment hearing, his attorney moves for immediate dismissal of the charges, arguing entrapment. Do the police efforts described constitute entrapment? Does entrapment justify dismissal of all charges against the accused? Rather than dismissal of charges, why not simply sanction those authorities responsible for the entrapment?

4. 5-4 Elements of a Crime “Actus Reus”—Wrongful behavior (guilty act) “Mens Rea”—Wrongful state of mind, such as purpose, knowledge, recklessness, or negligence (guilty mind)

5. 5-5 Classification of Crimes Felonies—Serious crimes punishable by imprisonment for greater than one year, or death Misdemeanors—Less serious crimes punishable by fines, or imprisonment for less than one year Petty Offenses—Minor misdemeanors punishable by small fines or short jail sentences

6. 5-6 White Collar Crime Definition: A variety of nonviolent illegal acts against society that occur most frequently in the business context

7. 5-7 Crimes Affecting Business: “White Collar” Crimes Bribery Extortion Fraud Embezzlement Computer Crimes

8. 5-8 Bribery Definition: The offering, giving, soliciting, or receiving of money or any object of value for the purpose of influencing the judgment or conduct of a person in a position of trust

9. 5-9 Extortion (Blackmail) Definition: The making of threats for the purpose of obtaining money or property

10. 5-10 Fraud Definition: A variety of means by which an individual intentionally uses some sort of misrepresentation to gain advantage over another person

11. 5-11 Elements of Fraud A material false representation made with intent to deceive; A victim’s reasonable reliance on the false representation; and Damages

12. 5-12 Exhibit 5-1: Selected Types of Fraudulent Crimes Forgery Defalcation False Entries False Token False Pretenses Fraudulent Concealment Mail Fraud Health Care Fraud Telemarketing Fraud “Ponzi Schemes” Check “Kiting” “Pretexting”

13. 5-13 Embezzlement Definition: The wrongful conversion of another’s property by one who is lawfully in possession of that property

14. 5-14 Computer Crime Definition: Any wrongful act that is directed against computers, uses computers to commit a crime, or involves computers

15. 5-15 Criminal Procedure

16. 5-16 Differences Between Criminal and Civil Procedure Criminal Procedure The government, through a prosecutor, always brings the criminal case The objective is punishment, in the form of a criminal fine and/or imprisonment Numerous constitutional safeguards for the criminal defendant Civil Procedure The party filing the case, the plaintiff, can be an individual, business, or government entity The objective is to remedy a wrong done to the plaintiff, so the defendant will either have to pay money damages, or be subject to an equitable remedy (injunction or specific performance)

17. 5-17 Constitutional Safeguards: The Fourth Amendment Protection from “unreasonable search and seizure” Restrictions on warrants

18. 5-18 Constitutional Safeguards: The Fifth Amendment Prohibition of “double jeopardy” Right not to incriminate oneself Right to “due process”

19. 5-19 Constitutional Safeguards: The Sixth Amendment Right to a speedy and public trial Right to a trial by an impartial jury of one’s peers Right to be informed of the accusations against oneself Right to confront witnesses Right to have witnesses on one’s side Right to counsel at various stages of the proceedings

20. 5-20 Constitutional Safeguards: The Eighth Amendment Freedom from excessive bail Freedom from excessive fines Freedom from cruel and unusual punishment

21. 5-21 Constitutional Safeguards: The Fourteenth Amendment Extension of the right to due process to all state matters Extension of most constitutional rights to defendants at the state level

22. 5-22 Criminal Procedure: Pretrial Procedure Arrest Booking First Appearance Indictment Arraignment

23. 5-23 “Miranda Rights”--Before a law enforcement officer engages in “custodial interrogation,” he/she must inform the defendant of the following: “You have the right to remain silent and refuse to answer any questions” “Anything you say may be used against you in a court of law” “You have the right to consult an attorney before speaking to the police and have an attorney present during any questioning now or in the future” “If you cannot afford an attorney, one will be appointed for you before the questioning begins” “If you do not have an attorney available, you have the right to remain silent until you have had an opportunity to consult with one” “Now that I have advised you of your rights, are you willing to answer any questions without an attorney present?”

24. 5-24 Criminal Procedure: Trial Procedure Jury Selection Trial (with burden of proof on prosecution) Jury Deliberations Jury Verdict Sentencing Hearing (if Defendant found guilty)

25. 5-25 Defenses to Crimes Infancy Mistake Intoxication Insanity Duress Entrapment Necessity Justifiable Use of Force

26. 5-26 Criminal Procedure: Posttrial Procedure If jury returns verdict of not guilty, government (prosecution) cannot appeal the acquittal If jury returns verdict of guilty, defendant may appeal verdict by claiming prejudicial error of law at trial If no appeal, defendant sentenced after judge receives additional information relevant to sentencing

27. 5-27 The Racketeer Influenced and Corrupt Organizations Act (RICO) Prohibits persons employed by or associated with an enterprise from engaging in a pattern of racketeering activity Anyone whose business or property has been damaged can sue to recover treble damages and attorney fees in a civil action

28. 5-28 The False Claims Act Allows employees to sue employers on behalf of the federal government Employee retains share of recovery

29. 5-29 The Sarbanes-Oxley Act Passed by Congress in response to the business scandals of the early 2000s (Examples: Enron, WorldCom, Global Crossing, Arthur Anderson) Criminalizes specific non-audit services when provided by a registered accounting firm to an audit client Increases the punishment for a number of white- collar offenses Extends the statute of limitations regarding the discovery of fraud (two years from the date of discovery of the fraud, five years from the date of the criminal act)