Chapter 7 Crime and the Business Community Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

7-2 Chapter 7 Case Hypothetical The clock read 3:15 a.m., and George Barringer sat restlessly in his living room recliner. For the third night in a row, George’s neighbor, Eddie Young, had been playing his “built for sound” stereo system on a volume level of eleven out of ten. It was painfully evident to George that Eddie was a big fan of a certain Australian hard-rock band first made famous in the 1970s, The Alternating Currents (or was it The Direct Currents?) On the first night of the auditory violation, George had politely asked Eddie to turn the sound down; on the second night, George’s request was civil but more demanding and insistent. Both requests had “fallen on deaf ears,” as they say. Curious as to her husband’s whereabouts, George’s wife Patricia found him in the living room that morning in his distressed state. When George saw his wife, he immediately said “Can you believe Eddie is disturbing us like this? I am going to kill George reported for work at 7:00 a.m. later that morning. Alarmed by her husband’s statement, Patricia called the police and reported him (Truth be known, she found her husband more offensive than Eddie’s loud music, and was looking for any opportunity to send him to “The Big House!”) Has George Barringer committed a crime justifying his arrest and prosecution? Explain your response.

7-3 Chapter 7 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 2010, several windows had been shattered. In the winter of 2011, several pieces of furniture had been stolen. At some point during the winter of 2012, 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 2013 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?

7-4 Chapter 7 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 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?

7-5 Elements of a Crime “Actus Reus”—Wrongful behavior (guilty act) “Actus Reus”—Wrongful behavior (guilty act) “Mens Rea”—Wrongful state of mind, such as purpose, knowledge, recklessness, or negligence (guilty mind) “Mens Rea”—Wrongful state of mind, such as purpose, knowledge, recklessness, or negligence (guilty mind)

7-6 Classification of Crimes Felonies—Serious crimes punishable by imprisonment for greater than one year, or death 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 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 Petty Offenses—Minor misdemeanors punishable by small fines or short jail sentences____________________________________________________ Crimes may further be classified as federal or state

7-7 Crimes Affecting Business: Property Crimes Robbery Robbery The unlawful taking of personal property by force. Without force it is theft. The unlawful taking of personal property by force. Without force it is theft. Burglary Burglary The unlawful breaking and entering of the building of another with intent to commit a felony therein. The unlawful breaking and entering of the building of another with intent to commit a felony therein. Larceny Larceny The taking and carrying away of the property of another with intent to permanently deprive the rightful owner. The taking and carrying away of the property of another with intent to permanently deprive the rightful owner. Arson Arson The intentional burning of a dwelling or building. The intentional burning of a dwelling or building.______________________________________________________________________________ These crimes are not considered white-collar crimes

7-8 Crimes Affecting Business: “White-Collar” Crimes White-Collar crimes are nonviolent illegal acts against society that most often occur in the business context. __________________________________________________________________________________________ Bribery – (1) Bribery of a public official, (2) Commercial bribery Bribery – (1) Bribery of a public official, (2) Commercial bribery Extortion – Also known as Extortion – Also known as Blackmail Fraud – Enron and insider trading; Medicaid fraud; Bankruptcy fraud Fraud – Enron and insider trading; Medicaid fraud; Bankruptcy fraud Embezzlement – Wrongful conversion of another’s property by one lawfully in possession of it. Embezzlement – Wrongful conversion of another’s property by one lawfully in possession of it. Computer Crimes – Can be a new way to commit traditional crimes. Computer Crimes – Can be a new way to commit traditional crimes.

7-9 Exhibit 7-1: Selected Types of Fraudulent Crimes Forgery Forgery Defalcation Defalcation False Entries False Entries False Token False Token False Pretenses False Pretenses Fraudulent Concealment Fraudulent Concealment Mail Fraud Health Care Fraud Telemarketing Fraud “Ponzi Schemes” Check “Kiting” “Pretexting” Mortgage and Real Estate Fraud

Liability for Crimes Can corporations be held liable for criminal acts? Can corporations be held liable for criminal acts? Under common law could not be considered liable because not an actual person. Under common law could not be considered liable because not an actual person. Under current law can be held criminally liable but obviously cannot serve jail time. Usually fined as punishment. Under current law can be held criminally liable but obviously cannot serve jail time. Usually fined as punishment. Corporate execs can be personally criminally liable for corporate crimes Corporate execs can be personally criminally liable for corporate crimes “Responsible Corporate Officer” Doctrine “Responsible Corporate Officer” Doctrine Maybe held criminally liable for acts arising from failure to meet corporate responsibilities that cause harm or can Maybe held criminally liable for acts arising from failure to meet corporate responsibilities that cause harm or can United States v. Iverson United States v. Iverson 7-10

