White collar crime: definition, characteristics, and societal impact

White Collar Crime:

When most people think of white collar crime today, they think of Enron and Martha Stewart -- or of a nebulous idea of a kind of crime that only the "upper class" or the very powerful occasionally engage in. However, white collar crime is actually pervasive across all sectors of American society. Although many might imagine that white collar crime is essentially "victimless" in comparison to other criminal acts, this is far from the case. Not only are billions of dollars illegally gained (and lost) to the activities associated with the concept, but entire lives are often destroyed in the process.

"White-collar crime" as a concept was coined in a 1939 speech presented by Edwin Sutherland at the American Sociological Society (LII, 2004). During the speech, Sutherland explained that this type of crime is one "committed by a person of respectability and high social status in the course of his occupation (LII)." Although many of the most infamous cases of white collar crime, even in present times, do involve people of "high social status," the modern definition in which the term applies to a myriad of "nonviolent crimes usually committed in commercial situations for financial gain (LII)."

Of the many types of the activity, the most prevalent forms of white collar crime include fraud (computer, internet, credit cards, forgeries, bankruptcy fraud, tax evasion, securities fraud, mail fraud, bribery, counterfeiting, trade secret theft and insider trading to name a few. Further, not only are these crimes serious in the extreme, but the legal system can prosecute them as such (although some argue that white collar crime is prosecuted far less stringently than blue collar crimes -- possibly due to social and racial inequality (Hurst, 2003)), leveling "fines, home detention, community confinement, costs of prosecution, forfeitures, restitution, supervised release, and imprisonment," for those found guilty of offences (LII, 2004).

Of course, in light of current events, perhaps one of the most talked about cases of white collar crime involves the insider trading scandal involving Martha Stewart. However, in order to understand just what she was convicted of, it is important to understand just what the concept entails. According to one ABC news story, insider trading is defined as " ... when a person trades a stock while in possession of material non-public information in violation of a duty to withhold that information or refrain from trading (Valenti, 2004)" -- or, as the article simplifies it, "In other words, if you have information that the public doesn't know about or you got such information from an inside source, it is illegal to trade on that information."

In the case of Martha, she was suspected by the U.S. Securities and Exchange Commission with using insider information gleaned by a personal friend (Sam Waksal), whose company was due to see a drastic drop in stock value. Because Martha owned stock in this company, and quickly sold 4000 shares as a result in an attempt to avoid a catastrophic loss, she was suspected (and later found guilty) of insider trading (Rasmussen, 2004).

Of course, the reason that insider trading is illegal is due to the fact that it renders the "playing field" unequal (Rasmussen). Of course, without a level playing field, few non-insiders will be willing to invest or trade in the stock market out of a feeling of futility. Further, the practice, if allowed to occur freely, can also open up huge avenues for fraudulent profit taking or protection from loss that potentially can leave many investors in the proverbial lurch. Again, this ultimately undermines public confidence in the market.

Although, as many social commentators point out, the punishments allocated to those found guilty of insider trading are generally low in comparison to those meted out to "blue-collar" criminals (even in cases of non-violent theft), there are significant ramifications for those found guilty of the offence. These range from, dependent on the situation, fines, prohibition of holding certain positions within publicly traded companies, or even jail time. Further, the SEC also allocates funds to informants who report the activities of individuals that later result in a SEC fine (Rasmussen).