How Feds collar white-collar criminals. Zeroing in on defense firms, brokers, insiders requires fresh, tight cases
If Bonnie and Clyde were here today, they might well be wearing pin stripes. With an average take of $3,300 a heist, robbing banks the old way doesn't pay anymore. But elaborate fraud schemes, that's another matter.Skip to next paragraph
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Take E. F. Hutton & Co. During a 20-month period the brokerage firm earned millions in extra income by systematically overdrawing its checking accounts. Hutton pleaded guilty to 2,000 counts of mail and wire fraud May 2 and is paying a $2 million fine, plus $750,000 to cover the cost of the government investigation. Hutton estimates it may have to pay up to $8 million to the defrauded banks, but the Justice Department thinks the figure will be much higher.
Less than a week after the Hutton settlement, former Deputy Defense Secretary Paul Thayer was sentenced to four years in prison and fined $550,000 for covering up an insider-trading scheme that may have netted associates $3 million.
And a week ago, General Electric pleaded guilty to defrauding the government of $800,000 on a Minuteman missile contract and was fined the maximum penalty of $1.04 million. Two days later, a House committee challenged $109.8 million in billings by seven defense contractors.
These illustrate three fertile areas for corporate crime today: finance, insider trading, and defense contracts. Attorney General Edwin Meese III has announced an all-out war, stating that ``white-collar crime will not be tolerated.''
But government bloodhounds have more trails of business crime than they can possibly follow, so they are being selective. Despite some celebrated cases, this selectivity has raised questions about whether this government, which has tapped several Fortune 500 board rooms for its talent, is serious about prosecuting corporate crime.
``The business world sees itself operating in a favorable environment,'' says Michael Murray, a lawyer and professor at De Paul University in Chicago. Business people ``are adopting a cavalier attitude, thinking they won't be prosecuted. That is a misconception.''
Rather than pulling in its claws, the government, and specifically the Securities and Exchange Commission (SEC), the most aggressive of the watchdog agencies, is ``drawing the lines more narrowly in what it chooses to go after,'' says Theodore Levine, a former associate director of the Enforcement Division at the SEC, which polices the stock and bond markets. Mr. Levine now defends clients prosecuted by the commission.
Before the 1980s, he says, the SEC took a broader view of its authority, because the courts were more liberal in interpreting securities laws. With today's more conservative courts, SEC lawyers ``go after the `core' violations, and fewer cases on the edges'' of the securities law. ``To maximize the effectiveness'' of those cases, he says, ``the SEC tries to get as tough a conviction as possible.''
The Justice Department has a stated list of priorities within the area of white-collar crime. According to William Weld, US attorney for Massachusetts, these include fraud against the government, especially the Defense Department, in which the government is billed for work not done or receives shoddy goods; securities fraud, particularly insider trading (using information that is not available to the public about, say, an impending merger); ``boiler room'' commodities sales operations (using high-pressure tactics to sell products over the telephone); narcotics and money laundering; and bank fraud.
But some priorities are more equal than others, and the kinds of business crimes the government focuses on often fluctuate with public opinion -- and sometimes with the government's perceived excesses.
During the Carter years, a period of generous welfare payments, prosecuting welfare fraud was a top priority. Under the Reagan administration, which has built up the military while trimming other programs, defense contractors have come under the microscope. As banks feel their way in a new deregulated world, and as some collapse, lawyers have started to tackle bank fraud. Amid the blizzard of hostile takeovers, government prosecutors are cracking down on insider trading.