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White-collar crime is a non-violent crime in which there is a clear financial motivation. These crimes frequently occur within the context of a corporation or organization and are often led by wealthy and powerful individuals (Hagan & Daigle, 2019). These corrupt individuals may use coercion, bribery, manipulation, and other tactics to hide their involvement. Hence, it is very difficult to prosecute an individual for white-collar crime, and most times a white-collar crime case is not treated the same as other types of crimes despite having some of the highest costs (Hagan & Daigle, 2019).

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The term white-collar crime supposedly originated in the year 1939 and includes a wide range of crimes (i.e., frauds, cons, scams) committed by businessmen and politicians (Federal Bureau of Investigation [FBI], n.d.). Typically, these individuals are high profile and have a considerable amount of power. In addition, it is crucial to know that these crimes are not victimless and can have a major impact on many lives.

One specific type of white-collar crime, corporate fraud, can be extremely damaging to the U.S. economy as a whole and is considered to be one of the FBI's biggest priorities (Federal Bureau of Investigation [FBI], n.d.). Here are the three main white-collar crimes that the FBI pursue in corporate fraud: Falsification of financial information, self-dealing by corporate insiders, and fraud connected to a seemingly legitimate mutual hedge fund.

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These crimes are not violent, but they are not victimless. White-collar crimes can destroy a company, wipe out a person's life savings, cost investors billions of dollars, and erode the public's trust in institutions.

The FBI's white-collar crime program focuses on analyzing intelligence and solving complex investigations-often with a connection to organized crime activities. Our white-collar crime investigations can be regional, national, and/or international.

The FBI works closely with partner law enforcement and regulatory agencies like:

the Securities and Exchange Commission

the Internal Revenue Service

the U.S. Postal Inspection Service

the Commodity Futures Trading Commission

the Treasury Department's Financial Crimes Enforcement Network

Report White-Collar Crime

Examples of White-Collar Crime

Health Care Fraud

Health care fraud is not a victimless crime. It affects everyone-individuals and businesses alike-and causes tens of billions of dollars in losses each year. It can raise health insurance premiums, expose you to unnecessary medical procedures, and increase taxes.

Health care fraud can be committed by medical providers, patients, and others who intentionally deceive the health care system to receive unlawful benefits or payments.

The FBI is the primary agency for investigating health care fraud, for both federal and private insurance programs.

Corporate Fraud

As the lead agency investigating corporate fraud, the FBI focuses its efforts on cases that involve accounting schemes and self-dealing by corporate executives, as well as obstruction of justice (activities designed to conceal this type of criminal conduct).

The FBI's corporate fraud investigations primarily focus on:
Falsification of financial information:

False accounting and/or misrepresentations of financial conditions

Fraudulent trades designed to inflate profits or hide losses

Illicit transactions designed to escape regulatory oversight

Self-dealing by corporate insiders:

Insider trading (stock trading based on material, non-public information)

Kickbacks

Misuse of corporate property for personal gain

Individual tax violations related to self-dealing

Money Laundering

Money laundering is turning "dirty" money "clean" by making it look like money from crimes actually came from legitimate sources.
Money laundering allows criminals to:

hide and accumulate wealth

avoid prosecution

avoid taxes

increase profits through reinvestment

fund further criminal activity

The FBI focuses its efforts on money laundering facilitation-targeting professional money launderers, key facilitators, gatekeepers, and complicit financial institutions, among others.
Criminals who engage in money laundering derive their proceeds through:

Complex financial crimes

Health care fraud

Human trafficking

International and domestic public corruption

Narcotics trafficking

Terrorism

Criminals use a number of tools to launder money, including:

Financial institutions

International trade

Precious metals

Real estate

Third party service providers

Virtual currency

There are three steps in the money laundering process-placement, layering, and integration:

Placement is the criminal entering money into the financial system.

Layering is the most complex and often involves moving money internationally. Layering separates the criminal's money from the original source and creates a complex audit trail through a series of financial transactions.

Integration occurs when the criminal's proceeds are returned to them from what appear to be legitimate sources.

The FBI regularly coordinates with other law enforcement agencies, international partners, and industry to detect and disrupt money laundering.

Securities and Commodities Fraud

The creation of complex investment vehicles and the tremendous increase in the amount of money being invested have created greater opportunities for individuals and businesses to create fraudulent investment schemes.

To investigate and help prevent fraudulent activity in the financial markets, the Bureau works closely with various government and private organizations to investigate securities and commodities fraud.

Mortgage and Financial Institution Fraud

Financial institution fraud happens when criminals target banks, credit unions, and other financial institutions. Many schemes involve compromising customers' accounts or personal information. Embezzlement and misapplication of funds are two common financial institution fraud crimes in FBI investigations. Sometimes, fraud can be severe enough to cause the failure of a bank or credit union.

Mortgage fraud happens when someone lies to influence a bank's mortgage decision or if a distressed homeowner is the victim of a fraud.

There are two areas of mortgage fraud:

Fraud for profit: This type of fraud involves professionals in the home buying process stealing cash and equity from lenders and homeowners. These types of cases area priority for the FBI.

Fraud for housing: This fraud happens when borrowers lie about their incomes or assets on a loan application or influence an appraiser to manipulate a property's value.

The FBI works with partners to investigate mortgage and financial institution fraud cases. The FBI participates in task forces that share intelligence, de-conflict cases, and create joint investigations.

Intellectual Property Theft/Piracy

Intellectual property theft involves robbing people or companies of their ideas, inventions, and creative expressions-known as intellectual property. This can include everything from trade secrets to proprietary products to movies, music, and software.

Intellectual property theft costs U.S. businesses billions each year.

