Gale Encyclopedia Of American Law 3Rd Edition Volume 3 P24 docx

CORONER An official of a municipal corporation whose designated functions include the investigation of the cause of any violent or suspicious death that takes place within the geographic

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1932 Williston on Contracts has been a leading treatise in American contract law since the early 1900s and is still a competitor of Corbin’s treatise

In addition to the UniformCOMMERCIAL CODE, Corbin also contributed to the second Restate-ment of Contracts, the provisions of which represented a considerable shift from the conservative views in the first Restatement

Corbin continued his study and writing well into his later life, stopping work on the second Restatement when he was nearly 90, and only because of failing eyesight Corbin died in 1967,

at the age of 93 The second Restatement was first published in 1981, 14 years after Corbin’s death

To a significant extent, the second Restatement advocates changes in the law of contracts, many

of which are based upon Corbin’s views

FURTHER READINGS Gilmore, Grant 1977 The Ages of American Law New Haven, Conn.: Yale Univ Press.

Kessler, Friedrich 1969 “Arthur Linton Corbin.” Yale Law Journal 78.

CROSS REFERENCES Legal Realism; Restatement of Law.

CORESPONDENT One of two or more parties against whom a lawsuit is commenced A person named with others who must answer claims alleged in a bill, petition, or libel in a judicial proceeding An individual who is accused of adultery with another’s spouse being sued for divorce on that ground and who thereby becomes a defendant in the action

CORNER For surveying purposes, the designation given to a particular location formed by the intersection of two boundary lines of real property

The process by which a group of investors or dealers in a particular commodity exploit its market by purchasing it in large quantities and removing it from general sale for a time, thereby dramatically increasing its market price because its limited supply is greatly exceeded by the demand for it The condition created when a commitment

is made to sell at a special time of delivery in the future, a much greater quantity of a commodity than is available in the present market

This type of commitment is known as a futures contract Frequently, neither buyer nor

seller expects actual delivery of the goods They are solely speculating on the difference between the contract price and market price on a particular date The market price is affected by various economic factors When a corner is created, the demand for the commodity far exceeds its supply, thereby driving up market prices On the date of delivery, therefore, the market price will exceed the contract price if no additional quantities can be delivered by persons other than the seller who has “cor-nered” the market The buyer must then pay the seller, who had a corner on the specified commodity, the amount by which the market price exceeds the contract price If, however, additional quantities of the commodity are available in the market, the seller incurs financial losses because the market price will

be less than the contract price at which the market was“cornered.”

The COMMODITY FUTURES TRADING COMMISSION

is the federal regulatory agency charged with the administration of the Commodity Exchange Act (7 U.S.C.A § 1 et seq.), which is designed to protect all commodity investors from mani-pulative practices that hinder the free flow of commerce Anyone who deliberately exploits the commodities market to create a corner may

be prosecuted under federal law for commission

of a felony, punishable by a fine of not more than $500,000 or imprisonment of not more than five years, or both, plus the costs of prosecution

COROLLARY

A consequence or result that can be logically drawn from the existence of a set of facts by the exercise of common sense and reason

CORONER

An official of a municipal corporation whose designated functions include the investigation of the cause of any violent or suspicious death that takes place within the geographical boundaries of his or her municipality

The office of the coroner was established at COMMON LAWand was one of great dignity since coroners dealt primarily with pleas concerning the crown In the early 2000s, statutes establish the terms and procedure of the coroner’s office, which has been replaced in some states with the office ofMEDICAL EXAMINER

218 CORESPONDENT

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The main function of a coroner is to

