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181 Cards in this Set

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Illegal acts characterized by guile, deceit or concealment which acts are not dependent on force or threat of force (i.e. lying, cheating in mrkt place).
white collar crime definition

1. Interplay of govt & the free market place
2. Increasing standard of market place morality in 20th & 21st Century
3. Unlimited human genius in defrauding other humans
4. Evolution of WCC law regulating the market place
5. Public Law ► All law is public law & we’re all public lawyers.
5 themes of WCC

1. WCC undermines the integrity of the system
2. WCC dwarf other theft crimes by 10X
3. The injustice we feel when we’re ripped off
why WCC Laws
complex theft offenses:

1. Our Legal system was largely inherited from Great Britain
2. Primary concern of GB laws was aimed at violent crimes as opposed to theft crimes
3. In feudal England, King use to give prop to serfs, peasants & subsequently, by the 18th Century, laws protecting property were well developed, b/c ownership of prop was very important during this time. There wasn’t a system set up to protect the complex market place b/c there was no complex marketplace.
historical development
complex theft offenses:

4. “Wealth of Nations” written by Adam Smith in 1776 and offered theories of the unseen hand whereby the market regulates itself by virtue of being a market.
5. During this time, Europe was becoming more industrialized (i.e. factories, mass production), and thus capitalism was rising.
6. Due to change in times, the traditional notions of larceny proved to be insufficient to protect individuals.
historical development
complex theft offenses:

Wheatley was indicted by the crown for selling 16 gallons of beer instead of 18 (k terms). However, King’s bench rejected indictment b/c “no public harm was involved, only a private wrong (breach of k).” ‘Cheating’ was a misdemeanor which required a public wrong, so Rex’s only remedy was for a private action for breach of k.
historical development:

Rex v. Wheatley
complex theft offenses:

a. No deterrent effect
b. Recovery amount small, so not may attorneys wanted case
c. Don’t want separate lawsuits every time someone gets defrauded
d. Can’t get punitive damages
e. Public Harm: behavior hurts buyers, which hurts the marketplace.
historical development:

problems with private right of action remedy
complex theft offenses:

Δ went to horse stable operated by Π & told him that he wanted to rent horse & would return it later. Π rented Δ the horse, but instead of returning horse, Δ sold horse & took off. Π couldn’t get him b/c gave wrong address. Case went to court alleging larceny.
1. Problem was that traditional larceny required trespass element ► trespass and physical taking w/force. Defense argued that no trespass here b/c Π allowed him to take horse so no crime.
2. Court didn’t like outcome and finds that fraudulent intent can supply tresspasory element ► Fraud becomes part of theft. Fraud/fraudulent intent began to replace trespass in law of theft and taking in Great Britain.
historical development:

pears case
complex theft offenses:

Δ advertised in newspaper offering an employment opportunity promising to pay $70/wk but wanted $150 security deposit for job. W/in few weeks, Π was laid off and never saw his $150 again. Issue b/f court was what to convict Δ of; b/c simple larceny requires trespass ► So the court identified four types of larceny/thefts: (1) Larceny by trick, (2) larceny by false pretenses, and (3) embezzlement all arose from crime of simple larceny.
development of modern unified theft standard:

Tomlinson Case
complex theft offenses:

a. Property received in course of employment and lawfully in possession as agent
b. Agent appropriates for own use not contemplated w/purpose of trust and w/felonious intent
i. One who converts prop honestly believing it to be his own is not guilty of embezzlement b/c no requisite intent
c. There must be a fiduciary relationship.
complex theft offenses:

wrongful appropriation of prop where original taking was lawful or w/consent of owner
complex theft offenses:

Taking involves a trespass and felonious intent at the time of the taking.
complex theft offenses:

w/o claim of right or justification to permanently deprive an owner of his prop & Δ had felonious intent at time of taking.
development of modern unified theft standard:

larceny by trick or device: Intent to Defraud
complext theft offenses:

i. The false representation/omission can involve any material fact and doesn’t need to be false in every regard, just needs to induce person to surrender his property.
ii. If misrep is removed, or if V knows or has reason to know that representations are false, than no trickery has occurred.
iii. The statement must actually be false, so Δ can’t be convicted if statements were correct, even if V thought they were false.
iv. If statements are false when made but become true at time V parts w/prop than no crime.
v. Accused must be aware of falsity of statements when made.
development of modern theft standard:

larceny by trick or device: False representation concerning a past or present fact
complex theft offenses

V must believe and at least partly rely on misrep while surrendering his prop.
larceny by trick or device:

complex theft offenses:

Same as larceny by trick except V intends to give up possession, use, & title. In order to convict, Δ must have: (1) an intent to defraud, resulting in a (2) misrepresentation/omission w/regard to a material fact, (3) on which victim relies, (4) leading him to surrender property to Δ, and he (5) intended to give up possession , use, AND title of his property.
larceny by false pretenses
complext theft offenses:

a. Felonious taking & carrying away (caption & absorption)
b. Personal property of another
c. After physically trespassing onto V’s prop
d. w/intent to permanently deprive V of that prop.
trespassory larceny
complex theft offenses:

a. Property: object of theft must be identifiable as property (i.e. an unrecorded & undelivered deed w/o value isn’t prop b/c not binding).
b. Claim of Legal Ownership: property stolen must belong to someone else (i.e. if Δ has legitimate claim to prop ► no taking).
c. No Asportation: taking someone’s prop must involve a carrying away “asportation” so no longer under owners control
d. Lack of Intent: there must be an intent of permanently deprive someone of his property interest.
general defenses to theft crimes
copmlext theft offenses:

Often, criminals exploit people’s psychology ► their perceived shortcomings (i.e. overweight, lonely, social status, etc...)
current issues in theft offenses
complext theft offenses:

(Lounge Lizard Case): Δ lured lonely women to invest in his properties to build movie theatres & in return he promised to deliver mortgages on prop to them. Δ never build theatres, & argued that “promises for future performance doesn’t satisfy statute, & that he’s just a bad businessman.”
1. Court found Δ guilty of Larceny by False Pretenses b/c he made promises with: (1) an intent to defraud, (3) made misrepresentations w/regard to material facts, (3) on which lonely women relied, (4) causing them to surrender their property, and (5) they intended to give up possession, use and title of that property.
2. Court expanded doctrine of misrepresentation of existing fact to hold that a misrep of a present fact of the state of mind of Δ at time of misrepresentation.
3. Δ never intended on fulfilling promises ► guilty of larcent by false pretenses.
current issues in theft offenses:

Ashley case
complext theft offenses:

victims received advertisement offer for 3 day vacation to Vegas. Ad asked people to show up at certain place to go on vacation, but when they showed up, they found out that there were a lot of additional charges for trip. Δ argued that he was only guilty of petty theft b/c ad was for $15.95 and to be guilty of felony fraud needed to exceed $200 ($400 now).
1. Court found him guilty b/c a series of petty thefts could be aggregated to reach the $200 needed for grand theft. To aggregate, there must have been one scheme leading to the offense. Here, this was a common scheme of fraud b/c Δ jacked $15 from a lot of people (one mailer, one intent) was replicated.
2. E.g.: Fiber pills are only $19.95, purchased by 200,000 people, but only two come forward b/c rest are embarrassed of being called dumb asses.
current issues in theft offenses:

columbia research group case

Antitrust laws promote competition & inhibit monopolies & restraint of trades.
1. These are the rules of the game of free market capitalism b/c competition is the best organizing principle. Marketplace shouldn’t be regulated by Govt unless there’s been a provable market failure.

2. Adam Smith & Wealth of Nations: “individual self-interest converts into societal interests & Laisez Faire should prevail unless there’s fraud and collusion in the market place, only then should the Govt step in b/c competition must be protected.” This is why we have Antitrust Laws & violators subject to criminal/civil sanctions.