The FBI's intellectual property investigations focus on the theft of trade secrets and copyright infringement on products that can impact people's health and safety, like counterfeit parts for cars and electronics. The FBI works with partners in the private sector and other law enforcement agencies at all levels to investigate these cases.

Learn more at the National Intellectual Property Rights Coordination Center.

Similarly, economic espionage costs the American economy hundreds of billions of dollars per year and puts our national security at risk. In these cases, foreign competitors deliberately target economic intelligence in advanced technologies and successful U.S. industries.

External Links and Resources

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White-Collar Crime | Federal Bureau of Investigation

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These crimes are not violent, but they are not victimless. White-collar crimes can destroy a company, wipe out a person's life savings, cost investors billions of dollars, and erode the public's trust in institutions. The FBI's white-collar crime program focuses on analyzing intelligence and solving complex investigations-often with a connection to organized crime activities.

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While other types of crime often receive substantially more attention than white-collar crime, Holtfreter and colleagues demonstrate why white-collar crime deserves more attention. For instance, estimates of loss for white-collar crime are around roughly 250 billion, while losses for other crimes linger closer to 17.6 billion. In addition, white-collar crime is often considered a lower priority crime despite some of the American public expressing concern about fraud and supporting greater punishment for these criminals. Some of these individuals may erroneously believe white-collar criminals are being punished and prosecuted appropriately, but this is far from the truth and increased education and awareness on the dangers of white-collar crime should be facilitated to the public.

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It is easy to not care or give too much attention to the problem of crime when you have never been victimized. However, people are much more likely to be victimized by white-collar crime than they think. According to this article by Y Delord-Ranal, there are two broad categories victims fall into: (1) voluntary victims, such as those exploited by swindlers who promise a 'fast buck' and (2) involuntary victims, who are exploited in routine commercial transactions that compose normalized economic and professional activities. Similar between all victims is that interaction between them and the perpetrator is nonviolent, indirect, and impersonal with the victim often being anonymous to the offender. This means that anyone is likely to be victimized as there is no personal ties between the victim and the offender. People you do not know and will probably never meet can get access to your money and personal information for their own benefit and often without the victim ever knowing.

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White-collar crime is particularly important because it helps to break the view of a stereotypical criminal (i.e., poor, African American, uneducated). This type of crime shows that wealthy, white, and educated men can also be engaging in deviant behavior. While not a violent crime, white-collar crime can have devastating impacts on our economy, community, and many individuals. This is a crime that often goes ignored and this needs to change. Currently, few white-collar criminals receive any punishment for their crimes. Therefore, this needs to be brought to everyone's attention, especially future criminologists. Increased awareness and education on white-collar crime is crucial.

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The most important way to combat white collar crime is simply to educate the public on who the offenders are. The public have repeatedly been victimized by white-collar offenders because these offenders are not what one would expect. They challenge the stereotypical appearance of a criminal and the means of how they offend. When we think of crime, we think of direct, personal, violent affairs. However, white collar crime tends to be very indirect and impersonal. The way offenders interact with their victims is non-violent and impersonal. Often, victims are anonymous to their offenders. In order to catch these criminals and prosecute them to the full extent, the socioeconomic status of the offenders must be taken out of the equation. Too many offenders get away with their crimes because of their power and influence. We must not let people get away with creating so many victims just because they have influence.

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This column makes suggestions for future directions we can take in white-collar crime to discourage this behavior and increase the likelihood of apprehending these criminals. We will also discuss potential changes we can make in policies related to white-collar crime and discuss the importance of appropriate media representation.

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Here are some reasons why white-collar crime may not be punished adequately as expressed by Hagan and Daigle (2019):
1. White collar crime has not been criminalized in the past, and until recently was rarely punished behavior.
2. There has been a longstanding belief that government should not be involved in business-related matters.
3. White-collar crime was not acknowledged by the public and there was very little recognition of its severity for years.
4. Media did not report on white-collar crime, and instead, the focus was on other crimes such as those that are violent. This likely contributed to a lack of public knowledge and understanding.
5. White-collar criminals may not be seen as a criminal because they do not fit the typical stereotype of one. Often, they are Caucasian middle-aged white men and are not viewed as problematic.

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In this insightful article by Olejarz (2016), he discusses the difficulties in prosecuting white-collar crime, and potential remedies to this issue. First, one suggestion is to take action and put a stop to the crime before it even occurs. In some cases, white-collar criminals do not even think of the consequences of their actions. Thus, they need to be held accountable and this can be done through employing task forces to regularly check corporations and executives for questionable behaviors. While it is important to have an investigator on the outside of the company, it could also be beneficial to require that companies hire professionals knowledgeable in business requirements and legal issues. Reform of current policies could also be helpful, such as through increasing the penalties for white-collar crimes. As mentioned above, white-collar crimes are treated too leniently so one major reform should occur within the courts with stricter prison sentences and punishments. Corporations should be expected to accept responsibility for any fraudulent activities that occur as part of their company as well. The big permeable issue that could be difficult to solve though, is how to create change when those with all of the wealth and power are in charge of our laws (Olejarz, 2016).

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While many films in white-collar crime are based on true stories, oftentimes they are scripted and altered to be more engaging and interesting to viewers. However, these can be engaging ways to inform the general population on the issue of white-collar crime, given the influence of television shows and films in our everyday lives. Film and television are typical hobbies for many and could provide an opportunity to educate on white-collar crime in addition to other crimes.