conduct inquests, but other powers and duties

may include the duty of acting as sheriff, in the

event of the sheriff’s incapacity, asCONSERVATOR

OF THE PEACE, or as magistrate The duties are

considered to be either judicial, ministerial,

or both

Holding Inquests

The purpose of an inquest is to gather evidence

that may be used by the police in their

exploration of a violent or suspicious death

and the subsequent prosecution of a person if

death ensued from a criminal act

An inquest is not a trial but rather a

criminal proceeding of a preliminary,

investiga-tory nature It is not a criminal prosecution

but may result in the discovery of facts

justifying one

Statutes mandate that whenever there exists

reasonable ground to believe that a death

resulted from violence, unlawful means, or

other mysterious or unknown causes, an

inquest must be held Death by disease, natural

causes,NEGLIGENCEof the deceased, accident, or

suicide does not warrant the commencement of

an inquest, unless statute so requires

A coroner should not arbitrarily or

capri-ciously hold an inquest The presumption is

that when a coroner decides to hold an inquest

it is made in exercise of his or her sound

discretion, in GOOD FAITH, and for sufficient

cause Most statutes require that a coroner

make a preliminary inquiry into the cause of

death before summoning a jury

Time and Place The general requirement is

that an inquest be held immediately upon the

notice to the coroner of the death or discovery

of the dead body The inquest may either take

place in the territory of the coroner in whose

jurisdiction the body was found or where the

death itself took place

Summoning and Swearing the Jury If it is

public knowledge that the decedent was killed

by someone who is already in police custody,

then it is not necessary to summon a jury to

hold an inquest A coroner’s jury is usually

summoned by warrant but may be summoned

personally by the coroner A juror who refuses

to attend an inquest may be subject to a fine and

a contempt citation The general practice is that

the jury should be sworn in in the presence of

the body

Autopsy Incident to the coroner’s duties is the power to order an autopsy when appropriate and essential to ascertain the circumstances and the nature of death The reasons underlying this power are numerous—the primary one being that a thorough examination of a body is necessary since an accused person may be acquitted if there is some doubt as to the cause

of death Similarly, a proper examination of the cause of death should exclude all other possible causes that would not support a criminal investigation and subsequent prosecution

Some statutes provide that a coroner is not authorized to hold an autopsy where no suspicion of foul play exists or where no inquest is being held A needless autopsy may

be considered unreasonable interference with a dead body If authorized, however, a coroner may hold an autopsy without the consent of the decedent’s NEXT OF KIN Civil liability may

be imposed upon coroners and their physicians who perform improper or unauthorized autopsies

To examine the body during an autopsy, a coroner may hire an expert physician, the selection of whom is within the coroner’s discretion This power must be exercised with great caution During the autopsy, the coroner has the discretionary power to decide who, if anyone, should be present aside from the surgeon or surgeons Neither a person accused

of criminally causing the death nor the jurors have a right to witness the actual dissection of the cadaver

A coroner reviews the results of two autopsies Coroners have the right to order autopsies to determine the causes

of violent or suspicious deaths.

AP IMAGES CORONER 219

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View of Body Statutes require that the coroner and jury together must have a view of the body except in cases where the body cannot be found

or is too decomposed for view The purpose of this inspection is to ascertain from the appear-ance of the body how the death was caused The jury also hears the summaries of various medical reports regarding the condition of the body to help it reach its determinations concerning the cause of death

Verdict and Inquisition It is the duty of the coroner to accept from the jury the VERDICT, which should identify the deceased, if possible,

or state that the deceased is unknown and should include how, when, and where the decedent died The coroner submits a return of inquest, also known as an inquisition, which is a record

of the jury’s finding, that must be executed in accordance with statutory requirements

The effect of the verdict at common law is that it is a sufficient basis for prosecution for MURDER or MANSLAUGHTER so long as the jury finds evidence supporting prosecution Under some statutes, its effect is not as strong as a finding by a GRAND JURY but has merely been held to render a person accused of illegally causing the death liable to arrest

Many jurisdictions require that the coroner complete a certificate of death showing the cause and probable manner of death subsequent

to the termination of the inquest

Arrest

It is the power and the duty of the coroner to have anyone implicated by an inquest in murder

or manslaughter to be arrested and held for trial If a statute gives a coroner magisterial jurisdiction in homicide cases, he or she may issue warrants for the arrest of the person probably chargeable with the crime and hold the person to answer or discharge the charges

Record of Inquest as Evidence

Civil Actions In general, evidence given at an inquest has not been permitted to be used against either party in aCIVIL ACTION There are, however, exceptions to this rule Some authori-ties hold the testimony of a witness before a coroner to be admissible if used to contradict other testimony given when the person is a witness or party in such an action Other jurisdictions hold that such evidence by a party

is admissible as an admission against interest

For example, a defendant’s admission at an inquest of driving at an unlawful speed was admissible as an admission against interest in a civil action for negligence