An agreement to limit competition. Theory of AT grew out of classical liberalism b/c in 18th century, individuals weren’t important, the ruling class was.
origins of us antitrust laws:

common law background: restraints of trade

2. In response, John Stewart said that freedom to k and trade are two of the most basic elements of trade. Thomas Jefferson modified this to include life, liberty, & pursuit of happiness. These are the classical liberalism ideals that occurred during the enlightenment era in England.
origins of us antitrust laws:

common law background

3. Two cases illustrate the 2 CL traditions that AT laws are based on (1) no monopolies, & (2) no restraints on trade.
a. Schoolmasters Case (1410): Sole schoolmaster couldn’t block another schoolmaster from coming to teach.
b. Case of Monopolies (1602): in England, Queen was hooking up her friends w/monopolies ► Crt held that Queen didn’t have this right.
origins of us antitrust laws:

common law bachgrond

Restraints of trade are unlawful under English Common Law, however; only unreasonable restraints on trade are unlawful.” This case gave birth to the Rule of Reason Doctrine.
common law background:

mitchell v. reynolds case: rule of reason

5. 19th Century, the industrial revolution brings about a lot of new business’ such as corporations – offering investors limited liability – and investors creating voting trusts, pooling arrangements, holding companies, etc...
6. Rockefeller capitalized by creating a trust & all shrhldrs entrusted him w/their voting rights. As result, Rockefeller controlled voting shares of most oil production (95% of world production). Industries subsequently sued him b/c he was monopolizing various industries in similar fashion. In response, individual states started enacting AT laws, and Kansas was the first one to codify statute.
7. Monopolists: increase profits by (1) restricting output, & (2) raising prices.
common law background

In Cali, we have the Cartwright Act.
i. §1: Prohibits contracts and conspiracies which restraint trade
sherman act

Only unreasonable restraints of trade are unlawful. Determine whether the restraint impacts competition, if it does, it’s unreasonable.
shermant act:

rule of reason

: there are five practices that are so clearly unreasonable that courts have established a conclusive presumption that they are unreasonable.
i. Π must show that there was an agreement & restraint was one of the per se five violations.
sherman act: rule of reason

per se violations

ii. §2: every person who monopolizes is guilty. 3 violations:
1. Monopolization
2. Attempts to Monopolize
3. Conspiracies to achieve or maintain monopolies
sherman act section 2

i. §2: Price discrimination: Sellers can’t discriminate amongst competing buyers (i.e. sell porn to Habib cheaper than to Joe).
ii. §3: Tying Arrangements: can’t force buyers to purchase bundle (i.e. can’t buy MS Windows, unless buy MS Office).
iii. §7: Mergers/Acquisitions: can’t do if it inhibits competition
clayton act

i. §5: prohibits unfair methods of competition
ii. State AT laws preceded Federal AT laws.
federal trade commision act (FTC)

Goal of AT laws is to promote economic efficiency, distribution of goods & services, economic opportunity, fairness, and protect political and social institutions.
goals of antitrust laws

Chicago grain market is world leading market, and they established a board who adopted rules to regulate grain market. They froze grain prices at end of each day ► fixed price set until market re-opened ► “call rule”. This rule was challenged as violative of Sherman Act. The question is how do courts judge a restraint of trade to determine if it’s reasonable.
goals of antitrust:

baords of trade of chicago

1. The true test of legality is whether the restraint imposed merely regulates and perhaps thereby promotes competition or whether it suppress or destroys competition.
a. Balance Test: look at impact on competition, look at impact on competition, & the nature of the agreement ► on balance, does it promote competition or suppress competition.
i. Brandies: Every K restraints trade. But look at the impact the restraint has on competition. Look at facts:
1. look at nature of restraint, its history, the evil believed to exist, the reason for adopting the particular remedy, purpose or end sought to be attained ► all relevant facts.
2. Reason for looking at these facts is not that good intention will save an otherwise objectionable regulation, but because knowledge of intent may held court to interpret facts and predict consequences.
goals of antitrust:

boards of trade of chicago

b. Court concluded that rule was reasonable restraint of trade, b/c every trade organization imposes some restraint upon conduct of business, and some are necessary to make the market function, and some of these rules actually promoting competition more than suppressing it.
i. Court took into consideration:
1. Nature of Rule: Required members to restrain from price making after certain period till next day, but they were free to send bids.
2. Scope of Rule: it applied only to grain shipped to Chicago; members were free to purchase at any price throughout the day from members or non-members, grain to arrive at any other market.
3. Effects of Rule: B/c only applied to small part of grain shipped to Chicago, the rule had no effect on general market prices, or the volume of grain coming to Chicago.
goals of antitrust:

boards of trade of city of chicago

among competitors (Horizontal restraint): To limit or influence the prices they can charge to raise, lower or influence the prices they can charge in competition with each other.
price fixing definition

1. Identical prices alone insufficient to establish price fixing.
2. Price fixing is unlawful even though it may be reasonable or necessary to produce a fair profit for commodity sold or services furnished.
a. Rationale:
i. Market prices fluctuate, so reasonable today may not be the reasonable price tomorrow.
ii. Reasonable to whom???
iii. Destroys competitive freedom.
price fixing

3. Evidence of meetings among competitors, exchange of price list, and pricing patterns relative to changes are all circumstantial E of price fixing agrmnt.
4. This is a different type of conspiracy so prosecution must show that:
a. There is an agreement amongst competitors, &
b. To fix the price
5. All you have to show is that two or more actors agreed to fix prices (horizontal: same level, direct competitors). You don’t have to prove that conspirators have means or ability to achieve objective b/c horizontal agrmnt unlawful on its face.
6. Standard is so strict b/c price is central nervous system of economy, and it works as a signaling flag for the market (i.e. where to shop, how much to charge, produce, etc...) & allowing agrmnts destroys purpose of free market
price fixing

Competing potter manufacturers (toilets, sinks, etc...) to together & fixed their price, claiming that it was fair to fix prices.
a. USSC disagrees b/c market should decide what fair price is, and E of reasonableness is irrelevant b/c agreements to fix prices are inherently anti-competitive on balance & inherently unreasonable ► Per Se Illegal.
price fixing:

ternton potteries

Hot Oil Case”: Due to great depression, oil companies had huge surplus causing prices to fall so they made agrmnt where big oil companies would buy all surplus from small competitors to keep it off market. This helped stabilize the prices, resulting in huge profits. US filed suit.
a. Under Sherman Act, a combination formed for purpose and with effect of raising, depressing, fixing, pegging or stabilizing the price of a commodity is Per Se Illegal.
b. Sherman Act differs from CL Conspiracy b/c you don’t have to show overt act or success, just show agrmnt to fix prices, regardless of whether competitors had means to carry out agrmnt.
price fixing:

socony vacuum

A trade association for engineers entered into an agrmnt amongst themselves to submit their plans on building dams, bridges, etc... w/o issuing a bid for the plan arguing safety reasons (i.e. cost of goods may rise & may have to compromise by building low quality product).
a. SC disagreed; their are two complimentary forms of anti trust analysis:
i. Agrmnts whose nature & necessary effect so plainly anti-competitive that reasonableness is irrelevant ► illegal on face
ii. Second is a broader category – agrmnts whose competitive effect can only be evaluated by analyzing circumstances peculiar to industry (i.e. history of restraint, its purpose, etc...).
b. It’s not for the court to indirectly protect the public against harm by conferring monopoly privileges – Rule of Reason doesn’t support a defense based on assumption that competition is itself unreasonable. If you want to change rule, go to Congress. Here, there’s a violation of Sherman Act §1 – horizontal price fixing ► per se illegal.
price fixing:

national society of engineers

(Horizontal restraint): An agrmnt among competitors to allocate a market amongst themselves based on: (1) product, (2) customer, or (3) territory. The most common way to divide market is by territory (i.e. Roach Coach). Practice of splitting up the market has more of an anticompetitive effect than even price fixing.
market division

Topco is a cooperative association of small and medium sized regional supermarkets. Each store wanted generic product (i.e. Prestige Vodka), but not all stores could make their own, so they bound together to make generic product and didn’t advertise to keep prices low. Problem is that had an agreement that divided market by territory where product could be sold.
a. Court held that horizontal agreements are per se invalid b/c agreement among competitors to divide market has effect of minimizing competition. Selling of product wasn’t unlawful, but dividing market was ► Unlawful on its face, like all per se violations.
market division:; Topco case

