# Understanding White-Collar Crime: Key Examples and Types

![White-Collar Crime: A nonviolent crime characterized by deceit to obtain or avoid losing money, or to gain a personal or business advantage.](https://www.investopedia.com/thmb/hmcce8Xaj_nsL_snxIsoijCaYcY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/white-collar-crime.asp-final-0d425248c84a4238b41dc536286d81ac.jpg)

*— Investopedia / Eliana Rodgers*

## What Is White-Collar Crime?

White-collar crime involves nonviolent crimes committed for financial gain through deceit and concealment, often by individuals in positions of high social status. Common offenses include securities fraud, embezzlement, and money laundering. Agencies like the FBI and SEC frequently investigate these financial crimes, underscoring their significant impact on economies and investors.  

### Key Takeaways

*   White-collar crime is characterized by deceitful, nonviolent offenses committed to obtain financial gain or business advantages.  
    
*   Prominent examples of white-collar crimes include securities fraud, embezzlement, insider trading, corporate fraud, and Ponzi schemes.  
    
*   Investigations and prosecutions of white-collar crimes are typically conducted by organizations such as the FBI, SEC, and state authorities.  
    
*   The internet has facilitated new forms of white-collar crime, including scams, identity theft, and online money laundering.  
    
*   Convictions for white-collar crimes can lead to federal penalties such as imprisonment and significant fines.

## The Origins and Definition of White-Collar Crime

"White-collar crime" is a term first coined by sociologist Edwin Sutherland in 1939, who defined it as a crime committed by a person of respectability and high social status during their occupation. White-collar workers historically held non-laboring office positions while blue-collar workers traditionally wore blue shirts and worked in plants, mills, and factories.

High-profile individuals like [Ivan Boesky](https://www.investopedia.com/terms/i/ivan-boesky.asp), Bernard Ebbers, [Michael Milken](https://www.investopedia.com/terms/m/michaelmilken.asp), and [Bernie Madoff](https://www.investopedia.com/terms/b/bernard-madoff.asp) have been convicted of white-collar crimes such as insider trading, accounting scandals, securities fraud, and [Ponzi schemes](https://www.investopedia.com/terms/p/ponzischeme.asp).

Rampant new white-collar crimes facilitated by the Internet include so-called [Nigerian scams](https://www.investopedia.com/terms/n/nigerianscam.asp), in which fraudulent emails request help in forwarding a substantial amount of money to a criminal ring. Other common white-collar crimes include [tunneling](https://www.investopedia.com/terms/t/tunneling.asp), [insurance fraud](https://www.investopedia.com/terms/i/insurance-fraud.asp), and identity theft.  

### $3.7 Billion

The Madoff Victim Fund (MVF) distributed over $3.7 billion to nearly 40,000 victims worldwide in connection with the Bernard L. Madoff Investment Securities LLC (BLMIS) fraud scheme.

## Understanding the Effects of Corporate Fraud on Investors

Large-scale corporate fraud can harm investors and weaken the U.S. economy and investor confidence.

Investigating corporate fraud involves many partners, including the FBI, SEC, CFTC, FINRA, IRS, Department of Labor, FERC, and U.S. Postal Inspection Service.

### Methods of Manipulating Financial Information

Most corporate frauds deceive investors, auditors, and analysts by manipulating data or share prices to inflate financial performance.

In 2014, Credit Suisse pleaded guilty to helping U.S. citizens avoid taxes by hiding income from the Internal Revenue Service and paid penalties of $2.6 billion. Bank of America sold billions in [mortgage-backed securities](https://www.investopedia.com/terms/m/mbs.asp) (MBS) tied to properties with inflated values without proper collateral and agreed to pay $16.65 billion in damages.

### Uncovering Self-Dealing Risks and Penalties

[Self-dealing](https://www.investopedia.com/terms/s/self-dealing.asp) occurs when a fiduciary acts in their own best interest rather than in the best interest of their clients. Considered a conflict of interest, this illegal activity can lead to litigation, penalties, and termination of employment for those who commit it.

Self-dealing includes [front-running](https://www.investopedia.com/terms/f/frontrunning.asp), where a broker trades with prior knowledge of a transaction that will affect the asset's price, gaining financially from it. It also occurs when a broker or analyst buys or sells shares for their account ahead of their firm's buy or sell recommendation to its clients.

[Insider trading](https://www.investopedia.com/terms/i/insidertrading.asp) occurs when individuals act upon or divulge to others information that is not yet public and is likely to affect share price and company valuations once it is known. Insider trading provides an unfair advantage for individuals to profit and does not matter how the material nonpublic information was received or if the person is employed by the company.

## Decoding Money Laundering Processes and Strategies

Money laundering involves making illicit cash from activities like drug trafficking appear as legal earnings. Criminals launder money from activities such as drug trafficking and terrorism using a three-step process.

*   Placement is the initial entry of a criminal’s financial proceeds into the financial system.
*   Layering separates the criminal’s financial proceeds from their source and creates a [deliberately complex audit trail](https://www.investopedia.com/terms/p/probable-cause.asp) through a series of financial transactions.
*   Integration occurs when the criminal’s financial proceeds are returned to the criminal after "laundering" from what appear to be legitimate sources.

A cash-based business, such as a restaurant that is owned by a criminal organization, is a common tool for laundering illegal money. Daily cash receipts may be inflated to funnel illegal cash through the restaurant and into the bank for distribution to the owners.

> **Fast Fact**
>
> The Anti-Money Laundering Act of 2020 assists financial institutions in their efforts to meet their obligations under laws and regulations designed to combat money laundering by targeting foreign and domestic terrorist financing, transnational criminal organizations, drug trafficking organization activity, human trafficking, and human smuggling, and proliferation financing.