Some jurisdictions allow the coroner’s find-ings to be used in a civil action to show the cause

of death The general practice in most jurisdic-tions, however, is to allow the verdict to show that the deceased is dead but not to show the cause of death The rationale underlying this rule

is that a person is not entitled to be represented

by counsel at an inquest since it is merely a preliminary investigation The practical conse-quences of allowing the coroner’s verdict to be used as evidence of the cause of death is that it could easily become the key piece of evidence in the action If this were to occur, the judgment awarded in the case would probably end up being a ratification or formal adoption of the coroner’s verdict, thereby depriving the party to the action of his or her rights That person is entitled to a formal judicial hearing or a“day in court,” with all procedural safeguards, so that an opportunity to dispute the evidence will be given Criminal Prosecutions The main purpose of a coroner’s inquest is to provide information and evidence for use by the police in their investigation and detection of a crime; there-fore, the proceedings of an inquest are generally inadmissible at a trial for homicide

When a person is either under arrest or accused of a crime at a coroner’s inquest, any testimony that he or she gives cannot subse-quently be used against him or her at a trial that stems from the inquest, unless such testimony was given voluntarily after the party was advised

of his or her constitutional rights If an individual testifies as a witness at an inquest but is subsequently prosecuted, that testimony

is admissible in his or her prosecution because it was voluntarily given at the inquest Generally, the testimony of witnesses at an inquest cannot

be used in a trial for homicide unless the witness has died or is otherwise unavailable at the time

of the criminal prosecution

Ordinarily, on an indictment for homicide, neither the verdict of the coroner’s jury nor the finding of the coroner can be used as evidence for any purpose

Liabilities of a Coroner

A coroner who is acting pursuant to his or her statutory authority is immune for error,

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mistake, or misconduct in the exercise of

judicial functions A coroner, acting in a

ministerial capacity, is answerable for any abuse

of those powers Some statutes make it a

criminal offense for a coroner to deliberately

hold an inquest when to do so clearly exceeds

the scope of his or her powers

FURTHER READINGS

Cornwell, Patricia 2004 Body of Evidence New York:

Pocket.

Noguchi, Thomas T 1984 Coroner New York: Pocket.

——— 1988 Coroner at Large New York: Random House

Value.

CROSS REFERENCES

Autopsy; Jury; Presumption.

CORPORAL PUNISHMENT

Physical punishment, as distinguished from

pecu-niary punishment or a fine; any kind of

punishment inflicted on the body

Corporal punishment arises in two main

contexts: as a method of discipline in schools

and as a form of punishment for committing a

crime

Corporal punishment, usually in the form

of paddling, though practiced in U.S schools

since the American Revolution, was only

sanctioned by the U.S Supreme Court in the

late 1970s In Ingraham v Wright, 430 U.S

651, 97 S Ct 1401, 51 L Ed 2d 711 (1977),

students from a Florida junior high school had

received physical punishment, including

pad-dling so severe that one student had required

medical treatment The plaintiffs, parents of

students who had been disciplined, brought

suit against the school district, alleging that

corporal punishment in public schools

consti-tuted CRUEL AND UNUSUAL PUNISHMENT in

viola-tion of the EIGHTH AMENDMENT to the U.S

Constitution The plaintiffs also maintained

that the FOURTEENTH AMENDMENT required due

process before corporal punishment could be

administered

The Court rejected the Eighth Amendment

claim, holding that the prohibition against cruel

and unusual punishment was designed to

protect persons who were convicted of crimes,

not students who were paddled as a form of

discipline The Court also held that although

corporal punishment did implicate a

constitu-tionally protected liberty interest, traditional

COMMON LAWremedies, such as filing an action

in tort, were “fully adequate to afford due process.” Thus, the Court concluded, teachers could use “reasonable but not excessive”

corporal punishment to discipline students

Since the Court’s decision in Ingraham, corporal punishment in the schools has been challenged on other constitutional grounds In Hall v Tawney, 621 F.2d 607 (4th Cir 1980),

a grade-school student from West Virginia alleged that she had been severely injured after she had been struck repeatedly with a hard, rubber paddle by her teacher while the school principal looked on She filed suit against the school, claiming that her Eighth Amendment rights had been violated and that she had been deprived of her procedural due process rights

