Expert answer:Fraud on the Market,
Solved by verified expert:Please read and discuss the following articles.”Fraud on the Market,” “Mathematicians for Martha,” “Notes from a Little Fish,” “The Big Wells Fargo Picture: Can we discourage white collar crime without jailing the criminal?” and “SEC Charges Martha Stewart, Broker Peter Bacanovic with Illegal Insider Trading.”Compare and contrast the articles and give your reactions.Please post an initial post (250 word minimum)
file_15.pdf
file_14.pdf
file_13.pdf
file_12.pdf
file_11.pdf
Unformatted Attachment Preview
What the Wells Fargo Scandal Teaches Us About Deterring White-Collar Crime | Economic Intelligence | US News
11/6/16, 1&21 PM
The Big Wells Fargo Picture
Can we discourage white collar crime without jailing the criminal?
http://www.usnews.com/opinion/economic-intelligence/articles/2016-11…he-wells-fargo-scandal-teaches-us-about-deterring-white-collar-crime
Page 2 of 23
What the Wells Fargo Scandal Teaches Us About Deterring White-Collar Crime | Economic Intelligence | US News
11/6/16, 1&21 PM
(Win McNamee/Getty Images)
(https://www.facebook.com/sharer/sharer.php?
u=http%3A%2F%2Fwww.usnews.com%2Fopinion%2Feconomicintelligence%2Farticles%2F2016-11-02%2Fwhat-the-wells-fargo-scandal-teaches-us-aboutdeterring-white-collar-crime%3Fsrc=usn_fb)
(https://twitter.com/share?url=http%3A%2F%2Fwww.usnews.com%2Fopinion%2Fe
intelligence%2Farticles%2F2016-11-02%2Fwhat-the-wells-fargo-scandal-teaches-us-about-dete
crime%3Fsrc=usn_tw&text=What%20the%20Wells%20Fargo%20Scandal%20Teaches%20Us%20Abou
Collar%20Crime%20%7C%20Economic%20Intelligence%20%7C%20US%20New
(http://www.reddit.com/submit?
url=http%3A%2F%2Fwww.usnews.com%2Fopinion%2Feconomicintelligence%2Farticles%2F2016-11-02%2Fwhat-the-wells-fargo-scandal-teaches-us-aboutdeterring-white-collar-crime%3Fsrc=usn_rd)
http://www.usnews.com/opinion/economic-intelligence/articles/2016-11…he-wells-fargo-scandal-teaches-us-about-deterring-white-collar-crime
Page 3 of 23
What the Wells Fargo Scandal Teaches Us About Deterring White-Collar Crime | Economic Intelligence | US News
11/6/16, 1&21 PM
MORE
By David Brodwin (/topics/author/david-brodwin) | Contributor
Nov. 2, 2016, at 10:55 a.m.
The Wells Fargo Bank scandal has been driven from the headlines by the presidential election
next week, but like the Terminator, it will be back. Wells Fargo’s conduct in fraudulently opening
two million (http://fortune.com/2016/10/12/wells-fargo-fake-accounts-scandal/) retail bank
accounts was so foul that both political parties felt compelled to join in castigating the company
and its CEO John Stumpf. Stumpf soon resigned; even his offer to disgorge $41 million in pay
was not enough to save his job.
While all eyes are on the election, Democrats and Republicans skirmish over the lessons that the
public will draw from Wells Fargo. They’re bghting over whether the event will lead people to think
that regulations are too strong, or not strong enough. And they will bght over what kind of
punishments are needed to deter further corporate crime on this scale.
Is the CFPB a hero or villain? The Consumer Financial Protection Bureau, or CFPB, is at the
center of the bght. Established in response to the 2007-08 bnancial crisis, the CFPB protects
consumers from fraudulent bnancial brms and abusive products and services. Democrats
pushed for its creation, while Republicans tried to kill it and, failing that, to limit its powers.
The CFPB was one of the brst government entities to dig into the mess at Wells, and it ultimately
bned the bank $100 million. Yet Rep. Jeb Hensarling (R-TX) – who has long sought to cripple the
CFPB – faulted it for not moving more quickly and aggressively and argued for restricting it even
further. “Hensarling reminds me of the kid who kills his parents and then wants to collect orphan
benebts,” said Sen. Sherrod Brown (D-Ohio) recently (http://www.latimes.com/business/la-bwells-fargo-regulators-20160927-snap-story.html).