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While exposure to white-collar crime in the media is important, oftentimes it is distorted and does not represent the reality of white-collar crime. This is a serious issue to consider, as there need to be more documentaries on the issue. However, one film, The Polka King, is based on the true story of Jan Lewan and would be worth watching as it will provide more representation of a real white-collar criminal. In addition, this movie is based on a documentary called The Man Who Would Be Polka King and therefore should not be unnecessarily distorted like many other movies are.

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Watch The Polka King | Netflix Official Site

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Determined to make it big in America, Polish-born bandleader Jan Lewan draws his fans into a Ponzi scheme in this comedy based on a true story. Watch trailers & learn more.

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If you are interested in further exploring white-collar crime within media, see WatchMojo's ranking of the top 10 best white-collar crime films. Be sure to pay attention to how realistic these examples are. Do you think that they adequately represent the issue of white-collar crime? In addition, if you're interested in a television series: White Collar is also be a good choice.

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This column explains the means by which power and influence play a role in the lack of punishment for white collar criminals.

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C. Wright Mills explains that the power elite are a small group of corporate, military, and political individuals of high status who run the United States (Hagan & Daigle, 2019). These elite are people whose "positions enable them to transcend the ordinary environments of ordinary men and women" (Mills, 1965). Because of their position at the top of society, they run the game. The power elite make the rules and thus can avoid punishment for their crimes as a result of their "moral insensibility" (Hagan & Daigle, 2019).  One group of the power elite are the corporate elite. White collar crimes are those committed by individuals within corporations or by corporations themselves. The corporate elite avoid punishment for their crimes because they run the society in which they are committing immoral acts.

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Many employees of big organizations and corporations are vowed to a code of silence and protectionism. It is an expectation that they do not reveal or turn in fellow co-workers/higher-ups when it is revealed they are committing serious crimes. The crimes they commit are seen as being for the good of the company and are done for the ultimate goal of company success. If one gets in the way of that success by revealing the wrongdoings, they are considered a whistleblower. Whistleblowers put themselves in a place of great vulnerability and sacrifice to reveal information they were expected to never share. They often face firing, family disruption, and ostracism from friends and former coworkers (Hagan & Daigle, 2019). Because of this, people with knowledge of such crimes often keep the information to themselves so as not to face these repercussions. Thus, companies continue committing white collar crimes without facing punishment.

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Karen Silkwood - The Original Corporate Whistleblower

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Karen Silkwood - The Original Corporate Whistleblower

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Karen Silkwood, a former employee of the Kerr-McGee nuclear plant in Guthrie, Oklahoma, is regarded as one of the original corporate whistleblowers. She died under mysterious circumstances when she was on her way with information to present to union officials documenting the company's negligence of health and safety measures. Many believe her whistleblowing is what resulted in her mysterious death.

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Questions Still Remain In Suspicious Death Of Karen Silkwood

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Coercion and Manipulation is another means by which white collar criminals avoid prosecution and punishment. One example of this is known as coerced crime. Coerced crime is an idea first explained by Leonard and Weber (1970) in which four major auto producers pressured their roughly 30,000 dealers into swindling their customers. They were required to employ shady practices in order to retain their franchises. This included forcing accessories onto the customer, service gouging, overcharging for parts, and odometer tampering (Hagan & Daigle, 2019). The four major corporations, though not technically committing crime themselves, forced their dealers into white collar crime so they could keep their business. None of the punishment goes back to the big auto producers for fostering an environment in which dealers had to commit crime to keep their franchise. In this way, big corporations will use those with less power to get people to do their dirty work and take the punishment.

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Operation Varsity Blues: The College Admissions Scandal

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Operation Varsity Blues: The College Admissions Scandal

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This article outlines the recent college admissions scandal and its relation to white collar crime. One notable figure in this case is Lori Laughlin also know as the former "Aunt Becky" on the show Full House. Being a well known celebrity with a sum of wealth, she was able secure her daughters a spot into an elite college by paying their way in.

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To the average person, it's not always totally obvious what white-collar crime looks like. Unfortunately for Lori Loughlin and her husband Mossimo Giannulli, the media is providing us with a pretty good idea of what white-collar crime looks like. White-collar crime is generally a non-violent economically motivated crime. Often, white-collar crime is perpetuated by businesses or organizations. The most common examples of white-collar crime are fraud, money laundering and embezzlement. To be fair, neither Lori Loughlin nor her husband Mossimo Giannulli have been convicted of any crime. They have, however, been indicted on several charges. They were most recently indicted on charges of money laundering.

Varsity Blues refers to the college admissions scandal involving several high-profile couples who paid large sums of money to guarantee their children admission into elite colleges. Reports indicate that several couples that were indicted in the college admissions scandal have already reached some sort of plea agreement. In contrast, Lori Loughlin and her husband have not reached a plea deal.

It is unclear as to why Lori Loughlin and her husband have yet to reach some plea agreement. Public opinion is mounting against them and more charges have been brought against them. In fact, the most recent charge of money laundering is a tactic most often reserved for organized crime or drug cases. The prosecution in this case seems to be taking a stance. It is not uncommon to hear of instances where wealthy or well-connected individuals receive lighter punishments or go unprosecuted. In this case, the prosecution appears to be saying "not this time."

The fact that Loughlin and her husband have not reached some sort of plea agreement is a big deal because it means that the couple plans on fighting the charges levied against them or they are hoping for a better plea deal. That seems to not be happening. There is also the possibility that Loughlin's defense team sees a major flaw in the government's prosecution. For that, the public will most likely have to wait for trial.

In cases like Loughlin's it is extremely important to have an attorney who not only understands the law but who also understands the importance of how the court of public opinion can influence the prosecution and the jury. Moving forward, Loughlin's attorneys have a difficult battle ahead of them. They'll have to carefully balance their client's image in the media and continuously weigh the risks and benefits of proceeding forth with a trial.