7-11 Defenses to Crimes Infancy Infancy Mistake Mistake Intoxication Intoxication Insanity Insanity Duress Duress Entrapment Necessity Justifiable Use of Force

7-12 Constitutional Safeguards: The Fourth Amendment Protection from “unreasonable search and seizure” Protection from “unreasonable search and seizure” Restrictions on warrants Restrictions on warrants

7-13 Constitutional Safeguards: The Fifth Amendment Prohibition of “double jeopardy” Prohibition of “double jeopardy” Right not to incriminate oneself – Does not apply to corporations who are not considered natural persons Right not to incriminate oneself – Does not apply to corporations who are not considered natural persons But sole proprietorships that have not been incorporated may be considered natural persons But sole proprietorships that have not been incorporated may be considered natural persons Right to “due process” – Defendant may not be stricken of life, liberty, or property without first going through the appropriate legal processes Right to “due process” – Defendant may not be stricken of life, liberty, or property without first going through the appropriate legal processes

7-14 Constitutional Safeguards: The Sixth Amendment Right to a speedy and public trial Right to a speedy and public trial Right to a trial by an impartial jury Right to a trial by an impartial jury Right to be informed of the accusations against oneself Right to be informed of the accusations against oneself Right to confront witnesses Right to confront witnesses Right to have witnesses on one’s side Right to have witnesses on one’s side Right to counsel at various stages of the proceedings Right to counsel at various stages of the proceedings

7-15 Constitutional Safeguards: The Eighth Amendment Freedom from excessive bail Freedom from excessive bail Freedom from excessive fines Freedom from excessive fines Freedom from cruel and unusual punishment Freedom from cruel and unusual punishment

7-16 Constitutional Safeguards: The Fourteenth Amendment Extension of the right to due process to all state matters Extension of the right to due process to all state matters Extension of most constitutional rights to defendants at the state level Extension of most constitutional rights to defendants at the state level

Exclusionary Rule (Definition): All evidence obtained in violation of the Fourth, Fifth and Sixth Amendments is not admissible in court Fruit of the Poisonous Tree Fruit of the Poisonous Tree Good-faith Exception (Limits Exclusionary Rule) Good-faith Exception (Limits Exclusionary Rule) Inevitable Discovery/Inevitability Exception (Limits Exclusionary) Inevitable Discovery/Inevitability Exception (Limits Exclusionary) 7-17

7-18 Criminal Procedure: Pretrial Procedure Arrest – Must be sufficient probable cause for arrest Arrest – Must be sufficient probable cause for arrest Miranda Warnings must be recited to arrestee (Limited in scope) [next slide] Miranda Warnings must be recited to arrestee (Limited in scope) [next slide] Booking Booking First Appearance First Appearance Indictment or information Indictment or information Arraignment Arraignment

7-19 “Miranda Rights”--Before a law enforcement officer engages in “custodial interrogation,” he must inform the defendant of the following: “You have the right to remain silent and refuse to answer any questions” “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” “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” “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 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” “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?” “Now that I have advised you of your rights, are you willing to answer any questions without an attorney present?”

7-20 Criminal Procedure: Trial Procedure Jury Selection Jury Selection Trial (with burden of proof on prosecution) Trial (with burden of proof on prosecution) Jury Deliberations Jury Deliberations Jury Verdict Jury Verdict Sentencing Hearing (if Defendant found guilty) Sentencing Hearing (if Defendant found guilty)

Criminal Procedure: Post-trial Procedure Sentencing (if defendant guilty) Sentencing (if defendant guilty) Indeterminate sentencing – broad statutory range Indeterminate sentencing – broad statutory range Determinate sentencing – sentencing guidelines (specific) Determinate sentencing – sentencing guidelines (specific) Appeal Appeal If found guilty defendant can appeal If found guilty defendant can appeal State cannot appeal if Defendant found not guilty State cannot appeal if Defendant found not guilty 7-21

7-22 FIGHTING BUSINESS CRIME 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 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 Anyone whose business or property has been damaged can sue to recover treble damages and attorney fees in a civil action

7-23 The False Claims Act Allows employees to sue employers on behalf of the federal government for fraud Allows employees to sue employers on behalf of the federal government for fraud Employee retains share of recovery Employee retains share of recovery

7-24 The Sarbanes-Oxley Act Passed by Congress in response to the business scandals of the early 2000s (Examples: Enron, WorldCom, Global Crossing, Arthur Anderson) 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 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 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) 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)