[RELATED: Wells Fargo’s Big Scam (//www.usnews.com/opinion/articles/2016-09-09/wellsfargo-record-fake-account-Pne-shows-worth-of-cfpb)]
RELATED CONTENT
RELATED CONTENT
http://www.usnews.com/opinion/economic-intelligence/articles/2016-11…he-wells-fargo-scandal-teaches-us-about-deterring-white-collar-crime
Page 4 of 23
What the Wells Fargo Scandal Teaches Us About Deterring White-Collar Crime | Economic Intelligence | US News
11/6/16, 1&21 PM
Wells Fargo’s Big Scam
(//www.usnews.com/opinion/articles/201609-09/wells-fargo-record-fake-account-bneshows-worth-of-cfpb)
The consumer protection bureau got its biggest
win yet, but Republicans still want to demolish it.
(//www.usnews.com/opinion/articles/201609-09/wells-fargo-record-fake-account-bneshows-worth-of-cfpb)
To jail or not to jail? The Wells Fargo case is going to bring new attention to what punishments
and sanctions are needed to deter corporate crime. Notwithstanding the catastrophe of 2007-08,
the SEC and other federal entities have not brought criminal charges against senior executives in
the largest bnancial institutions involved. The reasons for “too big to jail” have been extensively
documented (http://billmoyers.com/2013/09/17/hundreds-of-wall-street-execs-went-to-prisonduring-the-last-fraud-fueled-bank-crisis/), yet the root causes for this massive failure to prosecute
remain unaddressed.
ADVERTISING
Replay
Learn more
But the Wells Fargo case stands as a testament that the kid gloves treatment is not enough. And
in response, some commentators have stepped forward to persuade us that jail is never the
answer. For example, Adrian Wooldridge writes the usually-sensible “Schumpeter” column for The
http://www.usnews.com/opinion/economic-intelligence/articles/2016-11…he-wells-fargo-scandal-teaches-us-about-deterring-white-collar-crime
Page 5 of 23
What the Wells Fargo Scandal Teaches Us About Deterring White-Collar Crime | Economic Intelligence | US News
11/6/16, 1&21 PM
Economist. He tells us that “we should resist the temptation to single people out for harsh
punishment simply because they are rich and successful
(http://www.economist.com/news/business/21709331-lock-em-up-mentality-white-collar-crimemisguided-jail-bait).” Apparently he sees no difference between a brilliant entrepreneur like Bill
Gates using too much computer time while he was an undergraduate at Harvard, and John
Stumpf creating a business incentive system that led to two million fraudulent accounts.
CARTOON GALLERY
1 of 146
Hide Caption
|
Full Screen
KEN CATALINO/CREATORS SYNDICATE
1 of 146
http://www.usnews.com/opinion/economic-intelligence/articles/2016-11…he-wells-fargo-scandal-teaches-us-about-deterring-white-collar-crime
Page 6 of 23
What the Wells Fargo Scandal Teaches Us About Deterring White-Collar Crime | Economic Intelligence | US News
11/6/16, 1&21 PM
Prosecute the corporation or its leaders? A crucial question in all this is whether sanctions
should target the corporation as a whole or the people who lead it. It’s tempting to say the
corporation should be the target (and this has been the SEC’s tendency in recent years) because
in most major failures of this kind the problem is systemic rather than individual.
But an approach that targets the corporation and spares the leaders is hard to get right. The
penalties must be big enough to sting, yet not so big as to destroy the business. If penalties are
too low, the corporation considers them a wrist slap, just part of the cost of doing business. If the
penalties are too high, a corporation gets crushed, employees lose jobs and shareholders lose
their savings. The best example is Arthur Andersen – a mostly honest and well-run brm that was
destroyed by a small handful of partners doing faulty auditing at Enron and WorldCom.
To solve this problem, perhaps penalties could be tied to a percent of the amount of income
earned while a fraud was in progress, or to the amount of stock appreciation that occurred during
the period.