The Varsity Blues college admissions scandal is providing the American public with a look into white-collar crime. It is unsurprising that that this sort of scandal is receiving so much public attention. More now than ever, wealthy and/or famous individuals are convicted by the media before the defendants have a chance to tell their story. For people like Loughlin, the name of the game is controlling the story. When you hire an attorney to represent you, and you've been accused of a white-collar crime, hire an attorney who knows how to write that story.

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Varsity Blues: The College Admission Scandal & A Look into White-Collar Crime

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To the average person, it's not always totally obvious what white-collar crime looks like. Unfortunately for Lori Loughlin and her husband Mossimo Giannulli, the media is providing us with a pretty good idea of what white-collar crime looks like. White-collar crime is generally a non-violent economically motivated crime.

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This column provides information on the different types of white-collar crime such as cons, scams, and Ponzi schemes. In addition, several of the most well-known con and scam artists will be discussed or mentioned here such as Bernie Madoff.

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A con is referred to as a "game" in which an individual gains the trust and confidence of an individual before scamming them and taking advantage of them (Hagan & Daigle, 2019).

An example is the Bar bill scam in which a beautiful woman approaches a target (often a male tourist) and asks them for directions. When the tourists are unable to help, the woman asks them to continue their discussion in a bar they claim to know of nearby. Once in the bar, they work to convince the men to buy many drinks and food off the menu, which has been altered so that the true prices are not noticeable. Then, when the bill comes, the woman claims they do not have the money to pay for it. The target is then expected and sometimes threatened to pay the entire cost of the bill. The woman then offers to pay them back at another location the next day but does not arrive. These women are given some of the funds from the bar afterward because they are working covertly with them to conduct these cons.

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A scam is very similar to a con in that it is also a "game" in which an individual tricks someone out of their money. In fact, a con would be considered a type of scam (Hagan & Daigle, 2019). In many ways, these two terms mean the same thing. However, here are some examples of scams to help differentiate between the two crimes.

First, the Badger game is a scam in which elderly individuals are the primary targets. For instance, a young women may accuse an elderly man of rape of sexual assault, but be willing to keep quiet for a price (Hagan & Daigle, 2019). In many ways, this is a form of coercion and bribery through which con artists can steal money from innocent, older individuals.

Meanwhile, the Bank Examiner's Scam is when an individual poses as a bank investigator and asks a bystander to withdraw a certain sum of money and hand it over to them for investigation. They claim that they want to catch a dishonest bank teller, but then never give back the money and steal it (Hagan & Daigle, 2019).

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Here are some real-life examples of white-collar crime through the mention of 10 different scam artists in history.

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This is a con game in which an individual, such as Charles Ponzi, runs a fake enterprise where they pay current investors with new investors' money. Eventually, when multiple investors want to cash out or it is increasingly difficult to find new investors, the scheme fails. Here is a great resource that explains warning signs of a Ponzi scheme: Investor.gov (Ponzi scheme)

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Charles Ponzi - Inventor of the Ponzi Scheme

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Charles Ponzi - Inventor of the Ponzi Scheme

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See this article for the story of Charles Ponzi, the man who created the Ponzi Scheme that was then used by many others such as Bernie Madoff to steal billions of dollars. It is important to have a true understanding of Charles Ponzi, as he is a major influencer in white-collar crime.

Essentially, Ponzi bought and then sold International Reply Coupons for a profit. He convinced a few investors to give him start-up money and promised them generous returns on their investment.

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Editor's Note, April 14, 2021: In the wake of the death of convicted fraudster Bernard Madoff, Smithsonian looks back at the crook who gave Ponzi schemes their name
John Kenneth Galbraith once observed that "the man who is admired for the ingenuity of his larceny is almost always rediscovering some earlier form of fraud." Although the details may vary, all flimflam games rely on their basic ability to make a lie look like the truth. Even today, confidence artists continue to work their scams with great success. Time and again, people from every walk of life demonstrate their ability to abandon common sense and believe in something that is simply too good to be true by succumbing to the con man's call.

Yet when all is said and done, the Internet is merely a vehicle for swindlers to reach their victims. "What is new-and striking-is the size of the potential market and the relative ease, low cost and speed with which a scam can be perpetrated," FTC Chairman Robert Pitofsky told a Senate subcommittee during a February hearing on Internet fraud. But there is nothing new in the scams themselves: they are the same pyramid schemes, phony business opportunities and phantom storefronts that have been fooling the unwary and greedy for centuries.

Many of these computer-savvy crooks have taken their cue from an Italian immigrant named Charles Ponzi, a dapper, five-foot-two-inch rogue who in 1920 raked in an estimated $15 million in eight months by persuading tens of thousands of Bostonians that he had unlocked the secret to easy wealth. Ponzi's meteoric success at swindling was so remarkable that his name became attached to the method he employed, which was nothing more than the age-old game of borrowing from Peter to pay Paul. The rules are simple: money taken from today's investors is used to pay off debts to yesterday's investors. Typically, these investors are lured by promises of exorbitant profits-50, even 100 percent. Often, they are coached to recruit more investors to enrich themselves further. The problem is that there is no actual investment going on; the only activity is the shuffling of money from new investors to old ones. Everything is fine until the scheme runs out of new investors and the whole house of cards comes tumbling down.