She further alleged that she had been denied SUBSTANTIVE DUE PROCESS under 42 U.S.C.A §

1983, which provides that aCIVIL ACTIONmay be brought for a deprivation of constitutional rights While the case was pending, the U.S

Supreme Court handed down its decision in Ingraham, thus foreclosing the plaintiff’s Eighth Amendment and procedural due process claims

Addressing the remaining constitutional claim, the U.S Court of Appeals for the Fourth Circuit held that excessive corporal punishment

in public schools could violate a student’s constitutional right to substantive due process

This 1907 photograph taken in a Delaware prison shows two inmates in a pillory with another receiving

a whipping Such forms of punishment have been outlawed LIBRARY OF CONGRESS CORPORAL PUNISHMENT 221

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and thus subject school officials to liability under § 1983 The standard to be applied, the court ruled, was whether the force applied were

to cause injury so severe and disproportionate

to the need for it and were “so inspired by malice or sadism rather than a merely careless

or unwise excess of zeal that it amounted to a brutal and inhuman abuse of official power literally shocking to the conscience.” The case was remanded to the lower court so that the plaintiff’s § 1983 claim could be tried in light of the Fourth Circuit’s ruling Other federal appeals courts have since followed Hall in corporal punishment cases involving schools, although the high standard has proved very difficult for plaintiffs to meet

In cases where plaintiffs have been success-ful, the conduct of the educator is often rather extreme In Neal ex rel Neal v Fulton County Board of Education, 229 F.3d 1069 (11th Cir

2000), a high-school teacher and football coach, while breaking up a fight, struck one of the fighting students with a metal weight lock The blow to the student was so severe that it knocked his eyeball out of its socket The Eleventh CIRCUIT COURT of Appeals found that because the punishment inflicted by the coach had been intentional, and obviously excessive,

and that it had created a foreseeable risk of serious injury, the student had stated a claim upon which he could recover Many other cases,

by contrast, have held in favor of educators and school districts because the students who brought suit could not prove the elements necessary to hold the defendants liable

As a result of limited success in the courts, opponents of corporal punishment have turned

to the political process and have worked to persuade state legislatures to outlaw the use of corporal punishment in schools Scientific studies over the past decade have demonstrated that corporal punishment contributes to such behavioral problems as increased anger, aggres-sion, tolerance for violence, and lower self-esteem Partially as a result of these studies, a growing number of groups, including the NATIONAL EDUCATION ASSOCIATION, the American Academy of Pediatrics, the American Academy

of Child and Adolescent Psychiatry, and the AMERICAN BAR ASSOCIATION, disfavor corporal punishment and have sought to ban it in public schools These lobbying efforts have proven successful: Corporal punishment in schools remained legal in just 21 states in 2008, whereas the remaining states specifically prohibit it by state statute or regulation

ILLUSTRATION BY GGS

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PERMISSION OF GALE,

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LEARNING.

States Banning Corporal Punishment in Schools

States that have banned corporal punishment States that allow corporal punishment States with more than half of all students in districts with no corporal punishment

HI AK

MT WA

OR

CA NV

ID

WY

UT

CO

NM AZ

ND MN SD

NE

KS

OK

TX

WI IA

MO

AR

LA

IL MI

IN OH

PA NY

WV VA NC KY

TN

MS AL GA

SC

FL

ME

VT NH

MA RI CT NJ DE MD

SOURCE: Center for Effective Discipline, “Corporal Punishment and Paddling Statistics by State and Race,” available online at http://www.stophitting.com/index.php?page=statesbanning (accessed on August 12, 2009).