[RELATED: The Real Wells Fargo Problem (//www.usnews.com/opinion/articles/2016-0919/wells-fargo-problem-is-fake-accounts-were-part-of-the-proPt-system)]
RELATED CONTENT
RELATED CONTENT
The Real Wells Fargo Problem
(//www.usnews.com/opinion/articles/201609-19/wells-fargo-problem-is-fakeaccounts-were-part-of-the-probt-system)
The bank’s internal systems didn’t fail, they
worked exactly as intended.
(//www.usnews.com/opinion/articles/201609-19/wells-fargo-problem-is-fake-accountswere-part-of-the-probt-system)
http://www.usnews.com/opinion/economic-intelligence/articles/2016-11…he-wells-fargo-scandal-teaches-us-about-deterring-white-collar-crime
Page 7 of 23
What the Wells Fargo Scandal Teaches Us About Deterring White-Collar Crime | Economic Intelligence | US News
11/6/16, 1&21 PM
Are boards and CEOs suf>ciently accountable to investor’s pain? Even if bnancial penalties were
improved so they innict enough (but not too much) pain on investors, other problems remain.
Sadly, investors don’t actually have that much control over the directors and senior executives
who nominally represent them. Elections for boards of directors heavily favor incumbents and
their hand-picked replacements. A competitive board election is extremely rare; it almost never
happens unless an activist investor wields a big block of stock.
Similarly, investors have no way to punish CEOs in the wallet for destroying value through
corporate mischief. The “Say on Pay” resolutions established under Dodd-Frank are largely
nonbinding. Even if a corporation is successfully prosecuted for fraud or other wrong-doing, and
even if the penalties are properly calibrated, it’s by no means clear that the shareholders can toss
the execs who led the wrong-doing or the board members who let it go unchallenged.
It won’t be easy to upgrade the regulator and criminal justice system to stop what just happened
at Wells Fargo. But realistically, sanctions against corporations rather than individuals will not do
the job without major improvements in CEOs and director accountability. Until then, we still need
deterrence at the individual level.
Tags: Wells Fargo (//www.usnews.com/topics/organizations/wells_fargo), crime
(//www.usnews.com/topics/subjects/crime), investing (//www.usnews.com/topics/subjects/investing),
executives (//www.usnews.com/topics/subjects/executives), prison sentences
(//www.usnews.com/topics/subjects/prison_sentences), Consumer Financial Protection Bureau
(//www.usnews.com/topics/organizations/consumer_Pnancial_protection_bureau), banking
(//www.usnews.com/topics/subjects/banking), Pnancial regulation
(//www.usnews.com/topics/subjects/Pnancial-regulation)
http://www.usnews.com/opinion/economic-intelligence/articles/2016-11…he-wells-fargo-scandal-teaches-us-about-deterring-white-collar-crime
Page 8 of 23
Home > News & Statements > Press Releases
SEC Charges Martha Stewart, Broker Peter Bacanovic with Illegal
Insider Trading
FOR IMMEDIATE RELEASE
2003-69
Washington, D.C., June 4, 2003 — The Securities and Exchange Commission today filed securities
fraud charges against Martha Stewart and her former stockbroker, Peter Bacanovic. The
complaint, filed in federal court in Manhattan, alleges that Stewart committed illegal insider
trading when she sold stock in a biopharmaceutical company, ImClone Systems, Inc., on Dec. 27,
2001, after receiving an unlawful tip from Bacanovic, at the time a broker with Merrill Lynch,
Pierce, Fenner & Smith Incorporated. The Commission further alleges that Stewart and Bacanovic
subsequently created an alibi for Stewart’s ImClone sales and concealed important facts during
SEC and criminal investigations into her trades. In a separate action, the United States Attorney
for the Southern District of New York has obtained an indictment charging Stewart and Bacanovic
criminally for their false statements concerning Stewart’s ImClone trades.
The Commission seeks, among other relief, an order requiring Stewart and Bacanovic to disgorge
the losses Stewart avoided through her unlawful trades, plus civil monetary penalties. The
Commission also seeks an order barring Stewart from acting as a director of, and limiting her
activities as an officer of, any public company. Stewart has been Chairman and Chief Executive
Officer of Martha Stewart Living Omnimedia, Inc.