We still hear about Ponzi schemes, or pyramid schemes, as they are more frequently called. Last year, the collapse of dozens of Ponzi schemes in Albania sparked mass rioting that escalated into a national crisis. And in New York, investors were out an estimated $1.5 billion when the Bennett Funding Group, described by regulators as a "massive, ongoing Ponzi scheme," went belly-up. On the Internet, a company called Fortuna Alliance promised investors monthly returns as high as $5,000; more than 8,600 people bought into the scheme, which was shut down by the FTC in 1996. Fortuna eventually stipulated to an injunction prohibiting its alleged scam. In January 1998, a judge ordered the company to start paying back its investors. The FTC says it is seeking $5 million in refunds for consumers.

Ponzi himself was probably inspired by the remarkable success of William "520 percent" Miller, a young Brooklyn bookkeeper who in 1899 fleeced gullible investors to the tune of more than $1 million. Years later, "Honest Bill," as he came to be known after a jail term in Sing Sing and a turn down the straight and narrow, questioned the workings of Ponzi's enterprise. "I may be rather dense, but I cannot understand how Ponzi made so much money in so short a time," Miller observed to a reporter from the New York Evening World mere days before the bottom fell out of Ponzi's scheme.

But whatever Ponzi lacked in originality, he had plenty of finesse-and chutzpah. "He was a fascinating crook-the ultimate con man," says Ponzi biographer Donald Dunn. Ponzi's investors ran the gamut from working-class Italian immigrants like himself to cops and politicians. He even accepted money from a priest.

In the summer of 1920, Ponzi was front-page news virtually every day in the Boston papers. But prior to 1920, few people outside Boston's Italian community had ever heard of Charles Ponzi. He told the New York Times that he had come from a well-to-do family in Parma, Italy. He also claimed to have studied at the University of Rome, but said that he was not suited to the academic life. "In my college days, I was what you would call here a spendthrift. That is, I had arrived at the precarious period in a young man's life when spending money seemed the most attractive thing on earth."

When his money ran out, young Ponzi decided the wisest course of action was to head west. On November 15, 1903, he stepped off the gangplank of the SS Vancouver in Boston Harbor with only a couple of dollars in his pocket-the result, he said, of being taken in by a cardsharp during the transatlantic crossing. "I landed in this country with $2.50 in cash and $1 million in hopes, and those hopes never left me," Ponzi later told the New York Times.

The road to riches was a long one for the ever-optimistic Ponzi, who waited and bused tables in New York City, painted signs in Florida and worked small jobs up and down the East Coast. In 1917, he headed back to Boston in response to a newspaper ad placed by merchandise broker J. R. Poole, who needed a clerk.

He soon met young Rose Gnecco on a streetcar and wooed her energetically. A small, pretty woman from a modest background, Rose was swept off her feet by her older, seemingly sophisticated suitor. Rose's youthful innocence shines through even in newspaper photographs, as does her unswerving devotion to her husband. The couple married in February 1918. Ponzi took over his father-in-law's grocery business and proceeded to make a mess of it. (He had already left Poole, who apparently failed to recognize his new clerk's latent financial genius.)

It was not long before Ponzi struck out on his own, and finally hit upon the scheme that-for a short time-was to make him rich beyond his wildest dreams. He had come up with the idea for an international trade journal, which he believed could make a tidy advertising profit. But the bank where he sought a $2,000 loan, Hanover Trust Company, did not agree. Following a brusque rejection by the bank president, Ponzi sat alone in his little School Street office and pondered his next move.

It came to him while opening his mail one day in August 1919. As Ponzi relates in his shamelessly exuberant autobiography, The Rise of Mr. Ponzi, a business correspondent from Spain, interested in learning more about Ponzi's aborted journal, had enclosed a small paper square that put the well-oiled wheels of Ponzi's imagination into overdrive.

The little scrap of paper was an international postal reply coupon, and the Spanish correspondent had enclosed it in prepayment of reply postage. Purchased in a Spanish post office for 30 centavos, it could be exchanged for a U.S. postage stamp worth 5 cents, a redemption rate that was fixed by international treaty. But the Spanish peseta, Ponzi knew, had fallen recently in relation to the dollar. Theoretically, someone who bought a postal reply coupon in Spain could redeem it in the United States for about a 10 percent profit. Purchasing coupons in countries with weaker economies could increase that margin substantially, he reasoned. It should be possible, then, to make a financial killing by buying huge quantities of these coupons in certain overseas countries and redeeming them in countries with stronger currencies. Ponzi called his new business the Securities Exchange Company, and set out to promote his idea.

It was a big idea-one that Ponzi managed to sell to thousands of people. He claimed to have elaborate networks of agents throughout Europe who were making bulk purchases of postal reply coupons on his behalf. In the United States, Ponzi asserted, he worked his financial wizardry to turn those piles of paper coupons into larger piles of greenbacks. Pressed for details on how this transformation was achieved, he politely explained that he had to keep such information secret for competitive reasons.

Of course, there was no network of agents. Nor, for that matter, did Ponzi expend any effort to corner the market on postal reply coupons. A final audit of his company's assets after the whole business was over turned up $61 worth of the coupons, according to Dunn.

