The regulatory process and its role in the legal system is a fundamental concept in business law. Federal, state and local governments received the authority to regulate activities from Article 1 Section 8 of the U.S. Constitution. Article 1 Section 8 also referred to as the Commerce Clause or Necessary and Proper Clause dictates the enumerated powers of Congress in professional and private settings.
The regulatory process is performed by administrative agencies. Some commonly recognized administrative agencies are the Central Intelligence Agency (CIA), the Environmental Protection Agency (EPA), and the Food and Drug Administration (FDA). The recent GlaxoSmithKline bribery scandal focused on the Securities and Exchange Commission (SEC) administrative agency. The mission of the SEC is to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” (Securities Exchange Commission)
The SEC recently alleged that GlaxoSmithKline’s Chinese subsidiary had engaged in bribery activity for four years, 2010 to 2013. The SEC accused GlaxoSmithKline subsidiary of violating the Foreign Corrupt Practices Act. According to the SEC, GlaxoSmithKline’s subsidiary had been providing foreign officials and health-care professionals with gifts incongruous to the law. These gifts included shopping trips, cash, travel, entertainment, etc. for the purpose of boosting sales. Further, the SEC suspected that GlaxoSmithKline’s subsidiary deceptively recorded these payments as expenses. The bribery scandal investigation eventually captured the attention of a second agency, the U.S. Department of Justice.
GlaxoSmithKline has not admitted nor denied these bribery charges, but has agreed to pay $20 million to settle the matter. Nonetheless, this is not GlaxoSmithKline’s first bribery settlement. In 2014, the company paid $491.5 million and several managers were convicted with charges and suspended imprisonment for a similar matter. Since the 2014 bribery controversy, GlaxoSmithKline stated it “installed several reforms, including shifts to the compensation of sales representatives and the end of payments to health-care practitioners for advocating for Glaxo products to other prescribers.” (Minaya)
My opinion on the matter is that GlaxoSmithKline was rightfully accused by the SEC and DOJ, specifically for violating the Foreign Corrupt Practices Act. The Act has a firm anti-bribery provision that GlaxoSmithKline and its Chinese subsidiary had a legal and ethical responsibility to follow. The fact that GlaxoSmithKline and its subsidiary’s records were not a true representation of its payments is a clear piece of evidence suspecting its violation. In addition, having read the SEC order and learned that GlaxoSmithKline had engaged in this activity before, I believe that the company and the subsidiary did participate in bribery.
Melissa is a marketing major with dual minors in public relations and legal studies at the Stillman School of Business, Seton Hall University, Class of 2019.
Posted by Lindsey Pena.
In business, ethics are strong guiding principles that aid managers, employees, and investors to correctly conduct business transactions. When ethical matters are disregarded, the end result is fraud, embezzlement, among many other illegal actions. One of these illegal actions is called a Ponzi scheme. Perhaps the most famous Ponzi scheme was devised by Bernie Madoff, a well-respected financier, who conned investors out of an estimated $65 billion. Madoff was caught in December of 2008 and charged with 11 counts of fraud, perjury, theft, and money laundering. He ultimately faced 150 years in prison as a result of his decades long Ponzi scheme.
Because of the magnitude of this Ponzi scheme, eight years later, the consequences are still being addressed. Recently, the estate of Stanley Chais, one of Bernie Madoff’s friends, agreed to pay the victims of Madoff’s Ponzi scheme $277 million to settle claims that insisted Chais profited from the scheme. Irving Picard, a trustee liquidating Madoff’s firm, has recovered more than $11.2 billion for the investors who were conned. They achieved this my suing the banks and offshore accounts that hid the money in addition to investors who profited from the fraud. In the 2009 lawsuit against Chais and his wife, Picard claimed that they “reaped about $1 billion in profit from fake securities transactions at Madoff’s firm.” Chais also reaped rewards through fees that he would earn when he gave his customer’s money to Madoff’s firm. In addition to this, Chais was also sued by the SEC in 2009 because he “steered assets from three investment funds to Madoff, “despite having clear indications Madoff was engaged in fraud.”
Chais, along with five of Madoff’s employees, were not the only ones who received consequences. Thousands of innocent investors trusted Bernie’s reputable, veteran background hoping to make profit from their investments. While reading this article, I could not help but to think about the Kantian ethics which states that a person should evaluate their actions by the consequences if everyone in society acted the same way. Bernie Madoff made the exception for himself when he decided to execute the treacherous plan and the consequences of his actions will cost him the rest of his life.
Lindsey is an accounting major at the Feliciano School of Business, Montclair State University, Class of 2019.
Posted by Radhika Kapadia.
The real cost of bribery is a question that often lacks a definitive answer. It seems that Och-Ziff Capital Management, a hedge fund headquartered in New York City, is learning a hard lesson for allegedly engaging in bribery in Africa. The firm is set to pay a hefty price of $412 million dollars, but the SEC has added the implicit cost of hindering fundraising by insisting that the firm clear any potential deals with investors with state regulators, adding considerably lengthy minutes and cumbersome dollars to the fundraising process.