Agrmnt among competitors to control the outcome of a competitor’s bid to eliminate actual competition (i.e. 3 distributors of produce to City agreed to fix bids, so only they would get the contracts from city) by being either complimentary bidders or not bidding at all – they did this for 33 months and effectively eliminated all other entrants to market.
a. Complementary Bid: agree to artificial higher bidding (phony bids) so one of the other three gets k
b. Bid Suppression: agree to refrain from bidding.
c. This is horizontal agrmnt to divide market, and form a group boycott ► per se illegal.
market division: Bid Rigging

(Horizontal restraint): Agreement among competitors to exclude or coerce another competitor from entering into the market place.
group boycotts

1. Group boycotts for purposes of excluding someone are illegal, but if agreement is for other purposes, rule of reason may apply (i.e. “energy efficient” seal – agrmnt among competitors to comply w/certain restrictions of efficiency to get seal, and consumers look for this seal, so retailers probably won’t carry product if no seal b/c demand so low) – on face looks like agrmnt to exclude competitors, but in reality, it’s pro competitive & promotes energy efficiency.
group boycotts

The Guild sells high end designer dresses, but problem arose when style pirates started jacking their styles – in retaliation, Guild boycotted those dealing w/pirates ► if you sell them cloth, materials, we’ll boycott your asses. Guild argued wanted to protect garment industry.
a. Court disagreed b/c methods chosen were anticompetitive, b/c can’t allow competitors to decide who they want in the market, b/c this will eventually end up creating monopolies.
b. Court rationalized that purpose of boycott was to close off market, designers wanted to maintain dominant position, they had tendency to monopolize, and developed elaborate methods of coercion.
group boycotts:

fashion originators guild

Klors was a discount store block away from Broadway, and sold products at low prices which effected Broadway’s profit margin, so in response, Broadway told suppliers (i.e. GE) to stop selling to Klors, and they agreed. Broadway argued that Sherman Act requires injury to public to be actionable, and not the case here b/c still plenty of competitors for customers to choose from – so no harm to public. USSC disagreed.
a. It’s not for the manufacturers, distributors, or retailers to decide which competitors are needed in the market. Even though this was only one competitor, allowing Broadway to dictate market like this interferes w/flow of interstate commerce and creates a monopolistic tendency.
b. Sherman Act has been read to forbid all agreements “which tend to create a monopoly” whether one at a time, or whole market at once.
group boycotts: Klors v. Broadway

Some Chevy dealers providing supply to discount houses, as result, not participating dealers losing sales to discount houses and had to do warranty work for these guys, so told GM to stop discount house sales & GM agreed & halted sales by threatening dealers who were supplying to discount houses.
a. When business’ concert their efforts in order to impede competition, they act inconsistent w/free market principles ► per se illegal. And if per se illegal, inquiry into motivation of conduct stops.
group boycotts: Us. v. GM

(Vertical): Tying occurs when seller requires buyer to take product he doesn’t want as a condition to obtain the product he wants.
1. tying product must have dominant position in market, & there must be proof of adverse impact on market as result of tying. (i.e. sales for hay will decrease).
tying arrangements

(Vertical Price Fixing): An agreement that manufacturer forces on retailer to adhere to a fixed price (i.e. Levis); generally ► per se illegal.
resale price maintenance

: entered into written agreement with pharmacies that they had to adhere to a price floor, and if they sold below, they would lose supply.
a. Once the seller sells to the buyer, the title has passed, and forcing buyer to sell at particular price violates freedom of marketplace ► per se illegal. An agrmnt b/w manufacturer & retailer to adhere to a suggested retail price is unlawful per se.
resale price maintenance:

dr. miles med co case

Park Davis attempted to control retail price of its pharmaceuticals on market by imposing price floor on retailers. Some retailers refused, and were subsequently cut off from distribution.
a. Colgate Doctrine: a simple refusal to sell to retailer for failure to follow suggested price is permissible under Sherman Act.
b. Here, Park Davis went beyond, and informed wholesalers of retailers who didn’t follow suggested price, and told them to also cut off supply to these retailers. In doing so, Park Davis created a combination w/the retail & wholesalers to maintain prices & violated Sherman Act. Additionally, there was a written agreement to follow price, this is going beyond the scope of Colgate Doctrine.
resale price maintenance:

us v. park davis

you can prove a conspiracy in Antitrust cases by direct evidence, or inferences of circumstantial evidence, to conspire.
proving conspiracy in antitrust

all you need to show in civil case is:
a. The existence of an agreement b/w 2 or more,
b. For purpose or effect of restraining trade. (intent not required) ► SL.

civil AT violation

show (1) agreement, & (2) intent to restrain.

cirminal AT violation

a trade association who manufactured gypsum boards established a principle of exchanging info to stabilize price. DOJ charged them criminally, & issue was whether intent needs to be proven in order to charge violators of AT law w/criminal sanctions or can presumption of intent be overcome by showing they had an agreement.
intention: criminal AT violation

Gypsum Case

i. Court says that criminal offenses defined by Sherman Act should be construed as including an element of intent b/c imposing strict liability onto people who didn’t intend on restraining trade will have a chilling effect on market & new entrants will hesitate from coming into market – chilling effect.
ii. 2 ways to prove intent:
1. purpose to restrain trade, or
2. knowledge of probable consequences & actual effects of restraint of trade.
a. To prove intent, don’t necesarily need direct evidence (i.e. signed k), can show by circumstantial (i.e. all competitors met, and after meeting all their prices went up)

criminal AT violation: Gypsum Case

when there’s no direct evidence of conspiracy but you can imply a conspiracy by acts of competitors.

implied conspiracy

Texas movie theaters wanted to eliminate the double feature & charge the full .25 cents per movie so they agreed that they were all going to stop showing double features. Issue was whether intent (existence of agreement) could be inferred from the parallel conduct. Circumstantial evidence: everyone charging same price after all eliminated double features.

implied conspiracy: interstate circuit v. US

i. Court says that allowing prosecution for Conscious Parallel Conduct would shift the BOP onto Δ’s to prove that they haven’t conspired, very tough for Δ’s to overcome b/c how do you prove that you didn’t agree w/anyone.
ii. Court says that a showing of Conscious Parallel Behavior in and of it self is insufficient to convict Δ’s, but in this case, Δ’s guilty anyways b/c lot of corroborating evidence (i.e. they knew of plan to act in concert and consciously participated, knowing that it would create a restraint, and still participated). Therefore, Conscious Parallel Behavior coupled w/corroborating evidence can be sufficient basis for supporting conviction.

implied conspiracy; interstate circuit v. US

Paramount Films only allowed 8 downtown Baltimore theatres to show first run features, and when Crest theatre (not one of the 8) tried to obtain first run feature from Paramount, they were refused.
i. Modern Doctrine: Conscious Parallel Behavior is some evidence of an agreement, but by it self will not shit the BOP onto Δ’s. In addition to this behavior, need plus factors:
1. communications
2. opportunities or history of collusion
3. conduct of firms seems irrational absent collusion
4. fungibility of product

ipmlied conspiracy: Threatres v. paramount
unfair practices:

Deception, misrepresentation, and all forms of unfair practices in connection with goods or services. The purpose of FTCA §5 was to increase marketplace morality by prohibiting unfair practices.
unfair practices definition
unfair practices:

1. Industrial revolution let to mass production, which led to mass marketing, and manufacturers need to advertise to stimulate demand, but ads were sometimes deceptive and ultimately hurt thousands of consumers.
2. Initially, consumers only had private COA, but this presented several problems – too many victims, lack of privity, proving intent, not enough incentive b/c each person only suffered minor damages as result of deception, etc...
unfair practices definition
unfair practices:

Industry attempted to regulate itself
1. Printer’s Ink magazine proposed a model of false advertising statute, and was adopted by several states (CA §17500 ► decedent of printer’s ink statute & tracks language of Wheeler Lee “unfair or deceptive”) – any misleading or deceptive statement was declared a misdemeanor.
printers ink statutes
unfair practices:

2. statutes had limitations:
a. some required knowledge on part of advertiser
b. others required intent to deceive
c. others required specific references to the sale of good
i. Business’ started “going out of business sales” w/o making reference to any product, but these places were always going out of business. So in theory, you had a false representation w/nature of sale (i.e. going out of business), but not to a specific product ► printer’s ink statute N/A.
printers ink statutes
unfair practices:

Arose from “Printer’s Ink Statute”
1. “Unfair Methods of Competition” hereby declared unlawful ► very broad.
FTC Act section 5
unfair practices:

(Raladam problem): Raladam manufactured hair treatment products which burned user’s scalps & FTC brought action alleging injury to consumers, not injury to competition. Issue was whether injury to consumer sufficient for COA.
1. Court held that unfair competition requires pleading of injury to competition or competitors. This holding led to a lot of controversy.
ftc act section 5:

ftc v. raladam
unfair practices:

3. Congress responded w/1938 Wheeler-Lea Amendment
1. §5 was amended as result of Raladam. To bring claim now, you need:
a. Unfair methods of competition, and
b. Unfair or deceptive acts or practices
4. Wheeler Lea deals exclusively w/Consumer Fraud + Deception.
5. Ca subsequently enacted §17200 (Cali version of FTCA §5)
ftc action section 5
unfair practices:

When does an aff misrep constitute deception???
1. When the statement has tendency or capacity to deceive.
2. Intent to deceive, reliance on statement, actual injury not required for COA.
3. Half truth (omission), false advertisement constitutes misrepresentation.
4. Misrepresentation must relate to a material fact – (distinguish puffing)
modern law of deception:

Affirmative Misrepresentation
unfair practices:

Advertising of engines reads that they are “guaranteed unconditionally” for 90 days or 1,000 miles. However, fine print had lot of conditions (so not really unconditional). Δ argued that they actually honored warranty regardless of fine print, so no harm was actually deceived ► no harm. Issue for court was what constituted deception for COA.
a. Tendency or capacity of deception is the standard ► it is the tendency or capacity to deceive, not the actual deception. Actual deception not necessary.
b. Accepting Δ’s defense that no one was actually harmed counters public policy b/c that would give great deference to management to determine whether they feel like honoring warranty.
c. Consumers need accurate information b/f participating in the marketplace, and public policy dictates that false advertising should be stopped b/f it harms someone.
d. this holding is huge leap from common law fraud b/c actual reliance no longer required to stop false advertising ► good pp b/c don’t want harm to consumer.
modern law of deception: affirmative defenses:

montgomery ward
unfair practices:

Sterling drug advertised that a study showed that Excedrin more likely to cause upset stomach than Bayer.
a. The concept of “Caveat Emptor” – buyer beware, should no longer be the standard. The new standard should be “right to rely” on representations of facts as truth.
b. Half-Truths & Ambiguities of the ad can create the capacity to mislead. No single consumer has to be mislead in order to be actionable as actual deception; false advertisement is proof of actual deception.
c. What has capacity to mislead??? See Colgate.
modern law of deceptoin: affirmative defenses:

sterling drug case
unfair practices:

Ad for shaving cream claimed that it was so good it could shave sandpaper, when in reality, it had to sit on sandpaper for long time b/f it could shave it. FTC sued claiming that misrep was that putting cream could shave sandpaper instantly. Δ argued that no could honestly believe that you could shave sandpaper so quick.
a. SC agrees and gives them great deference b/c it entitles them to great weight in interpretation of these rules.
modern law of deceptoin:

affirmative misrepresentation:

colgate case
unfair practices:

Statement is material if it significantly induces someone to buy.
i. Exception to Materiality: “Puffery” – sales talk ► these claims are subjective & not subject to scientific evaluation for truthfulness (i.e. “this is best laptop”); how do you evaluate truthfulness of what’s “best”.
1. Statements which are subjective, statements of opinions, not subject to scientific evaluation, etc... are puffing & excluded from definition of material statements.
modern law of deception: affirmative misrepresentation

unfair practices:

Door to door encyclopedia salesman targeting low income, unsophisticated consumers. He claimed that encyclopedia is free as long as you buy supplement for $70 when the whole set could have been sold for this price. Δ argued that no one is dumb enough to believe that it was free, average reasonable person wouldn’t be misled, so not his fault if dumb people believed it.
a. Court disagreed holding that law doesn’t only protect the sophisticated or educated, but protects the trusting & the suspicious.
modern law of deception: afirmative misrepresentatoin:

sstandard education society case
unfair pracitices:

(standard of market morality): there’s no duty resting upon a consumer to suspect the honesty of those with whom he transacts. Laws are made to protect the trusting & the suspicious, and Caveat Emptor should no longer be relied on to reward fraud. This case abolished the concept of Caveat Emptor.
Modern law of deceptoin:
affirmative misrepresentation:

unsophisticated person standard
Unfair Practices:

Affirmative Disclosure Remedy, corrective advertising.
remedies for deception
unfair practices:

Some advertisements are so pervasive that an extreme remedy such as corrective advertising is required. This is extreme remedy, and rarely used.
remedies for deception:

corrective advertising
unfair practices:

1. Warner Lambert: Listerine ads claimed that use of their product could ward off colds and sore throats. This was affirmative statement, but scientifically untrue.
a. Court ordered Listerine to spend next 10mill advertising dollars to disclose that product didn’t actually fight colds, etc...
remedies for deception: corrective Advertising:

Warner Lambert
unfair practices:

Must disclose all pertinent facts that may influence a person’s decision to purchase the product. Geritol. (i.e. Camel has to disclose that lot of people die from smoking, etc...)
remedies for deception:

Affirmative Disclosure
unfair practices:

In order for there to be deception, there must be a representation/ omission likely to mislead a consumer, acting reasonably under the circumstances, as to a material fact.
standard for deception
unfair practices:

1. Likely to mislead a consumer: likely was criticized b/c likely just means more likely than not.
2. Reasonable Person: act or practice must be considered from perspective of the consumer acting reasonably under the circumstances.
1. This is tougher standard than Cali who uses “unsophisticated person standard.”
3. Material: representation must be material.
1. this was originally “material to consumers detriment” but detriment was removed b/c contradictory to FTC goals; you couldn’t prosecute until consumer had felt detriment.
standard for deception
unfair practices:

Kraft Co. made two claims: (1) each slice of Kraft cheese had calcium equivalent to 5oz milk, & (2) their slice contains more calcium than imitation slices. Problem is that Kraft didn’t disclose that nearly 30% of calcium lost during processing; the implied claim here was that you get exactly same food content in each slice (implied claims of materiality). Kraft argues that FTC’s policy of viewing the ad and inferring the message is inadequate & should be supported by extrinsic e.
1. Court says that the FTC may rely on its own reasoned analysis to determine what claims, express or implied, are conveyed in an ad – so long as those claims are reasonably clear from the face of the ad.
2. Same rule in Cali – no extrinsic e is required. Commission can conclude based on its expertise, knowledge, and experience.
standard of deception:

Kraft Case
Unfair Practices:

S&H sells its stamps to retailers (gas stations, markets), & retailer gives stamps to consumers if they purchase as bonus for loyalty. Consumer can redeem stamps for merchandise. Problem was that each retailer had unique stamp so consumer could never collect enough, so stamp exchanges evolved where consumers could turn in one kind of stamp for another kind. S&H got pissed so filed suit against these exchanges. FTC declared this whole practice unfair, b/c even though no violation, it seemed anti-competitive. Issue is whether FTC properly used its authority in declaring this practice unfair.
Unfairness Doctrine

FTC v. Sperry Hutchinson Case
unfair practices:

1. Court looked to legislative intent and points out that Congress didn’t provide a laundry list of unfair practices and made the statute very broad in order to give FTC authority to combat the unlimited human genius to deceive others.
unfairness doctrine:

FTC v. Sperry Hutchinson Case
unfair practices:

a. Whether the practice offend Public Policy
b. Whether the practice is immoral, unethical, oppressive or unscrupulous
c. Whether it causes substantial injury to consumers, competitors, or others
i. In 94’ Congress amended this unfairness standard:
1. cost benefit analysis
2. consumer can’t avoid injury
3. substantial injury arising from the practice
unfairness doctrine:

Cigarrette Factors for Unfairness
unfairness practicess:

3. Congress meant to give broad authority to FTC, and allows them to act like a court of equity to declare certain business practices unfair.
4. FTC §5 only has shallow remedies, this is b/c Congress is balancing the FTC in defining conduct vs. penalties.
a. FTC Act isn’t a criminal statute & only allows for civil and administrative enforcement
b. No private right of action (though some states give it)
c. FTC Act is only enforced by the commission
unfairness doctrine
unfairness practices:

a. All states have similar laws
b. Cali Business & professions code §17500: false advertising law prohibits every untrue and misleading statement related to sales of goods, where the salesman knows or should’ve known that the statement is untrue.
i. Remedies: a misdemeanor violation, civil remedies includes injunctive relief, restitution of money lost, injunctive relief, civil penalty only gives prosecutors.
unfairness doctrine: state UDAP laws
unfairness practices:

c. Cali Business & professions Code §17200: unfair competition statues, it defines unfair competition: unlawful, unfair or fraudulent business act or practice is prohibited, or any violation of §17500.
d. Why is such broad standard? If a business practice is unlawful under any other Cal. statute, it’s “inherently” unfair competition, which triggers Cal. unfair competition laws. To compete fairly in Cal. business, you have to apply all Cal. laws, otherwise, you are practice business at different level, which will hurt other competitors.
e. Proposition 64: All private cases must prove actual injury in form of lost or money. Now a private π must allege and prove actual injury; the general public representation was heavily limited, π must be fully qualified for class action.
unfairness doctrine: state UDAP laws
securities offenses:

Frauds involving investment opportunities offered to investors who will not have significant control over the enterprise.
securities offenses defintion
securities offenses:

1. When investors don’t have control over an enterprise, they can’t protect themselves.
2. Hard to prosecute these offenses b/c:
1. problems of detection (V’s may be unaware)
2. victims reluctance to come forward (embarrassment)
3. complex & technical
3. Why have securities laws???
1. protect future investment
2. losses from securities fraud in 10 billion range
3. market cannot correct itself
4. injury to capitalist market place
a. Direct investor injury: investors must be able to have confidence in what they are investing.
b. Injury to the System: capitalist system is predicated on investor confidence and trust & maintaining this trust confidence is crucial.
Securities Offenses introduction
securities offenses:

1. States preceded fed govt in this area and Kansas was first state to regulate securities.
2. By 1913, almost every state has securities regulation statutes, including Cali. Today, almost every state has one, w/the exception of Delaware b/c they want to be Corporate haven & thus enact liberal Corporate laws.
3. Federal laws were enacted in response to the market crash of 1929, and lot of people lost money b/c of margin buying, so Fed enacted laws to prevent this in future.
History of Federal & State Securities Law
Securities Offenses:

Securities Act 1933, Securities Exchange Act of 1934
1. Federal laws focus on regulation of national market for securities (i.e. NYSE).
2. §10b-5: Untrue statement of material fact OR omission of material fact in connection with sale of securities (same approach as §5). Insider trading is also regulated by 10b-5. 16b imposes SL for certain misconduct.
3. 10 b-5: regulates insider trading, prohibits misrep, etc...
4. Registration and disclosure is required to trade securities b/c we want to fully inform investors about type of transaction they’re engaging in.
5. Both fed and state laws have civil remedies & criminal penalties
6. State Securities Regulation laws are called ► “Blue Sky Laws”
Federal Securities Laws
Securities Offenses:

1. Security registration
1. registration is key b/c helps out w/disclosure issues
2. If defined as security by SEC, must be registered.
3. Govt bonds, charities are exempt
2. Broker/Dealer Registration
1. in Cali, failure to register self or security is a felony
3. Anti Fraud provisions: all state securities laws prohibit untrue or misleading statements, or material omission in connection w/sale of securities. (§25000 in Cali)
4. Enforcement provisions and remedies:
1. criminal sanctions
2. civil remedies
Four Principal Components of Securities Laws
Securities Offenses:

Howey Co. owned acres of citrus trees & offered to sell some rows of trees along w/service of caring for them. Δ promised investors 20% return on investment. Issue was whether such investment k was a security thus bringing it under control of SEC.
Standards for Defining Security:

SEC v. Howey
Securities Offenses:

(Control Test): to determine if it’s a security
a. Investment of money coupled w/expectation of profits
b. Common enterprise where profits derived solely from efforts of others.
Standards for Defining Security:

Howey Test
Security Offenses:

Δ wanted to build a country club with investment capital generated from sales of advance memberships. Members had no right to income from investment, and were only promised use of facilities. 1. Risk Capital Test: Court applied this rule to determine whether security
a. Was capital placed at risk
b. Was there a fair chance of realizing objective
c. Was there a promise of benefit (doesn’t have to be cash)
2. Court concluded that this was a security b/c people were asked to put up capital which was at risk for the promise of some benefit. Very Broad was of defining.
Standards for Defining Security:

Silver HIlls Case
Security Offenses:

Court applied this rule to determine whether security
a. Was capital placed at risk
b. Was there a fair chance of realizing objective
c. Was there a promise of benefit (doesn’t have to be cash)
STandard for Defining Security:

Risk Capital Test
Security Offenses:

HMC was a membership retail store and members were required to purchase goods (i.e. sewing machine, cookware, etc...) b/c they had a purchasing k –a multi level scheme aimed at recruiting others to buy goods.
1. Court found this to be an investment k. The court integrated the risk capital test & the howey test. An investment k (security) is created when:
a. An offeree furnishes initial value to an offeror,
b. a portion of which is subjected to risks of the enterprise, &
c. the initial value is induced by offeror’s promise for a valuable return, &
d. offeree doesn’t gain any managerial control in return.
Standard for Defining Security:

Hawaii Market Center Case
Security Offenses:

a. An offeree furnishes initial value to an offeror,
b. a portion of which is subjected to risks of the enterprise, &
c. the initial value is induced by offeror’s promise for a valuable return, &
d. offeree doesn’t gain any managerial control in return.
Standards for Defining Security:

An investment K (security) is created when
Security offenses:

Dare to be Great” scheme based on self help tapes, and efforts at recruitment to enrich those at top of pyramid. Meetings were held for purposes of recruiting new suckers (you’ll be rich if you join) b/c “group dynamic” people in group more likely to do something together than they would alone. Court couldn’t apply traditional Howey Test (b/c not solely from others), so court developed new rule. Modern Rule (by 9th Cir):
1. An investment k is a security:
a. if there is an investment with the promise of future benefits,
b. where the promise or benefits derive from the efforts of others, and
c. the significant managerial decisions are in the hands of others.
STandards for defining security:

SEC v. Glen Turner Case

1. An investment k is a security:
a. if there is an investment with the promise of future benefits,
b. where the promise or benefits derive from the efforts of others, and
c. the significant managerial decisions are in the hands of others.
Security Offenses: Modern Rule
Security Offenses:

purpose is to protect investors, so if security, register & disclose.
Security offenses conclusion
Business and Investment Opportunities:

Variety of “get rich quick” schemes. The common element of these opportunities is the investment of funds are based on representations of potential gain made by offerees as a result of the investment.
Business and Investment Opportunities Introduction
business and investment opportunities:

1. Pyramid Schemes
2. Ponzi Schemes
3. Self Assist Market Plans (SAMP)
4. Franchises
4 types of invesement opportunities
business and investment opportuniteis:

2. Theories to challenge:
1. UDAP Deception: Affirmative misrepresentation/omission of material fact
a. Cali: §17500, FTCA: §5
3. Larceny by Trick
1. misrepresentatino of facts
2. intent to defraud
3. $400 < Grand Theft
4. Reliance
4. Securities Violation
1. Risk Capital
2. Promise of benefit
3. Significant managerial control by others
5. Anti Trust:
1. RPM
2. Tying arrangements
6. Penal Code §327
1. pyramids where primary compensation based on recruitment intrinsically illegal
2. alternate misdemeanor/felony
business and investment opportunities
business and investment opportunities:

key is to distinguish b/w lawful multilevel market plan & unlawful pyramid scheme.
pyramid scheme
business and investment opportunities:

Case involved buying and selling of lingerie and swim suits through marketing plan, and participants are encouraged buy large bulks, and their sales resulted in percentage of sale. Δ claimed that he had some retail stores so not really a pyramid scheme. Court disagreed.
1. The court held that this was an illegal pyramid scheme b/c primary method of compensation was from recruitment.
a. An illegal pyramid can be determined by looking at the primary source of compensation. If compensation is based on recruitment, which diverts efforts from sales to recruiting, than it’s an illegal chain scheme.
b. A bulk of the profits must come from sales, not recruitment.
pyramid scheme:

Bounds v. Figurettes
business opportunities:

2. A pyramid scheme is an investment fraud in which individual is offered an investment opportunity masked as a multilevel plan to distribute or market a product, but in reality it’s a scheme to recruit new participants whose investments provide profit for promoters (people at top).
3. Real problem is saturation: each new member must recruit new members to make money, & bottom level will lose b/c they’ll run out of people to recruit.
pyramid scheme:

Bounds v. Figurettes
business opportunities:

a. Have an inventory buy back option
b. Avoid recruitment fees
c. Minimum sales requirement
pryamid scheme:

how to avoid pyramid scheme
Businesss opportunities:

: Ponzi schemes are per se illegal b/c statements are made with the intent to defraud & are inherently fraudulent. These schemes usually involve remote investments.
ponzi schemes definition
business opportunities:

1. Ponzi was a business man in 20’s who developed a network called Ponzi Payment Scheme & main scheme was investment in real estate (causing several banks to collapse). Ponzi paid the first few investors overcoming suspicions of subsequent investors, but jacked all the subsequent investors. These schemes are designed to be “bust out schemes” b/c no effort is made to make profit, just jack people.
Ponzi Schemes
Business Opportunities:

(SAMP): Investment scheme to put people in business for themselves. These types of investments aren’t inherently illegal.
Seller Assisted Marketing Plans Definition
Business Opportunities:

1. these schemes usually state: “work at home/be your own boss”
2. If business qualifies as a SAMP, you must (1) register, and (2) disclose all relevant info that reasonable investor would want to know. To qualify as a SAMP:
1. offer to sell or lease products or services
2. which will be used to start a business
3. w/start up fee of $500 - $50,000
4. Representation:
a. Earn more money than investment
b. Market for the product or service
c. Buy back representation
Seller Assisted Marketing Plans
Business Opportunities:

Motts offered to sell sports teams w/in a league he started for kids. He was commissioner & sole owner, and Western Division was supposed to consist of 6 teams. Mott targeted low income targets, & offered to sell teams for $10k.
1. Court found that Motts scheme was a SAMP & thus he was supposed to register and disclose b/c failure to do so makes scheme per se illegal.
Seller Assisted Marketing Plans:

People v. Motts
Business Opportunities:

1. IHOP was first franchisor nationally.
2. Franchises are good b/c they offer consistency, b/c 90% of all new business’ fail in first 18 months so you’re better off buying into franchise.
Business Opportunities:

1. Trademark, logo, name, etc...
2. Marketing plan or system
3. Payment of franchise fee
4. Registration
5. Disclosure
Franchises: Franchise Elements
Business Opportunities:

to avoid misrepresentations by franchisors, and to avoid unconscionability b/c such a difference in bargaining power b/w buyer/seller.

Reason for Regulaiting Franchises
Business Opportunities:

Register, and disclose. Purpose is to give franchisees all material info b/f they invest in a Church’s Chicken in Compton.

Regulatory Requirements
Business Opportunities:

1. Tying Arrangements:
a. Chicken Delite Case: It’s unlawful tying to require the purchase of a product tied to another product (i.e. want Taco Smell, buy Pepsi), unless its impossible to put in objective words the kind of product the franchiser wants its franchise to use (plastic forks/plates can be described in writing).
b. Carvel v. Susser: Court held that the toppings were important to ice cream and were not subject to objective description b/c impossible to define all flavors, toppings, etc...
2. Vertical Price Fixing
3. Misrepresentations
a. Market saturation (i.e. 2 Quick E Marts across street from each other)

common issue with franchises
Business Opportunities:

a. The right to engage in a specified marketing plan (i.e. Quick E Mart)
b. Associated with a trademark, logo, or service mark (i.e. 7-11 Inc.)
c. Franchise Fee (i.e. pay $100/month for use of Quick E Mart name)

3 prong test for franchise
Business Opportunities:

1. WCC is concerned w/lying, cheating and stealing from the consumers in the market.
2. In many investment areas, there’s a careful use of a middle type regulation that balances the need to avoid heavy-handed regulation. This middle ground is used to regulate securities, SAMP’s, and Franchises.
Conclusion on Investment Fraud

: Influencing those who have some special obligation or fiduciary duty to disregard that duty and substitute that interest with somebody else’s.
Commercial Bribery Introduction

1. Bribery was defined as corruption of judges by Lord Coke in 1628
2. Expanded to include corruption of anyone in the administrative justice system in 1765 by Blackstone. Blackstone believed that donor/donee equally liable.
Commercial Bribery:

History of Bribery Concept

3. Late 1800’s: Concept grew to encompass corruption of any public official, voter or witness. Problem was that bribery was only focusing on legal system, or legal duty.
4. Early 1900’s: England recognized bribery as including business relationships.
5. 20th Century: Bribery of agents & employees in a commercial setting included in definition. Rationale: business affects all of us & thus should be fair.
Commercial Bribery:

History of Bribery Concept

(Cal. P.C. §641.3): most states have similar statutes.
Commercial Bribery:

Modern Commercial Bribery Statutes

a. Briber & Receiver both liable
b. Fiduciary Relationship: receiver must have violated his fid duty
c. Corrupt Intent: Briber’s motive is to influence behavior of fiduciary
d. Something of value: has to be offered or given
i. Exception:
1. Doesn’t apply to anything w/value less than $100
2. A sincere gift, which doesn’t corrupt or wasn’t intended as such
e. Breach of Fiduciary duty: objective is to protect the fiduciary principle, so if he consents or has knowledge, there has been no breach of fiduciary duty.
Commercial Bribery:

Modern Commercial Bribery Statutes: Elements

 Punishment in Cali: if bribe for $1,000 or less ► misdemeanor, no more than 1 year in county. If more than $1,000 ► felony, 16 months in jail.
 In some states, crime of bribery is completed once offer is made.
 Commercial bribery affects everyone from manufacturer, to consumer, to competitors, to shareholders, etc.... Everyone gets fucked but the two parties involved.
Commercial Bribery:

Modern Commercial Bribery

: Racketeer Influenced & Corrupt Organizations Act

1. Organized crime was becoming very sophisticated & criminals didn’t know where to stash all the money so they started investing it in legitimate business like Vegas Hotels, Casinos (i.e. Golden Nugget).
2. It was becoming problem for people to recover b/c the money was now legit, so RICO laws were developed & prohibited laundering of organized money into legitimate business & such organizations could be seized by Govt.
Rico History

RICO defines “racketeering activity” to mean:
a. Any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, or dealing in narcotics,
b. Which is chargeable under state law and punishable by imprisonment for more than 1 year.

racketeering Activity

Sedima (a Belgium Corp) transacting business w/Imtrex for import export of CPU parts. Sedima thought that Imtrex was jacking Sedima out of its share of profits. Imtrex subsequently charged w/RICO violations, & argues no liability to private party.
a. USSC disagrees stating that you don’t have to be convicted. Language of RICO doesn’t require any conviction. Therefore, you can be subject to civil penalties even if you haven’t been convicted of underlying offense.
b. Reason for private right of action is that criminals often escape criminal liability, and since purpose of RICO is to stop organized crime, there exists a private right of action b/c private individuals can help enforce RICO violations.
c. Cali doesn’t require conviction either.