Stephen M. Cutler, the SEC’s Director of Enforcement, said: “It is fundamentally unfair for
someone to have an edge on the market just because she has a stockbroker who is willing to
break the rules and give her an illegal tip. It’s worse still when the individual engaging in the
insider trading is the Chairman and CEO of a public company.”
Wayne M. Carlin, Regional Director of the Commission’s Northeast Regional Office, said: “The
Commission simply cannot allow corporate executives or industry professionals to profit illegally
from their access to nonpublic information. The coordinated action announced today by the U.S.
Attorney’s Office shows that the consequences for those individuals will be even greater if we
uncover evidence that they obstructed our investigation.”
Stewart’s Dec. 27, 2001, ImClone sales came as ImClone and the market anxiously awaited an
imminent decision from the Food and Drug Administration on one of ImClone’s key products, a
cancer treatment called “Erbitux.” Bacanovic’s unlawful inside tip was that other Bacanovic clients
— ImClone’s CEO, Samuel Waksal, and Waksal’s daughter — had just placed orders to sell all the
ImClone stock they held at Merrill Lynch. At the time, Waksal secretly knew that the FDA was
about to reject ImClone’s Erbitux application. Information about the Waksals’ efforts to sell was
confidential under Merrill Lynch policies, which prohibited employees from disclosing client
transactions or effecting client trades on the basis of other client transactions. Had information
about the Waksals’ efforts to sell been known publicly, it would have signaled insider pessimism at
ImClone about the FDA decision, the prospects for Erbitux, and the future of the company,
according to the complaint.
The Commission alleges that, during the morning of Dec. 27, 2001, Bacanovic instructed his
assistant, Douglas Faneuil, to tell Stewart that Waksal and his daughter were selling all the
ImClone stock held in their Merrill Lynch accounts. During a subsequent telephone call, Faneuil
conveyed that information to Stewart, who promptly instructed Faneuil to sell all 3,928 shares of
her ImClone stock. The next day, Dec. 28, 2001, ImClone announced that the FDA had decided
not to accept ImClone’s Erbitux application for filing. By the close of the next trading day, Monday,
Dec. 31, 2001, the price of ImClone stock dropped 16% to $46 per share. By selling when she
did, Stewart avoided losses of $45,673.
The Commission alleges that Stewart and Bacanovic went on to lie when the Commission staff
and criminal authorities questioned them about the facts surrounding Stewart’s sale of ImClone
stock. Stewart and Bacanovic fabricated an alibi for Stewart’s trades, stating that she sold her
ImClone stock because she and Bacanovic had decided earlier that she would sell if ImClone’s
stock price fell below $60 per share. In addition, Stewart told the government that she did not
recall anyone telling her that day that any of the Waksals were selling their ImClone stock.
Pursuant to a separate Commission order issued this morning, the Commission has barred Faneuil
from association with a broker, dealer, or investment adviser. The Commission acknowledges the
assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal
Bureau of Investigation in the investigation of this matter.
Contact: Wayne M. Carlin (646) 428-1510
Barry W. Rashkover (646) 428-1856
See Also: Litigation Release 18169; Complaint
Last modified: 6/4/2003
Notes From aLtttle Fish
By R. Foster Winans
Vn
I
I
I
I
A
I
E}OYLESTOWN,
PA
was Prosecuted and
convicted of fraud for trading
1985,
on the stock
market in advance
of mv “Heard on the Street”
colu6ns in The’Walt Street
Journal My share
S75,000
of
the
in illegal profiB amounted to
I admiited my role, apologized
for violattung the ethics of my profession, and served nine months in a
federal prison in Danbury, Conn.
My case was brought bY an ambl-
$30,000.
tiouJ unitcO States attorney, Rudolph
Giuliani, then cultivating a rePutation.
for being tough on whitecollar cilme.
The public was iust becoming inter-
ested in bustness news, and suddenly
here was a sordid, inside look at how
Wall Street reallY worked’
By the time tlte stock market scan’
aaf U the mid-1980’s had PlaYed oug
a few rich guYs had Paid heftY fines,
done a year or two in iail, and re
entered society with their fortunes intact. Tbe scandals crippled several
brokerage houses so badly they had to
be sold off, or they simply imploded.