222 CORPORAL PUNISHMENT

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In California, for example, state law

pro-vides that“[n]o person employed by … a public

school shall inflict, or cause to be

inflicted corporal punishment upon a pupil”

(Cal Educ Code § 49001 [West 1996]) But

despite the trend against permitting corporal

punishment in schools, public opinion is split

on the issue: In a 1995 Scripps Howard News

Service Poll, 49 percent of those surveyed

favored corporal punishment, and 46 percent

opposed it

Like corporal punishment in schools,

physi-cal punishment in the United States for

committing a crime also dates back to the

American Revolution The CONTINENTAL

CON-GRESS allowed floggings on U.S warships, and

confinement in stocks and public hangings were

common Gradually, imprisonment and other

forms of rehabilitation began to replace

corpo-ral punishment, largely because of the work of

reformers who campaigned against its use on

convicts and advocated for improved prison

conditions Most states eventually abolished

public floggings and other forms of physical

punishment for crimes, but in some

jurisdic-tions “whipping laws” remained in effect until

the early 1970s In addition, courts have held

that corporal punishment in prisons can take a

variety of forms (e.g., whipping, deprivation of

food, and placement in restraints) and is

prohibited by the Eighth Amendment

The mid-1990s case of a U.S teenager

convicted of VANDALISM in a foreign country

revived a long-dormant debate over whether

criminals should be corporally punished In

May 1994, Michael Fay was sentenced to six

strokes with a rattan cane and four months in

jail for painting graffiti on parked cars and for

other acts of vandalism he had committed while

living in Singapore The case drew immediate

international attention Many U.S citizens—

including PresidentBILL CLINTON, who appealed

to the government of Singapore for clemency—

were outraged by the sentence Despite the

intervention of the U.S government andHUMAN

RIGHTS groups, the punishment was eventually

carried out, although the number of strokes was

reduced to four

In the wake of the publicity surrounding the

Fay case, polls indicated that a surprising

number of U.S citizens supported the sentence

Unconvinced that current penalties provide a

sufficient deterrent, many believed that the

long-standing prohibition against physical pun-ishment should be reconsidered, at least with respect to juvenile offenders In some states, lawmakers introduced legislation to provide for corporal punishment of juveniles who were convicted of certain crimes In California, for example, a bill requiring paddling of juvenile graffiti vandals was proposed (1995 California Assembly Bill No 7, California 1995-96 Regular Session)

Proposed measures in other states have not limited the use of corporal punishment to juveniles In Tennessee, for instance, a bill was introduced in 1995 providing for floggings for property crimes such as BURGLARY, vandalism, and trespassing The measure would further provide for the punishment to be administered

by the county sheriff on the courthouse steps of the county where the crime was committed

According to the bill’s sponsor, “[p]eople that follow a life of crime generally get started in the area of property crimes … if you knew they were going to … whale the living daylights out

of you, you might think twice about it.” This bill, like other measures proposed for physically punishing juveniles, failed to pass the state legislature In 2009 Ohio became the thirtieth state to ban corporal punishment in schools

In response to renewed calls for physical punishment for criminals, critics have argued that such measures may meet a“revenge” need

on the part of the public but that they do nothing in the long term to address the deeper issue of why crime occurs Groups such as the AMERICAN CIVIL LIBERTIES UNION, in lobbying against corporal punishment, maintain that state legislators, law enforcement personnel, criminologists, and social scientists should instead direct their efforts to determining what can be done to prevent crime in the first place

FURTHER READINGS Bloom, Scott 1995 “Spare the Rod, Spoil the Child? A Legal Framework for Recent Corporal Punishment Propo-sals.” Golden Gate University Law Review 25.

Dayton, John 1994 “Corporal Punishment in Public Schools: The Legal and Political Battle Continues ” Education Law Reporter 89.

Dillon, Sam 2009 “Disabled Students Are Spanked More.”

New York Times (Aug 10).

Donnelly, Michael, and Murray Straus 2005 Corporal Punishment of Children in Theoretical Perspective New Haven, Conn.: Yale Univ Press.

New York Times (editorial) 2007 “Lashing Justice.” New York Times (Dec 3).

CORPORAL PUNISHMENT 223

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Parkinson, Jerry R 1994 “Federal Court Treatment of Corporal Punishment in Public Schools: Jurisprudence that Is Literally Shocking to the Conscience ” South Dakota Law Review 39.

CROSS REFERENCE Juvenile Law.