Dunn's book, Ponzi! The Boston Swindler, provides a dramatized account of Ponzi's wild ride to riches and shows that, if anything, Ponzi's genius lay in psychology, not finance. Ponzi knew that his concept-the path to easy riches-was so alluring that the worst thing he could do was try to sell it too aggressively. Borrowing a page or two from Tom Sawyer, he cultivated an image among friends and acquaintances as a man on the verge of wealth who preferred not to discuss his good fortune in detail-unless, of course, he was pressed. In his role as the busy but cheerful investment expert, Ponzi showed up at boccie games and neighborhood cafés, plied his pals with good cigars and bonhomie, then rushed off to meet with one of his many important "clients," Dunn relates.
Only after his victims were well primed was Ponzi ready to dangle his bait: the grand plan in which his investors received 50 percent interest in 90 days. (Later he sweetened the pot, promising 50 percent interest in 45 days.) By December, the money had begun to roll in. Most of the actual investment pitches were done by sales agents who were trained by Ponzi and received 10 percent commissions for investments that they brought in to him. In turn, many of those sales agents recruited "subagents" who received 5 percent commissions for new investors. Once Ponzi paid off his first round of investors, word of the financial "wizard" on School Street spread quickly. Ultimately, some 40,000 people joined the feeding frenzy. Many people simply reinvested their profits with Ponzi, thereby relieving him of actually having to make good on his promise. At the height of his success, Ponzi had offices from Maine to New Jersey, and was fending off shady offers from prospective "partners" in New York. The newspapers caught wind of Ponzi after a man named Joseph Daniels filed a $1 million suit against him in July 1920, according to Dunn. Daniels, a furniture salesman, laid claim to a share of Ponzi's fortune on the basis of an old debt. His lawsuit for what was at the time an enormous amount of money started a buzz about Ponzi outside the circle of investors he had cultivated. By then, Ponzi had built the lifestyle he had pursued for so many years: a 12-room mansion in upscale Lexington; servants; a couple of automobiles, including a custom-built limousine; and fine clothes and gold-handled Malacca canes for himself, and diamonds and other baubles for Rose. He purchased commercial and rental properties all over Boston and acquired stock in several banks. He even bought out his former employer, Poole. "The more I bought, the more I wanted to buy," Ponzi wrote. "It was a mania." But what he really wanted was control of a bank. He arranged a takeover of Hanover Trust, the same bank that had turned down his loan application the previous year. A few months later, when Ponzi fell, so did Hanover Trust. (The Commonwealth of Massachusetts, it turned out, had $125,000 on deposit with Hanover Trust-a revelation that figured in the September 1920 resignation of State Treasurer Fred Burrell.) Monday, the 26th, started out as a banner day for Ponzi. The scene that awaited him as he approached his office that morning in his chauffeur-driven Locomobile "was one that no man could forget," he later wrote. "A huge line of investors, four abreast, stretched from the City Hall Annex, through City Hall Avenue and School Street, to the entrance of the Niles Building, up stairways, along the corridors...all the way to my office!... "Hope and greed could be read in everybody's countenance. Guessed from the wads of money nervously clutched and waved by thousands of outstretched fists! Madness, money madness, the worst kind of madness, was reflected in everybody's eyes!... "To the crowd there assembled, I was the realization of their dreams....The 'wizard' who could turn a pauper into a millionaire overnight!" The tide turned quickly against Ponzi. He had come under investigation by postal and legal authorities as early as February, but they appeared to be making little progress in their efforts. Meanwhile, the editors at the Boston Post, possibly chagrined at having published the article that injected so much momentum into Ponzi's enterprise, launched an investigation into his business. The bad press enraged Ponzi. At the advice of his publicity agent, a former newspaperman named William McMasters, Ponzi offered to cooperate with the U.S. District Attorney's office by opening his books to a government auditor and declining to accept new investments, as of noon that day, July 26, until the audit was complete. Still, McMasters found it difficult to condemn the little financier: "No wonder Ponzi is confident: He sees an apparently unlimited pile of cash...the public dippy about him...and Wall Street 'experts' who never did anything like it themselves offering 'sure-thing' explanation of his 'operations'-is it any wonder the thing has gone to his head?" Note holders besieged the School Street office the day the McMasters article ran. Ponzi hotly denied the charges of insolvency, and threatened to sue both McMasters and the Post.
The public circus escalated. On August 10, Ponzi gave a luncheon address at Boston's Hotel Bellevue for the Kiwanis Club, which had invited him for a "battle royal" with a mind reader named Joseph Dunninger. The idea was that Dunninger would "throw the X-ray of clairvoyance on the subtle brain of the little Italian and reveal what he found to the audience," the Boston Globe reported. But the spectators were so enthralled by Ponzi that the contest apparently never came off; at 2:45, Ponzi was still fielding questions from the audience.

Ponzi audaciously implied that he dealt directly with foreign governments in order to purchase the vast quantities of coupons needed to support his enterprise. Because the governments from whom he bought coupons profited themselves, they "naturally would not care to reveal" the exact nature of their business, he explained. "PONZI TELLS KIWANIS CLUB HOW HE GOT HIS MILLIONS," the Globe shouted from its front page. Editors at the Chicago Tribune, which also reported on the Kiwanis Club affair, were more skeptical: "PONZI REVEALS PHILOSOPHER'S STONE: 0+0=$," the headline ran.