## Navigating the Complex World of Securities and Commodities Fraud

The [perpetrator of a securities fraud](https://www.investopedia.com/terms/s/sir-allan-stanford.asp) can be an individual, such as a stockbroker, or an organization, such as a brokerage firm, corporation, or investment bank, and includes crimes such as:

*   [High-yield investment fraud](https://www.investopedia.com/articles/economics/12/four-unknown-massive-frauds.asp) involves promises of high rates of return coupled with claims of little or no risk in investments like commodities, securities, and real estate.
*   Ponzi and [pyramid schemes](https://www.investopedia.com/insights/what-is-a-pyramid-scheme/) are fraudulent investment scams that generate returns for earlier investors with money taken from later investors.
*   Advance fee schemes involve fraudsters convincing their targets to advance small amounts of money with a promise to deliver greater returns.
*   Broker [embezzlement](https://www.investopedia.com/terms/e/embezzlement.asp) schemes involve illicit and unauthorized actions by brokers to steal directly from their clients, usually with a myriad of false documents.
*   “[Pump and dump](https://www.investopedia.com/terms/p/pumpanddump.asp)” schemes artificially inflate the price of lower-volume stocks on small over-the-counter markets. The "pump" involves recruiting unwitting investors through false or deceptive sales practices, public information, or corporate filings. Once the target price is achieved, the perpetrators “dump” their shares at a huge profit and leave innocent investors to foot the bill.
*   [Late-day trading](https://www.investopedia.com/terms/l/latedaytrading.asp) is the illegal practice of recording trades that are executed after hours as having occurred before a mutual fund calculated its daily net asset value (NAV). Late-day trading can dilute the value of a mutual fund's shares and harm long-term investors.

## What Are Well-Known Securities Fraud Cases Investigated by the FBI?

Examples of cases of securities fraud are the [Enron](https://www.investopedia.com/terms/e/enron.asp), Tyco, Adelphia, and [WorldCom](https://www.investopedia.com/terms/w/worldcom.asp) scandals.

## What Are the Penalties for White-Collar Crime?

If convicted, an individual may be sentenced to time in county jail, state prison, or federal prison, depending on the severity of the crime. Additionally, fines may be imposed as well as required restitution to the victim.

## Who Investigates Securities Fraud?

Allegations of securities fraud are investigated by the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA), often in concert with the FBI.

State authorities can also investigate investment scams. In a unique attempt to protect its citizens, the state of Utah established the nation’s first online registry for white-collar criminals where photos of individuals who are convicted of a fraud-related felony rated as second-degree or higher are featured on the registry.

## What Are Anti-Money Laundering Rules Used in Banking?

Many companies, especially those involved in finance and banking, have [anti-money laundering](https://www.investopedia.com/terms/a/aml.asp) (AML) rules in place to detect and prevent money laundering. For banks, compliance starts with verifying the identity of new clients, a process sometimes called [Know Your Client](https://www.investopedia.com/terms/k/knowyourclient.asp) (KYC) and customer due diligence detects money laundering strategies like breaking up large money laundering transactions into smaller ones to evade reporting limits and avoid scrutiny.

## What Is Intellectual Property Theft?

Intellectual property theft is a white-collar crime that robs people or companies of their ideas, inventions, and creative expressions, known as intellectual property, and may include trade secrets and proprietary products or movies, music, and software.

## The Bottom Line

White-collar crimes, including securities fraud, embezzlement, corporate fraud, and money laundering, are typically perpetrated in corporate or office settings by individuals seeking financial gain through deceit. These offenses, which encompass infamous cases like those of Bernie Madoff and Michael Milken, can severely impact the economy and investor confidence. Investigative bodies such as the SEC, FBI, and state authorities rigorously pursue these crimes, frequently resulting in federal convictions with penalties including imprisonment, fines, and required restitution. As the nature of these crimes evolves, understanding their dynamics and implications becomes crucial for both individuals and businesses.

> **Article Sources**
>
> 1.  Federal Bureau of Investigation. "[The Measurement of White-Collar Crime Using Uniform Crime Reporting (UCR) Data](https://ucr.fbi.gov/nibrs/nibrs_wcc.pdf)." Page 1.
>     
> 2.  U.S. Department of Justice. "[Justice Department Announces Additional Distribution of More than $568 Million to Victims of Madoff Ponzi Scheme](https://www.justice.gov/opa/pr/justice-department-announces-additional-distribution-more-568-million-victims-madoff-ponzi)."
>     
> 3.  Federal Bureau of Investigation. "[White-Collar Crime](https://www.fbi.gov/investigate/white-collar-crime)."
>     
> 4.  U.S. Department of Justice. "[Bank of America to Pay $16.65 Billion in Historic Justice Department Settlement for Financial Fraud Leading up to and During the Financial Crisis](https://www.justice.gov/opa/pr/bank-america-pay-1665-billion-historic-justice-department-settlement-financial-fraud-leading)."
>     
> 5.  U.S. Department of Justice. "[Credit Suisse Pleads Guilty to Conspiracy to Aid and Assist U.S. Taxpayers in Filing False Returns](https://www.justice.gov/opa/pr/credit-suisse-pleads-guilty-conspiracy-aid-and-assist-us-taxpayers-filing-false-returns)."
>     
> 6.  Congressional Research Service. "[The Financial Crimes Enforcement Network (FinCEN): Anti-Money Laundering Act of 2020 Implementation and Beyond](https://crsreports.congress.gov/product/pdf/R/R47255)."
>     
> 7.  Financial Crimes Enforcement Network (FinCEN). "[The Anti-Money Laundering Act of 2020](https://www.fincen.gov/anti-money-laundering-act-2020)."
>     
> 8.  State of Utah Office of the Attorney General. "[White Collar Crime Offender Registry](https://www.utfraud.com/Home/Registry)."