CORPORATE Pertaining to or possessing the qualities of a corporation, a legal entity created—pursuant to state law—to serve the purposes set out in its certificate of incorporation

A corporate officer is an individual who is charged with the management of a corporation

by virtue of a position as its president, VICE PRESIDENT, treasurer, or secretary

CORPORATE FRAUD During the 2000s, a series of scandals involving several large U.S corporations shocked Amer-icans In most of these instances, corporate executives fraudulently concealed debts and engaged in other forms of unethical account-ing practices, often with the goal of misstataccount-ing profits and net worth to drive stock prices higher When these companies collapsed, share-holders, investors, creditors, and employees lost billions of dollars

Enron

On October 16, 2001, Enron, the seventh largest corporation in the United States, announced

a $638 million loss in third-quarter earnings

On November 8, 2001, the company publicly admitted to having overstated earnings for four years by $586 million and to having created

Enron: An Investigation into Corporate Fraud

The collapse of Enron Corporation

in 2001 led to massive

investiga-tions involving allegainvestiga-tions of a range of

criminal activities perpetrated by some of

the company’s top executives In January

2002 the U.S JUSTICE DEPARTMENT

an-nounced that it had formed an Enron

Task Force consisting of a team of federal

prosecutors and under the supervision of

the department, agents of the FEDERAL

BUREAU OF INVESTIGATION, and agents of the

criminal division of theINTERNAL REVENUE

SERVICE The scandal developed into a

case study of corporate fraud, poor

management decisions, and faulty

ac-counting practices

Enron had built itself into the seventh

largest company in the United States, with

annual revenues of $100 billion In

December 2000, the company’s stock sold

for as much as $84.87 per share However,

stock prices fell throughout much of

2001 In October, the company

an-nounced that it had overstated its

reven-ues, claiming losses of $638 million

during the third quarter of 2001 alone

Stock prices then plunged, hurting inves-tors and employees with retirement plans that were tied into company stock By the beginning of December, Enron’s stock prices had fallen to below $1 per share

Enron filed for Chapter 11 BANKRUPTCY

protection on December 2, 2001 To date, the event constituted the largest bank-ruptcy in U.S history

Much of the early investigation into the Enron fiasco focused on the com-pany’s financial reporting practices

Though the company followedGENERALLY ACCEPTED ACCOUNTING PRINCIPLES(GAAP), these practices gave the false impression that the company was more profitable and more secure than it really was The company reported revenues that were actually funds flowing through transi-tional transactions with related compa-nies Moreover, the company hid its losses and debts in partnerships that did not appear on Enron’s financial statements

The first criminal charges were filed against Enron’s accounting firm, Arthur Andersen, L.L.P The Justice Department brought charges that the accounting firm had destroyed thousands of documents, including computer files, related to its dealings with Enron Anderson was also convicted for doctoring a memo and misstating a news release related to Enron The company was found guilty of OBSTRUC-TION OF JUSTICEin June 2002—an appeal is still pending as of September 2003 It was placed on probation for five years and required to pay a fine of $500,000 Analysts questioned whether the account-ing firm would survive after the conviction

In addition to its role as accountant, Arthur Andersen had served as a consultant to Enron for a number of years, thus raising conflicts of interest questions

Because the Justice Department had not moved forward with criminal indict-ments against Enron officials, several critics charged that the federal govern-ment under PresidentGEORGE W.BUSHwas

224 CORPORATE

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limited partnerships to hide $3 billion in debt.

As investors lost confidence in the company,

Enron stock, which had been worth as much as

$90 per share in 2000, plummeted to less than

$1 per share Thousands of Enron employees

lost their jobs and retirement savings, which

had been invested in corporate stock through a

401(k) retirement plan Banks and lenders lost

millions of dollars in loans made to Enron

based on the fraudulent earnings reports

Enron Corporation started as a pipeline

company in Houston, Texas, that delivered gas

at market price Over the next 15 years, Enron

expanded into an energy power broker that

traded electricity and other commodities, such

as water and broadband INTERNET services

Enron became one of the nation’s most

successful companies, employing 21,000 people

in more than 40 countries The senior

executives at Enron attributed their success to their corporate strategy, which was to be light in assets but heavy in innovation

