Corporate Fraud | Business Fraud
Corporate fraud is one of the more challenging crimes to catch and prove. It can involve one person, several individuals, or an entire company, encompassing many potential activities. Let’s discuss what constitutes corporate fraud, why it’s a white-collar crime, and review some examples.
Table of contents
What Is Corporate Fraud?
Corporate fraud falls under the financial crime and fraud area of law. It can be any illegal activity that is dishonest or unethical that gives a business or individual within the business some advantage. These activities can vary in scope and tend to have a significant economic impact on everyone involved.
In many situations, the perpetrator masks the fraudulent activity with legitimate actions. One of the critical aspects of corporate fraud is extensive deception and abuse of loopholes. For example, the individual or team might manipulate records in an attempt to convince others that their methods are legit.
Why Is Corporate Fraud Considered a White Collar Crime?
White collar crime is a phrase stemming from the 1930s that encompasses various criminal activities by government or business professionals. It’s generally marked by deceit and manipulation instead of physical aggression and almost always motivated by financial gain.
The FBI considers corporate crime among their highest priorities because it poses significant threats to our economy and the stability of our country. According to the FBI, most cases involve accounting in the form of data manipulation. The three most common corporate fraud activities are:
- Falsifying financial data
- Self-dealing; when a person acts in their interest ahead of their clients
- Hedge fund fraud
Additionally, many of these corporate fraud cases involve some element of obstruction of justice, meaning actions were intentionally concealed from relevant agencies. Today, the United States Department of Justice employs an entire Fraud Section to help investigate and prosecute these sophisticated crimes that often cross multiple districts.
Corporate Fraud Examples
Unsurprisingly, several well-publicized examples of corporate fraud illustrate the depth of deception and complexity involved with these crimes. The vast majority of these cases involve attempts to retain investors or hide issues with the company’s product.
Enron
One of the most famous corporate fraud examples is the Enron case. It’s nearly impossible to address corporate fraud without discussing the scandal that tanked the company and its accounting firm. As a result, thousands of innocent people lost their jobs, costing Enron’s investors billions of dollars.
Though the Enron scandal rocked the country, it led to a valuable piece of legislation intended to block some of these fraudulent acts. Enacted in 2002, the Sarbanes-Oxley Act established a system requiring greater transparency with financial reporting and set forth steeper penalties for those who commit similar accounting crimes.
Wells Fargo
If you banked with Wells Fargo, you probably have some knowledge of the financial institution’s case. The company applied extreme pressure on employees to meet quotas resulting in the creation of multiple fake accounts. As a result, hundreds of employees contributed to the mess, which led to millions of dollars in gains.
Like other corporate fraud cases, the false accounts didn’t go unnoticed. Once exposed, the Securities and Exchange Commission (SEC) leveraged substantial fines against the bank. Thousands of clients left Wells Fargo, and the financial institution is still fighting to regain consumer trust.
Elizabeth Holmes and Theranos
Looking into more recent cases, the Theranos case continues to intrigue audiences around the world. It centers around Elizabeth Holmes, an assumed prodigy who dropped out of Stanford University to found Theranos at the age of 19.
Holmes claimed that she perfected technology capable of screening people for diseases with one drop of blood. She attracted high-profile support and investors that led to a multi-billion dollar valuation of the company by 2015.
A series of misdiagnoses and inaccuracies led to a deeper investigation. A journalist learned that Theranos relied on traditional equipment instead of new technology. Those findings are just the tip of the iceberg in this case, including allegations of several key players attempting to cover up misdeeds.
While the case plays out in the legal system, investors are begging for their missing millions.
Why You Need a Legal Team for Corporate Fraud
Finding yourself accused of a crime is never pleasant, but you could be facing significant challenges when it comes to corporate fraud. Navigating corporate fraud allegations and charges can be overwhelming, and an experienced corporate fraud attorney can make all the difference.
Choosing a business fraud lawyer backed by a well-versed legal team in corporate law means they can protect your rights and help you build a viable criminal defense. In addition, the right corporate fraud lawyer will guide you through the process and thoroughly explain all of your options, including potential pleas, deals, and sentences.
Common Defense Strategies
An experienced corporate fraud lawyer can evaluate your case and identify potential defenses to the claims based on the underlying facts and circumstances. The most effective defense in one corporate fraud case may not be an option in another case because of the specific details involved in the alleged fraudulent activity.
Some of the most common defense strategies against corporate fraud charges include the following:
No Criminal Intent
In general, a conviction on most corporate fraud charges hinges on the defendant’s intent to commit the crime. In other words, the prosecution must prove that you intended to commit fraud. Your business fraud defense attorney may build a defense based on a lack of criminal intent on the part of you and your company, showing that you did engage in the activity in question but that you did so with no fraudulent or criminal intent. This approach is intended to rebut the criminal prosecutor’s efforts to prove you intended to defraud the alleged victims.
Duress
In some cases, a corporate fraud attorney can build a defense around duress. With this defense approach, a business fraud attorney shows through evidence that the defendant did, in fact, commit the crime with which she or he was charged, but the defendant did so only because she or he was under duress.
Being compelled to commit corporate fraud by another party is a valid legal defense when that third party acted illegally in pressuring the defendant to commit fraud. Duress can take various forms, including a third party threatening the defendant’s physical safety or well-being (or threatening the safety and well-being of a family member or someone else close to the defendant.)
Entrapment
Entrapment is a valid affirmative defense to corporate fraud charges. When a corporate fraud attorney raises entrapment as a defense, the attorney must be prepared to demonstrate that the defendant committed the fraud with which she or he was charged only because law enforcement induced her or him to do so. In other words, the defendant was not predisposed to perpetrate the fraud on his or her own and committed the crime only after an undercover law enforcement official induced the defendant to carry out the fraud (or to take steps toward carrying it out.)
Violation of Constitutional Rights
Some corporate fraud charges can be rebutted based on a defense that the evidence presented by the prosecution was obtained in a manner that violated the defendant’s constitutional rights.
For example, if the government did not have a search warrant when gathering evidence or otherwise violated the defendant’s constitutional protections against unreasonable search and seizure, a skilled business fraud defense lawyer may be able to get the charges reduced or dropped entirely. A corporate fraud lawyer asserting a constitutional violation defense may attempt to show that there was no probable cause to execute a search and that, as a result, any evidence obtained in the search should not be considered.
If you need assistance with a corporate fraud case, contact Zoukis Consulting Group. We can help you craft a criminal defense and prepare for what comes next.
Published Feb 15, 2022 by Christopher Zoukis, JD, MBA | Last Updated by Christopher Zoukis, JD, MBA on Jul 24, 2023 at 11:48 pm
