Financial crimes have been a tough problem since economic market was established, however, many people still have no idea of what a financial crime is. Furthermore, people holding stocks of some companies are even not aware of that they are exposed to the financial crimes, and they could be affected negatively at any time. This paper, however, cannot give out a specific definition of financial crimes, considering we have numerous varied definition around the world. Even in the United States, I have found different answers for it. So in this paper, I listed a number of definitions of financial crime given by different scholars. Also, I combine some real cases to help understand the term and impact it brings to shareholders.
Keywords: financial crimes, corporate world, shareholders.
The research topic I’m interested is the possible financial crime in the corporate world and the impact of it on the shareholders.
Based on the topic, I think I need to answer some questions as follow:
1) What is financial crime?
2) What are financial crimes that possibly happen in the corporation world?
3) Difference between the financial crimes committed by people from different right levels.
4) What is the impact of financial crimes on the shareholders?
In the real world, everything is connected with money, so it seems so understandable that you commit some financial for money. However, all incentives should obey laws.
Financial crimes interest me because long time ago when I read the news about Madoff investment scandal, who was the former NASDAQ Chairman. For nearly two decades, the New York City money manager ran a classic Ponzi scheme, paying high monthly returns to clients with new investment in his firm for other unwitting clients. $65 billion was involved in this incident. Then questions came to my thoughts, if there is a financial crime, how the shareholders will be impacted in terms of stock prices.
The shareholder refers to any person, company or other institution that owns at least one share of a company’s stock. Shareholders are a company’s owners. They have the potential to profit if the company does well, but that comes with the potential to lose if the company does poorly. A shareholder may also be referred as a “stockholder”.
The direct impact brought by financial crimes on shareholders is the change of stock prices. The most common financial crime in terms of stock prices is the manipulation of stock market. In some cases, for example, inner information holders suddenly sold out stock they hold to avoid monetary loss when they already knew something bad is going to happen. At this time, most private investors will suffer a large amount of economic loss, which is unfair compared to the inner traders. The most scandal is the Instock trading scandal happened in the early 2000s because of the involvement of Martha Stewart, who sold about $230,000 of the company’s stock a day before an experimental cancer drug failed to gain FDA approval. Memorably, she was found guilty of obstruction of justice, conspiracy and lying about a stock sale, and served five months in prison. Founder Samuel Waskal, who advised friends and family to sell stock and attempted to sell his own stock prior to the announcement, pled guilty to charges of bank fraud, securities fraud, obstruction of justice and perjury. He was sentenced to a seven-year, three-month prison sentence in 2009, but was released in 2009.
Apart from the direct impact brought by manipulation of stock markets, some other financial activities that against law are also have negative impact on stock markets. A famous example for this is Worldcom accounting scandal. The CEO of Worldcom, Bernard Ebbers’s plan to compensate for the downturn of the telecommunications industry in 2000 and Woeld’s declining stock included the use of fraudulent accounting