The innovative business practices of over-stating profits and concealing debt increased the company’s stock value, thus allowing the company to borrow more money and to expand It also led to some top executives selling their stock and making over one billion dollars Those former executives were later indicted and convicted for FRAUD,MONEY LAUN-DERING, and conspiracy, and they also face dozens of civil lawsuits filed by pension funds and former employees The company’s account-ing firm, Arthur Andersen, admitted to havaccount-ing shredded Enron documents after it had learned that the SECURITIES AND EXCHANGE COMMISSION (SEC) was conducting an investigation of the corporation The accounting firm was convicted

protecting top Enron executives Several

of these executives were questioned by the

Senate Commerce Committee in

Febru-ary 2002, but no charges were filed

Several of Enron’s senior executives

reportedly had personal interests in

cer-tain risky transactions These executives

even sold Enron stock while at the same

time convincing employees to hold their

stock The BOARD OF DIRECTORS of the

company also allegedly failed to provide

significant oversight regarding the

audit-ing and reportaudit-ing by the company

The first major criminal charges

involving an Enron executive were

brought against Michael Kopper, who

had served as an aide to chief financial

officer Andrew Fastow Kopper pleaded

guilty to charges ofMONEY LAUNDERINGand

conspiracy to commit FRAUD in August

2002 Kopper implicated Fastow, claiming

that Fastow had conducted transactions

on behalf of Enron for the benefit of

third-party partnerships owned by Fastow

The Justice Department then focused

its attention on Fastow, who allegedly had

$12.8 million in funds and was

construct-ing a $2.6 million house The government

alleged that Fastow and Kopper had

accumulated $22 million from illegal

Enron deals In November 2002, the

Justice Department indicted Fastow on

78 counts, including fraud, money laun-dering, and obstruction of justice The criminal indictment did not include former CEO Kenneth Lay, former CEO Jeffrey Skilling, or any other top execu-tives The Justice Department also an-nounced that it could file a superseding indictment with additional charges This superseding indictment might name ad-ditional defendants as well

Fastow appeared before theSECURITIES AND EXCHANGE COMMISSION in December

2002 but invoked his FIFTH AMENDMENT PRIVILEGE AGAINST SELF-INCRIMINATION In several trade publications in the late 1990s, Fastow had discussed his account-ing practices at Enron, includaccount-ing methods for keeping funds off of Enron’s books

According to several commentators, Fas-tow could represent a“fall guy” for the Enron fiasco, as it was probable that other executives and members of the board were aware of these reporting practices

Others involved in Enron transac-tions were also brought up on criminal charges In July 2002 three British bank-ers were charged with wire fraud for their dealings with Enron The Justice Depart-ment subsequently focused its attention

on Enron Broadband Services, an

INTERNET division of the company The Houston Chronicle reported in April 2003 that executives of that branch were likely

to be indicted forINSIDER TRADING, fraud, and money laundering

As of the end of April 2003, twelve charges had been filed relating to the Enron fiasco, though only seven were filed against company insiders

FURTHER READINGS Baird, Douglas G., and Robert K Rasmussen.

2002 “Four (or Five) Easy Lessons from Enron ” Vanderbilt Law Review 55 (November): 1787 –812.

Flood, Mary, and Tom Fowler 2003 “Five Men Could Be Charged.” Houston Chron-icle (April 26).

Fox, Loren 2003 Enron: The Rise and Fall Hoboken, N.J.: Wiley.

Salem, Christina R 2003 “The New mandate

of the Corporate Lawyer after the Fall

of Enron and the Enactment of the Sarbanes-Oxley Act ” Fordham Journal of Corporate & Financial Law 8 (summer):

765 –87.

Swartz, Mimi, with Sherron Watkins 2003 Power Failure: The Inside Story of the Collapse of Enron New York: Doubleday.

CROSS REFERENCES Accounting; Bankruptcy; Embezzlement; Fraud.