On August 11, the Boston Post made the sensational revelation that the financial wizard was a former jailbird, having served time (1908-10) in Canada for forging checks. The article, the result of the Post's own investigation, ran complete with mugshots of Ponzi from Montreal police. Later, it was learned that Ponzi had served another term in a federal prison in Atlanta for smuggling five Italians from Canada into the United States.
Ponzi was convicted on federal charges of using the mail to defraud. He served 31/2 years and was paroled. In 1925, he was convicted on state fraud charges. Out on bail while the verdict was under appeal, he headed for Florida to raise money by selling swampland under the name "Charpon." He was quickly arrested and convicted of fraud. He jumped bail when he learned that the Supreme Judicial Court of Massachusetts had upheld his conviction in that state. With authorities in two states in pursuit, Ponzi fled to Texas. He signed aboard as a seaman on an Italian freighter, but was captured in New Orleans. Ponzi was returned to Massachusetts to begin his sentence at the state prison in Charlestown. When Ponzi emerged from jail in 1934, balding and 40 pounds heavier, immigration authorities were on hand with a deportation warrant. He had never become an American citizen and was considered an undesirable alien. On October 7, after his appeals to remain in the United States were rejected, he was deported to Italy. Rose stayed on in Boston with plans to join him once he found employment, but after two years she tired of waiting and finally divorced him. For years, says Dunn, who interviewed her not long before her death, she was dogged by rumors that she had a secret stash of her husband's ill-gotten gains. But Rose was a victim herself: she and eight of her relatives had loaned Ponzi more than $16,000. After Ponzi's departure, Rose led a pinched and quiet existence, eventually remarrying after her husband's death and moving to Florida, where she tried to escape the notoriety of her former husband's escapades. Accounts of Ponzi's life after his eviction from the United States vary. According to one version, he talked his way into a high-ranking financial ministry job in Mussolini's government. When officials realized that he was not the financial genius he purported to be, he fled carrying two suitcases stuffed with cash and caught a steamer to Brazil. Dunn, who's done the most extensive research on Ponzi, uncovered a different story. He reports that Ponzi got help from his second cousin, Col. Attilio Biseo of the Italian Air Force, who was commander of the Green Mice Squadron and a friend of Mussolini's. Biseo landed Ponzi a job with a fledgling airline doing business between Italy and Brazil. This new career kept Ponzi in high style between 1939 and December 1941, when the United States entered World War II and the Brazilian government cut off supplies to Ponzi's airline, having learned that it was ferrying strategic supplies to Italy. Out of a job, Ponzi scraped by, teaching English and French and later working as an interpreter for an Italian importing firm, according to Dunn. But his eyesight was failing and a stroke in early 1948 left him partially paralyzed. Ponzi died in a charity hospital in Rio de Janeiro on January 18, 1949, leaving $75 to pay for his burial. Why does anyone fall for such scams? "It's human nature," says Susan Grant of the National Consumers League. "The crooks know that there are basic human factors that they can appeal to-the desire to do what you think you see other people doing around you, making money and getting rich." In other words, wishful thinking. In 1920, people saw Ponzi as a man who could make the impossible possible. Today, many people in search of lucrative investment opportunities "see the Internet as a place where all things are possible," observes Paul H. Luehr, who chairs the FTC's Internet Coordinating Committee. Sometimes, they simply can't tell the difference between a legitimate business enterprise and a hoax. But other times it's clear that they don't really want to know. Grant and Luehr tell of inquiries they've received from consumers in search of reassurance that an attractive scheme is legitimate. But when cautioned against it, they become angry. "Many times people are mad at the government for spoiling a 'good' investment opportunity," says Luehr. Today's operators often use high-tech bells and whistles to lure their prey. Ponzi's approach was more charismatic. But the bait is always the same and the outcome is inevitable. Up to 95 percent of the people who buy into Ponzi schemes eventually lose all their investments, says Luehr. Generally, it is only the con man who gets the easy money. For Ponzi, there undoubtedly were other rewards as well: excitement and power. Richard Ault, a retired special agent and criminal profiler for the FBI, speculates that, more than anything, Ponzi wanted to be "something special." A poor immigrant, he sought to become part of the Boston establishment that had excluded him, Ault believes. "It was an impossible goal, but he managed to achieve a little bit of it for a short period of time."
To Ponzi, it was all a grand, desperate game that he was determined to play to its conclusion. At the end, he had this to say about the mad caper on which he had led the people of Boston: "Even if they never got anything for it, it was cheap at that price. Without malice aforethought I had given them the best show that was ever staged in their territory since the landing of the Pilgrims!... It was easily worth fifteen million bucks to watch me put the thing over!"

To Charles Ponzi, who began with nothing, ended up the same way but enjoyed a brief interlude of power and fame, it undoubtedly was.
Mary Darby, a freelance writer in Washington, D.C., invests in mutual funds, and hopes not to lose her shirt.

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Editor's Note, April 14, 2021: In the wake of the death of convicted fraudster Bernard Madoff, Smithsonian looks back at the crook who gave Ponzi schemes their name John Kenneth Galbraith once observed that "the man who is admired for the ingenuity of his larceny is almost always rediscovering some earlier form of fraud."

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Bernie Madoff is one of the most well-known con artists in current history. His model was based on Charles Ponzi, who is discussed above. In fact, he has had several documentaries made about him and case studies conducted in attempts to garner further insight into his elaborate scheme. It is crucial to acknowledge Bernie Madoff as he is potentially the most successful con artist in history. His ability to trick individuals for so long has stumped many criminologists, and therefore his story (and Ponzi scheme) are worth discussing. Here is a study conducted by Diana Henriques (2018) that discusses his scheme in depth including how he was caught, how he accomplished it, and the damages he caused. Some charities were forced to close down or had to work extremely hard to remain afloat due to the lost funds. Many individuals were negatively impacted as well due to their losses.

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The Man Who Stole $65 Billion (Bernie Madoff)

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This column contains information about what Conflict Theory is and the central ideas behind it. Additionally discussed is how this theory can be used to describe how racism functions in laws related to white collar crimes and how we can apply the theory to control this type of crime.

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Another important consideration for the future of white-collar crime is how different theories can apply to this behavior. Two theories that do an excellent job of explaining white-collar crime is rational choice theory and deterrence theory. Essentially, the idea here is that if the penalties were more severe than the pleasure resulting from engaging in the behavior, then these individuals would be deterred from the crime and less likely to engage in that behavior (Hagan & Daigle, 2019). This could explain why white-collar crime occurs, because often times these individuals get away with their crimes or a very light punishment. Hence, increase penalties for white-collar crime could decrease such behaviors.