Contemporary Applications

Unlawful taking of the personal identifying information of anther and using that information for an unlawful purpose.
identity theft definition

1. Complaints of ID theft grew from 12,000 in 92’ to 500,000 in 1997. Most of this has to do w/development of E-Commerce, so much easier to utilize & real problem is that it leaves the victims credit messed up, and prone to criminal history.
2. Ca. §530.5: “any person who willfully obtains personal identifying info of another and uses it for an unlawful purpose is criminally liable for misdemeanor or felony.”
identity theft

use of your personal identity to obtain credit.
a. Remedies:
i. Penal Code §530.5:
1. Report & try to get criminal prosecution
2. police report required
ii. Civ. Code §1785.16:
1. Get a police report &
2. send it to credit bureaus (ID theft shows up on report)
two types of identity theft:

Credit Identity Theft

Commission of a crime under identity of another. This happens far less frequent than for credit purposes.
a. Cali: Identity Crime Victims Database:
i. V gets pin # & phone number to call if wrongfully arrested
ii. Judicial determination of id victims will put them in data base
two types of identity theft:

Criminal Identity Theft
Investigating WCC:

1. Looking for civil & criminal violations in every case.
2. Investigation stage is the most important due to the complexity of these cases b/c WCC involves very sophisticated crimes and gathering evidence is crucial.
3. The nature of the evidence is almost always visual & audio & very seldom recorded.
investigating WCC introduction
investigating wcc:

1. Victim’s are unaware
2. Victim’s may be too embarrassed to come forward
3. Sophisticated defendants (so crimes are subtle & hard to detect)
4. Crimes are remote (where did they take place)
5. Law enforcement resources are limited
6. Jurisdictional issues (where did it take place)
Finding WCC Violations:

WCC violatiosn are hard because:
investigating wCC:
1. Consumer & Victim complaints: 25% come from here
2. Sister Agencies (i.e. police dept, DMV, etc...): 35% generated from here
a. 38 agencies that DA works with.
3. Business community: 30% come from here
a. competitors; beware that not false report
b. insiders (i.e. rats) b/c they’re generally granted immunity for ratting
4. Initiative Cases: 10% found this way
a. in house staff of attorneys
b. media
c. advertising
d. web searching patterns
finding wcc violations:

four ways for DA to find violations
investigating wcc:

1. First step is to conduct a through investigation
2. How to learn about particular industry
1. internet
2. public records
3. standard industry codes: understand how industry works
4. analytical publications
5. trade journalists/associations/publications
a. publication on virutally every topic you’re investigating
b. every industry has experts you can consult
6. commercial information sources (i.e. Lexis, Westlaw)
3. Key is to do homework first
finding WCC violations:

understanding an industry
investigating wcc:

1. sometimes the best source of info are people who’ve worked in industry
2. third party experts can be useful (i.e. professors)
3. the problem w/getting info from insiders or competitors is their loyalty which may lead them to give you untruthful information or tell others that you’re onto them.
finding WCC violations:

use of insiders and compettitors
investigating wcc:

The use of an official or an agent to pose as a consumer or business person in order to gain admissible evidence against individuals suspected of committing white collar crimes.
undercover investigative techniques
investigating wcc:

1. Usually involves an undercover wearing a tap to record suspected perpetrators
2. A person participating in a voluntary conversation has the right to breach any expectation of privacy of another by disclosing what was said when testifying about visual observations.
3. Hearsay problems generally overcome b/c conversations are usually admissions
undercover investigative techniques
investigating wcc:

electronic interception of communications w/o permission of participants of conversation is illegal & not used in WCC investigations.
1. Illegal under federal law and Cali law (so not used in WCC investigations).
undercover investigative techniques:

investigating wcc:

also prohibited unless all parties have consented. Violation is punishable as a felony or misdemeanor. Diff b/w eavesdropping and wiretapping is that, offense here requires that communication be “confidential” ► parties involved have reasonable expectation of privacy.
undercover investigative techniques:

investigating wcc:
officers are authorized to use electronic equipment b/c policy of protecting innocent victims and recordings can be admitted under hearsay exceptions (admission, business record, etc...).
1. Admission of transmissions and recordings are limited to conversations where one of the parties consent (this means that undercover has to be present at the time of conversation).
undercover investigative techniques:

law enforcement exception
investigating wcc:

is a huge pitfall for cops  changing the predisposition of a person to commit a crime. If someone asks questions then they are not committing entrapment, but when someone makes declaratory statements it is more likely to change someone’s disposition
1. To avoid this have undercover operative ask questions without making declarative statements Ex. “I am new in the area, how is business done here?”
undercover investigative techniques:

investigating wcc:

1. Hypo: Salesman draws a crowd in a public park. Person in audience tape-records the conversation. This will be allowed in b/c it’s not a confidential communication.
2. Hypo: Consumer fraud division is informed of a conspiracy that will take place. The investigator from the DA’s office, places a recording device in a flower display at the center of the table where the conspiracy is taking place. The conversation is recorded successfully. This is a problem under 632. Law requires lawful presence (physical presence).
undercover investigative techniques:

limits of CA prohibitions
investigating wcc:

3. Hypo: You call Pac Bell and hear a beep noise every few minutes. You are told that the conversation is being recorded. You are giving them consent by staying on the line.
undercover investigative techniques:

limits of CA prohibition
investigating wcc:

Any comm. carried on reasonably expecting to be private. This is an objective standard = reasonable person standard.
a. Operative must be physically present
undercover investigative techniques:

limits of CA prohibitions: confidential communication
investigating wcc:

1. A written order based on P/C {sworn affidavit of P/C}
2. Signed by a magistrate
3. directed to a peace officer
4. commanding him to seize a person(s), thing(s), personal prop.
5. whatever is seized is brought before magistrate
search warrant:

1523 seach warrant
investigating wcc:

2. Warrantless searches are big issues in American historysmuggling became huge in order to avoid English taxes and the British abused searches trying to find these smuggled goods
3. Warrant procedures have become more complicated in the computer age.
search warrants in WCC
investiating wcc:

4. Penal code § 1525: You have to be specific in the search warrant.
search warrants in wcc
investigating wcc:

5. CA permits one other fundamental protection: Grounds to issue a warrant: [Penal code § 1524A]:
1. When the property was stolen or embezzled
2. When the property or things were used as the means of committing a felony
3. When the property in the possession of the person who has intention to use it as a means of committing a public offense.
a. Infraction (fine); misdemeanor (less than one year); or felony.
search warrants in wcc
investigating wcc:

6. Evidence of a felony; when the property or things to be seized consist of any item or constitutes any evidence, which tends to show felony has been committed.
7. evidence of sexual exploitation
search warrants in wcc
investigating wcc:

1. Magistrate signs the warrant
2. Written order for the peace officer
3. CA prohibits warrants between 7pm-7am unless the judge finds that the warrant is necessary. Special judicial authorization.
4. Copy of the warrant is provided along with the specifications.
search warrants in wcc:

investigating wcc:

1. In WCC cases, warrants seek business records, tapes, computer records, training manuals.
2. However, CA requires specificity.
3. Often, these warrants are challenged for specificity.
4. How do we make a search warrant specific in this context?
white collar crime search warrants
investigating wcc:

5. There are four ways to limit a search warrant for WCC: ways to limit the specification of the warrant to avoid “general warrant” challenges
a. Include dates (Ex. Jan. 1999 to present) four years is good in order to cover the statute of limitations.
b. Type of document (Ex. Telephone msg’s, slips-books, correspondence, memo’s etc.)and any computer/hard drives that contain such documents
c. Source/party (person)
d. Subject matter
white collar crime search warrants
investigating wcc:

What is Probable cause for search ► need affidavits
search warrants in white collar crimes:

probable cause
investigating wcc:

(1978) CA (not WCC case but good for prob cause):
a. What is the test for probable cause: “facts sufficient to lead a man of ordinary caution and prudence to believe and conscientiously to entertain a strong suspicion that “a crime has been or is being committed” on the premises” how ‘probable’ must be the ‘cause’— a substantial probability rather than a mere suspicion, rumor, or hunch ► (substantial probability test)
i. An objective articulable set of facts that create a suspicion that a crime has been committed.
ii. Negligent or erroneous statements result in the invalidation of a warrant negligent comments are excised and warrant is reexamined to see if there is enough for P/C
iii. Warrants are served by a police officer
search warrants in white collar crime: probable cause

people v. cook
investigating wcc:

1. Used specially in WCC Cases such as conspiracy or big organizations
2. Federal and state grand juries have varying standards
3. Petit jury – 12 jurors (finders of fact) & typically smaller than Grand Jury’s
grand jury investigation in wcc
investigating wcc:

4. Grand jury generally consists of 12 or more respected members of the community
1. Grand juries are usually larger than petit juries in CA you have 19
2. The grand jury is the buffer between prosecutor and defendant
grand jury investigations in wcc
investigating wcc:

1. Investigate allegations:
a. empowered with subpoena power. (testimony, records)
b. required to attend or there may be contempt charges.
2. Indicting people (Indictments) (charging)
a. Criminal complaint is another way to charge
b. Indictment: must have a majority to decide whether to issue an indictment. The grand jury has one year to hear the evidence.
3. Civil “Watchdog Role”
a. Governmental watchdog function they report on the civic process looking for fraud, waste, corruption, or abuse
b. Grand juries represent outstanding people. They are usually retired and able to work 4 times a week & are usually empanelled for one year
4. Grand jury is technically considered a pre-criminal process
a. Not a criminal proceeding. It’s a pre-criminal proceeding
b. There are none of the due process rights associated with the system
grand jury investigations in wcc:

three statutory grand jury funcstions
investigating wcc:

6. Why is the public policy behind keeping grand jury process secret??? The secret function is not subject to a public record. Grand jurors, prosecutors, parties all meet in secrecy. This is for public policy reasons:
1. Protection of the suspect: The harm to reputation and good will attaches as soon as knowledge is public - Grand jury investigations are secret
2. Protection of the grand jurors: it makes it more difficult for tampering or intimidation
3. Protection of Witnesses: witnesses can be honest and forthcoming. The principle utility of the grand jury process is to try to get testimony or evidence from participants who have the ability to appear as a witnessProtection of the witness is the single most important.
4. protection of the process:
a. Grand juries have independent subpoena authority
b. This allows them the freedom to work with deliberation and efficiency
grand jury investigations in wcc
investigating wcc:

7. What’s different about a grand jury?
1. Proceedings are in secret
2. Proceedings are characterized by none of the criminal proceeding. This is because it’s a pre-criminal proceeding. Criminal due process rights do not attach yet b/c you haven’t been charged yet.
grand jury investigatsion in wcc
investigating wcc:

8. Complexity of white-collar crimes makes grand juries very important. Grand jury investigations often involve big corporations.
1. grand juries also may use the powerful tools of immunity, subpoena, and leniency to work their way up the chain of a scheme to get the masterminds
2. interesting in that corporations do not have a 5th rightthey must produce all docs requested regardless of whether they are of an incriminatory nature or not
grand jury investigations in wcc
investigating wcc:

Matter went to a preliminary hearing (the first substantial hearing) & the judge at the hearing refused to uphold proseectors charge, so prosecutor went to Grand Jury.
1. Ca sup ct held that under § 939.7, the prosecutor must present exculpatory evidence to the grand jury that is reasonably known to the prosecutor before an indictment is sought.
2. These are procedural requirements – Grand Jury Indictments.
grand jury:

people v. johnson
investigating wcc:

Pre complaint investigative device. Subpoena authority for either documents or testimony, which allows Govt to obtain testimonies or documents before charges have been filed – broader than civil discovery process b/c it allows for investigation b/f charges are filed – protects suspects reputation.
1. D.A. or A.G. issues it himself
2. Federal = Civil Investigative Demand (CID)
3. State = Administrative subpoena (Gov. Code §11180 et seq, B&P § 16759)
4. CA has two fundamental case authorities: Brovelli, Jensen (based on good faith):
a. just like grand jury, Gov has pre-complaint authority to subpoena relevant documents & may request such evidence b/f criminal or civil charges are filed. The process is highly secretive, to protect the Δ.
administrative subpoenas
investigating wcc:

i. The prosecutor plays more than the traditional role – he acts as a policy maker.
ii. Prosecutors and defense council have fundamentally different roles:
1. Prosecutor:
a. Zealous representation: responsibility differs from advocacy, and his duty is to seek justice, not a mere conviction.
b. Do the right thing even if it means dismissing a case
c. Ex. Prosecutor in a child molestation case. Father doesn’t allow daughter to testify. Family leaves the country. Defense wants to settle. What do you do? You can’t go forward with the case.
d. Even if it’s an injustice you must do what’s right
2. Defense:
a. Zealous representation: To challenge the assertion of the Govt to protect the penal interests of his client.
b. Set aside independent judgment & zealously defend the rights of the accused ► Essence of adversarial system (knowing perjury not allowed)
role of advocates
prosecuting wcc:

i. Due to limited resources, the prosecutor has discretion to decide which crimes he wants to pursue.
prosecutorial discretion
prosecuting wcc:

Due to limited resources, and numerous complaints, prosecutors often select cases based on ethical duty, to serve justice, etc... Balance Factors:
1. Nature of violation
2. Nature of D (if it’s a big corp, affecting many people)
3. Injury to consumers
4. Injury to competition
5. Resources
6. Relationships with other agencies and public
iii. Prosecutors should try those cases with the highest impact
prosecutorial discretion:

case selection
prosecuting wcc:

This case involved misdemeanor charges against picketing union members. Those charged are Mexican and claim they were singled out for prosecution for racial reasons. They sought discovery in an effort to prove a pattern or practice of discrimination as a defense to the misdemeanor charges.
1. HELD: discovery granted. Prosecutor can select among several targets as long as they were not chosen by using racial classifications (papageorge suggests consciously making this determination and documenting it)
2. If an individual can show that discrimination against him (race, religion, gender) a basic constitutional principle has been violated and the prosecution must collapse on the sands of prejudice.
3. prosecution based on intentional and purposeful invidious discrimination will give rise to a prosecutorial misconduct claim
4. The equal protection clause of the 14th amend safeguards individuals from invidiously discriminatory acts of all branches of government, including the executive
discriminatory prosecution:

murgia v. municipal court
prosecuting wcc:

i. Today, judicial immunity doctrine preserves these safeguards for judges.
1. Judges are absolutely immune from civil actions against them for their official conduct within the scope of their official authority so long as it is a judicial act
prosecutorial immunity and related issues
prosecuting wcc:

ii. Prosecutors enjoy some part of this doctrine. Prosecutors are said to have derivative judicial immunity. However, there are some limits. The basic doctrine is addressed by the court in Imbler v. Pachtman:
prosecutorial immunity and related issues
prosecuting wcc:

(no good deed goes unpunished) Pachman was an L.A. D.A. who secured a criminal conviction. Years later he discovered exculpatory evidence and eventually got Imbler out of prison & Imbler sued.
a. Holding: Prosecutors have absolute immunity from civil damage actions while acting within the scope of their prosecutorial duties (as role of advocate).
prosecutorial immunity:

patchman case
prosecuting wcc:
Fitzsimmons was a state’s attorney accused of making false statements in a press conference. He apparently stated that there were bootprints at the scene of a murder that tied Buckley to a burglary ring that committed the murder.
a. Comments made in the public may not be immune from liability: “a prosecutor engaged in certain investigative activities enjoys not the absolute immunity associated with the judicial process, but only a good fault defense comparable to the policeman’s
b. Why does this matter for White Collar Crime prosecutors? B/c WCC prosecutors focus on out of court investigations. WCC involves investigating as well as advocating. Not everything that they do is immune.
c. Court used a functional analysis and holds that administrative and investigative functions are distinguishable from advocacy functions.
d. comments to the media have no functional ties to the advocacy
buckl v. Fitzsimmons
prosecuting wcc:

i. evolved dramatically
ii. historically, it was impossible to charge a corporation, now all states have acknowledged that corporations can be charged with criminal liability.
1. U.S. v. Park: vicarious or indirect individual liability.
a. Criminal misconduct by corporate employees may be visited upon a senior manager who is in a position of control and has responsibility for the violation, and fails to correct it or prevent it.
iii. Ct’s have begun to hold that individuals may be held individually liable for misconduct.
corporate cirminal liability
prosecuting wcc:

1. Basic policy question: when government intervenes in the marketplace ► to protect free market, to protect justice when there is particular market failure – fraud, collusion, when should we intervene business world.
2. Increasing standard of market morality: caveat emptor is dead, honest business man, honest competitors should be protected
3. Unlimited genius to defraud others, you need laws flexible enough to grow and change to depth of some sophisticated WCC.
4. Organic nature of the law: substantially involving subject matter, WCC changes to meet the needs of the marketplace
5. Public laws, duties of the lawyers. Public lawyer, we are officers of the court, you choice you’ve made. To solve the problems of the marketplace
5 themes: how we regulate our market place