Because of the massive bribery allegations, the firm was unable to obtain a waiver for the penalties corporations subject to civil law enforcement sanctions or criminal charges, such as bribery, typically face. As a result, the company will be faced with the tremendous cost of an increased fundraising process and the more-than-ever watchful eye of the SEC over future investment transactions. In the burgeoning era of bribery cases, the question of whether dollar penalties are truly enough to deter corporations from engaging in illegal acts is often difficult to assess. However, the SEC is beginning to believe that financial consequences, coupled with other implicit penalization costs will truly begin to reduce bribery within the corporate world.
The allegations against Och-Ziff are primarily as a result of their dealings with Dan Gertler, an Israeli diamond-trade millionaire. According to the Wall Street Journal, Gertler was known to use political connections in Africa to defeat competitors. The Wall Street Journal noted that approximately “$250 million of Och-Ziff dollars were used to bribe the current president of the Democratic Republic of Congo in exchange for diamond mining rights.” Despite blatant warnings and advisement from their lawyers, Och-Ziff executives, such as chief executive Daniel Och, chose to deliberately ignore corruption allegations against Gertler. Subsequently, the African subsidiary of Och-Ziff pleaded guilty to conspiracy to commit bribery, resulting in one of the largest settlements under the Foreign Corrupt Practices Act. It seems that Och-Ziff is slowly learning that the true cost of bribery is pervasive, and that ignorance truly is not bliss.
Radhika is a graduate student with a concentration in Forensic Accounting at the Feliciano School of Business, Montclair State University, Class of 2017.
Posted by Gabriella Campen.
Unfortunately, in this day and age being well-known in Wall Street circles also happens to be synonymous with being well known by the SEC. The SEC has recently charged hedge fund manager Leon Cooperman, 73, of insider trading by using his easy access to executives to gather information, which he used to buy securities from a company called Atlas Pipeline Partners. Cooperman’s information led him to buy more securities in the firm, right before the stock’s value soared over 30% due to the company’s $682 million dollar sale of a natural gas processing facility.
After the suspicious buy, the SEC filed a federal lawsuit in Philadelphia, and accused Cooperman of abusing his access to executive information, “By doing so, he allegedly undermined the public confidence in the securities markets and took advantage of other investors who did not have this information,” said SEC Enforcement director Andrew Ceresney. Along with barring Cooperman from any positions as a director or officer in the future, the SEC is seeking restitution of profits as well as money penalties from Cooperman and his firm, Omega Advisors.
However, Cooperman’s attorneys, Ted Wells and Dan Kramer have released a statement claiming that these allegations are “entirely baseless” and that “Mr. Cooperman acted appropriately at all times and did nothing wrong. We intend to vigorously defend against the charges and will not allow the SEC to tarnish the legacy Mr. Cooperman has built over the course of a legendary career spanning five decades.” Cooperman is firing back and defending his career and reputation, to which the SEC is saying that they “will continue to pursue relentlessly those who engage in insider trading, regardless of their status or resources.” This comes as a lesson that no matter who you are or how much power you have on Wall Street, you are still not exempt from following the law.
Gabriella is a marketing and finance major at the Stillman School of Business, Seton Hall University, Class of 2018.
Posted by Justin Gandhi.
Cuban was originally accused of ditching a stock in 2004 called Mamma.com, a metasearch Internet company. He was accused of ditching this stock due to obtaining an inside tip on an upcoming offer that would have diluted his shares.
The SEC didn’t have much evidence on its side and claimed that Cuban ditched the stock in order to avoid $750,000 dollar losses. The SEC had to prove that Cuban received confidential, significant, nonpublic information which is the reason for him selling his stock. The SEC received this information through an eight-minute phone call recorded between Cuban and Mamma.com’s CEO.
During the phone call, the CEO stated he told Cuban confidentially that he was planning a stock offering called Private Investment in public equity. Cuban responded with, “Now I’m screwed. I can’t sell.” This was an indication the insider information and decided to sell anyway.
Cuban testified that there were many reasons he ditched the stock, and that he was never told to keep the information secret. In addition to that, the information wasn’t important in his decision and said the public had this information too, as shown in a website posting. This was basically one man’s word against the others.
Lastly, insider trading requires that a trader act on “material, nonpublic” information, meaning that this information must be significant as well. It wasn’t significant, as shown in a study by Dr. Erik Sirri, a former high-ranking official at the SEC.
Overall, if Cuban went to trial, he could have faced about a 2 million dollar fine, which was less than the amount he spent on lawyers to prove the SEC wrong.
Justin is a finance major at the Stillman School of Business, Seton Hall University, Class of 2017.
Posted by Giancarlo Barrera.
Goldman Sachs was infamously named “The Wolf of Wall Street.” Goldman created, convinced, and sold mortgage investments that had been designed to fail in the first place.corruption at its finest. It was corruption at its finest. Goldman even went as far as betting against the same derivatives it was promoting and selling to their own clientele. Goldman accepted that it misled investors the wrong way, but did not admit to any scheming or wrongdoing.
In July 2010, Goldman paid an enormous SEC fine of 550 milion dollars. It was one fine after another. Then in April 2012, Goldman paid a fine of 22 million dollars for allowing insider trading of non-public information to Goldman’s clients and traders since 2007. On the link, the story goes into further detail of how much fraud and dishonesty was played under the table and behind the backs of its own clients, who the company was supposed to help invest their money in the first place.
Business is business.
Giancarlo is an economics and finance major at Montclair State University, Class of 2016.