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Conflict Theory is a set of criminological theories that posits that crime results from class conflict, social, and economic inequality. Those in society who hold class, social, and economic power and status are the ones who determine what are considered crimes and who are held accountable as criminals (Morin, 2014).
Karl Marx's economic and philosophic writings of class struggle are the major inspiration for Conflict Theory. Marx believed that the economic substructure determines the nature of all other institutions in society, which includes the criminal justice system and deciding who and what is labeled as deviant. Willem Bonger, the foremost early Marxist criminologist, was heavily influenced by Marx. His view was that the criminal law primarily protected the interests of the most powerful and elite classes. Bonger's most noted and influential work is Criminality and Economic Conditions (1916/1969).

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This video by crash course (starting at 7:09) gives a good run down on what conflict theory is. In the video, it is explained that a conflict theory perspective finds that the socially deviant are not necessarily the most dangerous, but rather that they are often the most powerless.

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Theory & Deviance: Crash Course Sociology #19

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White collar criminals challenge the stereotypical appearance of what we think of when we think of a criminal. These kinds of criminals are considered "...talented, bright, highly educated, successful people who have "made it"..." (Bucy et. al., 2008). Therefore, you could say they hold high class, social, and economic status. Because of this status, they are able to influence what are considered crimes and who should be prosecuted as criminals as is consistent with conflict theory. Their power over these decisions allows them to avoid the repercussions of their actions, and get away with costing society millions of dollars every year.

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Conflict Theory as a set of theories is founded on the belief that inequality, whether that be social, economic, or class inequality, is the primary cause of issues in society. Karl Marx, one of the foremost influences of conflict theory, although not a criminologist himself lent many beliefs to this theory that are used to help explain ways to address crime. By Marxist reasoning, the crime problem can be solved by creating a more equal society or in Marx's belief, a socialist society. However, there is not a reasonable or even functional way to just simply become a socialist society. Therefore, we must address white collar crime in a more individualized nature. Some of the proposed future directions for addressing white collar crime are discussed in the "Future Directions" column.

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Review of Current Literature on White-Collar Crime

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Review of Current Literature on White-Collar Crime

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This article by Simpson (2013) provides valuable insight into the current contributions being made towards white-collar crime. She also discusses our current sentencing and punishment practices, in addition to current crime prevention and control policies. Her review found that many individuals did support harsher punishments for white-collar criminals, but that they may support a "bad apple" theory in which only the individual identified is to blame. This can be harmful, because in many ways white-collar crime can also be institutionally driven. There need to be steps taken not only to punish white-collar criminals, but to deter them. This can only be done with institutional reform. Meanwhile, some options for future steps can be to increase third party involvement corporations and to increase the severity of punishment and sentencing for these offenders.

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White-Collar Crime: A Review of Recent Developments and Promising Directions for Future Research

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White-collar crime is one of the least understood and arguably most consequential of all crime types. This review highlights and assesses recent (primarily during the past decade) contributions to white-collar crime theory (with special emphasis on critical, choice, and organizational theories of of…

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One fact is for sure - minorities are disproportionately hurt by the justice system in America. We can examine this through the lens of Conflict Theory and how it relates to white collar crime. White collar crime is primarily committed by Caucasian men (Klenowski & Dodson, 2016). They hold much of the power and status in American society, letting them label what and who is deviant. African Americans in America are disproportionately imprisoned, arrested, and given harsher punishments despite committing the same amount of crime as Whites (Peterson et al., 2007).  It should not be a shock to recognize that there is a connection between race and why white collar crime is not being punished nearly as much or as harsh as other crimes of which minorities are much more likely to be arrested and punished for. White collar criminals, who hold power in society, are able to direct the attention away from their crimes and onto other crimes so those with less social, economic, and class power are punished for deviance rather than them.

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The Rich Get Richer, and The Poor Get Prison

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The Rich Get Richer, and The Poor Get Prison

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In his 1998 book, The Rich get Richer and The Poor Get Prison, Jeffrey Reiman discusses a conflict theory perspective on how social class relates to deviance. Reiman argues that acts not treated as crimes pose at least as great of a threat to the public as those that have been criminalized (Hagan & Daigle, 2019). Although violent crimes such as murder and rape are obviously dangerous to society, it can be argued that these crimes that are not treated as such - like white collar crimes - are as or even more dangerous due to the fact that they are not recognized as a problem. White collar crimes are much more far-reaching in their impacts on people as these businesses that commit crime can directly impact all of their employees, as well as indirectly impact the general public because of their influence on the economy. Acts like murder and rape are more individualized victimizations. Furthermore, Reiman asserts that acts that are criminalized are generally those of the poor whereas the system often fails to treat the dangerous acts of the wealthy and powerful as criminal. Here is where the conflict perspective really shines through in explaining this phenomena. The poor, who hold less power and status, are being punished for crimes whereas the wealthy and powerful are not being punished for their crimes because of their influence over who and what is labeled as deviant. Finally, Reiman proposes that "crime in the suites should be prosecuted in the same manner as crime in the streets" (Hagan & Daigle, 2019). White collar criminals need to be treated as criminals and they should be prosecuted in proportion to the harm they have caused.

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In addition, it is important to make changes to the policies in place for both corporations and individuals within that corporation. For instance, increases in external oversight such as through task forces that periodically investigate corporations and executives could help to prevent white-collar crime or increase the likelihood of being apprehended. There could also be external audits conducted via these task forces since internal audits can be helpful, but may be biased and limited in their reach. Also, there could be increased internal oversight such as through periodic internal audits to monitor employees and their activities. Reform of audits could be critical to the issue of white-collar crime. See Grabosky & Shover (2010) for more suggestions on reform and future directions for white-collar crime.