But the big fish got awaY, as big fish
tend to. Insider trading vas epidemic
at the time, thanks to a buoYant mar’
ket and a merger manla
tlat
R. Foster Winsns is outhor of
gave
“Trad’
ing Secrets.’ Seduction and Scandol
at The Wall Street Joumal.”
investment bankers control over the
fates of large corporations. Nobody
complains when Prices are going uP,
andbusiness crimes are’hard to d+
tect and harder still to
Prosecute
successfully. So the cop on the beat Mr. Giuliani – grabbed the slowest
and dimmest-witted miscreants, like
me, and came out a hem.
Two decades later, history may not
be repeating itself, blt it is rhyming:
an ambitious New York State attorney general Eliot SPitzer, grins
br6adly for the cameralt as he seals
the $1.{ billion deal that brings wall
Sffeet to justice. A handful of this
cycle’s bad guys will be drummed out
of the business, and a few will do time-
.
,.’i
harvested and exploited inside infor’
mation ahut analysts’ recommendations to reward their most profitaHe
acoounts, the institutimal investGs
like mutual and penslon funds. Amolrg
the thousands of documents that reEF
lators made public this week was this
email inessage from an analyst toan
institutional investor: “Yes, ttre ‘little
guy’ who isn’t sm?{ about the nu:
!
ances may get misled.”
A subcrilture sprung up iust to cash
in on corporate “whisper numbers,”
those salacious-sounding quarterly
profit forecasts leaked to analysts he’
iore the rest of the investing public’
Eandouts of surething initiai public
stock oflerings to favored clients hatrE
been well documented, but don’t ex’
pertbilliondollarsettlements.
–
Why Wall Street
scandals never
nab the big guy.
‘The fines being Paid stagger
the
imagination but, in the context of Wall
Street, they’re nuisance fees’ Some
reports suggest that ll billion of it
may even be tax deductible.
Research analYsts were Just the
pawnbrokers for a much larger scamTrading desks at major brokerage
houses, where the real money is made,
:r
For the moment, Mr. SPitzer is ttre
hero of the little guy. The most obvio.us
;iliain; – ;ce”powerful, now coPoletelv discredited anatysts like Henraci drubmarL afi
rfre corr:upt system of stock resear’ch
;liffi;i-;J
* ii *”i
pricticed in the
1990’s ”jC
have been vanquishdd. But don’t tE
lulled by a tew public hangings into
thinking the bubble ahd its aftermath
were their fault, or that -Wall Stree]
has been reformed and it won’t haP
pen again. It maY take a few Yeary [9;
the public to forget how it was thot
ougily misled, but you can bet that thq
next greedy market will produce 4lr-
otherirop of scandals, another would;
be hero, and a
fresh supply of dimwits,
like me, to make them look good- .B
i
)’
Mathematicians Fior Marthat
7/z/ry
)
you’ll make $1,ffi0 and, if not, you’ll lose
Once again, your chances of winning are
l By John Allen Paulos
:
I
Martha Stewart,
if
consider
p
price of the stock the next week. Given this
information, you must decide whether to buy or
sell (or short) the stock. If you guess correetly,
in
In each of these pairs of situations the seeming unfairness of the second is illusory. lnsider
trading, whiclt is thC iszue of coiuse, is hard to
coherenff define or condemn. It’s illegal for a
company lnsider to buy stock after learning of
a simple
pair of situations irvoMng colored balls in urns.
‘ In the first situation you arc told that you must
pick a ball at random from an trn containing 10
green balls and 10 red balls. Picking a Sreen one
wins S1,000, picking a red one loses $1,000. In the
second scenario, someone you disEust places an
indeterminate number of green and red balls in
the ur …
Purchase answer to see full
attachment
How it works
- Paste your instructions in the instructions box. You can also attach an instructions file
- Select the writer category, deadline, education level and review the instructions
- Make a payment for the order to be assignment to a writer
- Download the paper after the writer uploads it
Will the writer plagiarize my essay?
You will get a plagiarism-free paper and you can get an originality report upon request.
Is this service safe?
All the personal information is confidential and we have 100% safe payment methods. We also guarantee good grades