CORPORATE FRAUD 225

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of OBSTRUCTION OF JUSTICE, lost hundreds of clients and employees, and went out of business

After the Enron scandal became public knowledge, many wondered how such an overstatement could have escaped notice What the public soon would learn was that Enron was only one among many such stories

WorldCom

In March 2002 it became known that World-Com, the second largest long-distance phone company in the United States, had overstated profits by listing $3.8 billion in normal operat-ing expenses (which were basically routine maintenance costs) as capital expenses This move allowed the company to spread the expenses out over several years, thereby making profits look much larger and artificially inflating the company’s value in order to meet Wall Street’s expected earnings WorldCom stock, which was valued as high as $60 per share in

1999, dropped to 20 cents per share in response

to the news Approximately 17,000 WorldCom employees lost their jobs The JUSTICE DEPART-MENT secured indictments against the former chief financial officer, Richard Breeden, for bank fraud, SECURITIES fraud, conspiracy and false statements in SEC filings Four other former WorldCom executives pleaded guilty to securities fraud and agreed to cooperate with the prosecution The SEC filed a civil suit against the company As of 2003, the SEC had uncovered more than $9 billion in bogus accounting In July 2002, WorldCom filed the world’s largestBANKRUPTCY

Other Scandals

At the same time that Enron’s and WorldCom’s fraudulent accounting practices became public knowledge, news of more corporate accounting scandals came flooding in In February 2002, Global Crossing was caught inflating revenue and shredding documents that contained ac-counting information In April 2002 Adelphia Communications made headlines amidst the discovery that $3.1 billion worth of secret loans had been made to the company’s founding family—some of whom were later arrested—

and earnings were overstated In May 2002 Tyco International, Ltd., accused three former senior executives of having fraudulently taken out loans from the company without permis-sion and without paying them back The men also allegedly issued bonuses to themselves and

other employees without approval from the company’s BOARD OF DIRECTORS The SEC has since charged the three for fraud andTHEFTand

is investigating whether the company had knowledge of this conduct In July 2002 it was revealed that AOL Time Warner had inflated sales figures Amid further investiga-tions, the company admitted to having possibly overstated revenue by $49 million Other companies in the spotlight for corporate accounting scandal allegations include Bristol-Myers Squibb, Kmart, Qwest Communications International, and Xerox In addition to corpo-rate scandal, television personality and home decorating maven Martha Stewart was indicted for allegedly selling 3,928 shares of stock in ImClone Systems, thus making about $227,824, based on an INSIDER TRADING tip that she had received from the company’s founder, Samuel Waksal

Many fraudulent accounting practices arose beginning in the 1990s, when energy, telecommunication, and other industries were expanding rapidly, and competition was espe-cially fierce The STOCK MARKET indices were reaching all-time records, and investors were looking for short-term earnings targets Many corporate executives did whatever was neces-sary to meet the quarterly expectations of the analysts on Wall Street, thereby increasing the price of their stock This practice often allowed their companies to borrow more money to grow and compete Because most top executives also enjoyed stock options that rose in value with their companies’ stock prices, they had the added incentive of making significant profits by selling their stocks at the higher prices This activity resulted in a considerable transfer of money from individual share-holders to corporate managers However, the individual investors were still making profits and, therefore, not paying attention to conflicts

of interest and fraudulent practices, thus allowing the executives to go almost unchecked

in their actions

Corrective Actions

Following the collapse of Enron and World-Com, several corrective actions were taken The New York Stock Exchange made improvements

in its accounting, auditing, and corporate governance rules for corporations that want to list their stock on the exchange Congress approved the Sarbanes-Oxley Act, Pub L No

226 CORPORATE FRAUD

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107-204, 116 Stat 745, which created the Public

Accounting Oversight Board to monitor public

accountants, made changes in auditing rules,

and authorized an increase in criminal penalties

for more white-collar crimes

On July 9, 2002, President GEORGE W BUSH

established the Corporate Fraud Task Force

The goal of this task force was “to strengthen

the efforts of the DEPARTMENT OF JUSTICE and

Federal, State, and local agencies to investigate

and prosecute significant financial crimes,

recover the proceeds of such crimes, and ensure

just and effective punishment of those who

perpetrate financial crimes” (Exec Order

13271) More than a dozen federal departments,

commissions, and agencies, along with several

U.S attorneys’ offices and divisions within the

Justice Department As a result of the task

force’s activities, the Justice Department was

able to obtain nearly 1,300 corporate fraud

convictions between 2002 and 2008

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