White-Collar Crime; Final Exam
questions with complete solutions
What were the three major financial crises that affected the U.S. since the 1980s and what
legislation did they produce? - ANS ✔✔1.) The Savings and Loan Collapse (1980), leads to
passage of Financial Institutions Reform, Recovery, and Enforcement Act (1989) 2.) The
corporate Fraud Scandals (late 1990s), produced Sarbanes-Oxley Act (2002) 3.) Financial
meltdown of 2008 starting in housing market & spreading to wall street, created Dodd-Frank
wall street reform and consumer protection act (2010)
Know the three common factors associated with "false profits" in financial firms? - ANS ✔✔- 1.)
financial engineering, rather than improve product 2.) gaming markets, rather than improve
competitiveness 3.) cover up failure and appear profitable, rather ride out highs and lows of
market
Know the major players in economic/financial systems. - ANS ✔✔- banks, investment firms, and
exchange markets like securities and commodities
What is the typical classification of crimes in the economic system? - ANS ✔✔- investment fraud
What are the two levels of victimization in securities frauds? - ANS ✔✔- securities fraud can
cause injury to individual victims, and securities fraud also threatens the integrity of the
securities market
What are securities? - ANS ✔✔- refer to stocks (ownership of in a company)
What are stocks? - ANS ✔✔- shares of stock of a particular company as held by an individual or
group as an investment
, What are bonds? - ANS ✔✔- are a form of long-term debt in which the issuing corporation
promises to pay the principal amount at a specific date
What are mutual funds? - ANS ✔✔- an investment program funded by shareholders that trades
in diversified holdings and is professionally managed.
How are statutes designed to address securities fraud? - ANS ✔✔- the laws provide remedies
for damages caused by "material misstatements or omissions of information to potential
investors
What were the key pieces of legislation passed to address securities violations and what did
each do? - ANS ✔✔- The Securities Act (1933) requires full disclosure of information to
potential investors; and The Securities Exchange Act (1935) regulates trading in securities
market and created the Securities & Exchange Commission (SEC)
What is insider trading and what are its key elements? - ANS ✔✔- the purchase or sale of
securities bases on material, no-public information; Key elements are essay question!
Know the basic operating ideas behind Ponzi schemes. - ANS ✔✔- built on promise of high
returns on investments with an investment manger; dividends or profits are paid out from
investors own money or from new
What were the key elements of Madoff's ponzi scheme that allowed him to stay operational for
nearly 17 years? - ANS ✔✔- 1.) secrecy (not officially being licensed 2.) feeder funds (don't
charge fees for money sent to Madoff's management fund); 3.) Maintained legitimate marketing
company to supply cover to trading activities; 4.) Fake investment reports-- mailed out rather
than electronic
Madoff was first suspected of frontrunning, which is? - ANS ✔✔broker takes advantage of the
special knowledge about a pending custom order and trades on his or her own account before
executing that order
questions with complete solutions
What were the three major financial crises that affected the U.S. since the 1980s and what
legislation did they produce? - ANS ✔✔1.) The Savings and Loan Collapse (1980), leads to
passage of Financial Institutions Reform, Recovery, and Enforcement Act (1989) 2.) The
corporate Fraud Scandals (late 1990s), produced Sarbanes-Oxley Act (2002) 3.) Financial
meltdown of 2008 starting in housing market & spreading to wall street, created Dodd-Frank
wall street reform and consumer protection act (2010)
Know the three common factors associated with "false profits" in financial firms? - ANS ✔✔- 1.)
financial engineering, rather than improve product 2.) gaming markets, rather than improve
competitiveness 3.) cover up failure and appear profitable, rather ride out highs and lows of
market
Know the major players in economic/financial systems. - ANS ✔✔- banks, investment firms, and
exchange markets like securities and commodities
What is the typical classification of crimes in the economic system? - ANS ✔✔- investment fraud
What are the two levels of victimization in securities frauds? - ANS ✔✔- securities fraud can
cause injury to individual victims, and securities fraud also threatens the integrity of the
securities market
What are securities? - ANS ✔✔- refer to stocks (ownership of in a company)
What are stocks? - ANS ✔✔- shares of stock of a particular company as held by an individual or
group as an investment
, What are bonds? - ANS ✔✔- are a form of long-term debt in which the issuing corporation
promises to pay the principal amount at a specific date
What are mutual funds? - ANS ✔✔- an investment program funded by shareholders that trades
in diversified holdings and is professionally managed.
How are statutes designed to address securities fraud? - ANS ✔✔- the laws provide remedies
for damages caused by "material misstatements or omissions of information to potential
investors
What were the key pieces of legislation passed to address securities violations and what did
each do? - ANS ✔✔- The Securities Act (1933) requires full disclosure of information to
potential investors; and The Securities Exchange Act (1935) regulates trading in securities
market and created the Securities & Exchange Commission (SEC)
What is insider trading and what are its key elements? - ANS ✔✔- the purchase or sale of
securities bases on material, no-public information; Key elements are essay question!
Know the basic operating ideas behind Ponzi schemes. - ANS ✔✔- built on promise of high
returns on investments with an investment manger; dividends or profits are paid out from
investors own money or from new
What were the key elements of Madoff's ponzi scheme that allowed him to stay operational for
nearly 17 years? - ANS ✔✔- 1.) secrecy (not officially being licensed 2.) feeder funds (don't
charge fees for money sent to Madoff's management fund); 3.) Maintained legitimate marketing
company to supply cover to trading activities; 4.) Fake investment reports-- mailed out rather
than electronic
Madoff was first suspected of frontrunning, which is? - ANS ✔✔broker takes advantage of the
special knowledge about a pending custom order and trades on his or her own account before
executing that order
