Test Bank For White-Collar Crime: The
Essentials 2026 edition
Securities and Commodities fraud - answers Crimes that occur whenever investments
made by consumers are managed or influenced fraudulently
Securities - answers A financial instrument that represents an ownership position
--in a publicly traded corporation (stock)
--a creditor relationship with governmental body or a corporation (bond)
--rights to ownership as represented by an option
fungible, negotiable financial instrument, that represents some type of financial value
Derivatives - answers A security with a price that is dependent upon or derived from one
or more underlying assets
-a contract between two or more parties based upon the asset
-its value is determined by fluctuations in the underlying asset
-underlying assets usually include stocks, bonds, commodities, currencies, interest
rates and market indexes
Commodities - answers -raw materials
-tangible items, sold in bulk form
-little differentiation between it coming from one producer or another
...a barrel of oil is basically the same product, regardless of the producer
-examples include grains, gold, beef, oil, natural gas, foreign currencies and indexes
-technological advances have also led to this being applied to cell phone minutes and
bandwidth
Exchange of commodities - answers -usually occurs through futures contracts on
exchanges that standardize the quantity of the thing being traded
-ex: the Chicago Board of Trade stipulates that one wheat contract is for 5,000 bushels
and also states what grades of wheat can be used to satisfy the contract
Fiduciary - answers -involves faith and confidence and is generally established only if
the confidence given by one person is actually accepted by the other
-mere respect for an individual's judgement or general trust is ordinarily insufficient for
this type of relationship
-duties involve loyalty and reasonable care of client's assets
-all of their actions must be performed for the advantage of the beneficiary not
themselves
Relationships normally regarded as fiduciary - answers ...Courts have neither defined
the particular circumstances of these relationships nor set an limitations on
,circumstances from which such an alliance may arise, but certain relationships are
universally regarded as such including:
1. Legal relationships such as those between attorney and client, trustee, and
beneficiary, and executors or administrators and the heirs of a decedent's estate
2. Financial relationships like broker and investor
3. Other relationships involving trust and dependence like principals and agents in
employment and other contexts
Court examination of fiduciary relationships - answers -examine transactions between
people involved in fiduciary relationships toward one another
-particularly scrutiny is placed upon any transaction by which a dominant individual
obtains any advantage or profit at the expense of the party under his or her influence
-all transactions predicated on undue influence of the fiduciary are void
Market Manipulation - answers -executives or other officials intentionally behave so as
to artificially inflate trading volume and subsequently affect the price of the security of
commodity
Ways to manipulate the market - answers -spread false information that pumps up the
value of the stock and then the responsible officials dump their stock on the market at
the inflated price (pump and dump)
...spread false rumors of an imminent merger with a stronger competitor
... especially pervasive in the energy industry
Energy Independence and Security Act - answers Gives the FTC authority to treat
market manipulation by petroleum companies as fake and deceptive business practice
and to fine them for the behavior
How was Enron started? - answers -in 1985, after federal deregulation of natural gas
pipelines, Houston Natural Gas and InterNorth, a Nebraska pipeline company, merged
creating Enron
-In process of merger, Enron incurred massive debt and, as the result of deregulation,
no longer had exclusive rights to the pipelines
-Enron looking for innovative ways to generate profits and cash flow
Enron Solution - answers -CEO lay turned to a consulting firm McKinsey & Co who
assigned Jeff Skilling to the project
-Skilling came up with the gas bank
...Enron would buy gas from a network of suppliers and sell it to a network of
consumers, contractually guaranteeing both the supply and the price, charging fees for
the transaction and assuming the associated risks (the energy derivatives was born)
Gas bank - answers -Enron would buy gas from a network of suppliers and sell it to a
network of consumers, contractually guaranteeing both the supply and the price,
charging fees for the transactions and assuming the associated risks (the energy
derivative was born)
,Enron Finance Corp - answers Lay was so impressed with Skilling he created a new
division and hired Skilling to run it
Enron's Business - answers -Under Skilling's leadership, Enron Finance Corp. soon
dominated the market for natural gas contracts, with more contracts, more access to
supplies and more customers than any of its competitors
-With its market power, Enron could predict future prices with greater accuracy, thereby
guaranteeing superior profits
-Enron became a very profitable "trading business" but not so much a gas company
-Fastow was an early hire of Skillings and was CFO by 1998 - an MBA with complex
transactional experience, his job was to keep Enron financed
-Lay and Skilling became hooked on this business model and tried to apply it to
electricity in the wake of deregulation and and made forays into ever more exotic futures
in coal, paper, steel, water and even weather
-Launched Enron Online, and electronic commodities trading web site in 1990
-When they tried to make the move to broadband (internet) with an ambitions plant to
build a high-speed broadband telecommunications network and to trade network
capacity (spent big, revenue didn't materialize)... Blockbuster deal
-Also a number of disastrous international deals for power and water (India)
Enron was in financial trouble - answers -Think about Cressy's unshareable financial
problem but on an organization scale
-This was the impetus for much of the unethical and illegal
Enron's culture - answers -Culture of youth over experience, best and the brightest
-winners and losers mentality, ends justify the means
-Performance Review committee and forced rankings 1-5, with bottom 15-20% getting
fired
-obsession with hitting quarterly numbers
...sell hard assets for paper profits NOW
...Rewarded "doing deals" immediately without regard for long range considerations,
risk management tended to be ignored
Unethical and Illegal accounting practices - answers -exploited mark to mark accounting
to book profits on speculative future earnings
-exploited fair value accounting to inflate the value of assets
-Hid losses through various special purpose entities (SPEs) and did related party deals
(Fastow)
...LJMs let Enron disguise losses while grossly enriched Fastow and friends
...Raptors used to hedge broadband losses
...When the Joint Energy Development Investment Limited, known by its acronym JEDI
started to tank Chewco was created to keep losses off Enron's balance sheet
Mark to mark accounting - answers -exploited by Enron
-booked profits on speculative future earnings when the deal was signed
, Effect of Enron's illegal accounting practices - answers -Created a false impression of
Enron as a financially profitable business duping both analysts and investors
Andrew Fastow, Enron's CFO - answers -many experts believe it was his financial
shenanigans which caused Enron's collapse
-some experts put the losses from Enron collapse at about $89 billion
-The Enron collapse didn't just hurt Enron investors, it also deprived thousands of
employees of their retirement funds, led to the demise of Arthur Anderson (a Big Five
accounting firm), and contributed significantly to a more generalized financial downturn
-as part of his plea, he agreed to testify against Skilling and Lay (Who to that point had
not been charged)
-him and his wife forfeited about $25 million in cash and property to the government
-he was sentenced to six years in prison, four years less than his plea agreement... he
actually served more than 5 but less than 6 years
Lea Fastow - answers -worked for Enron as the assistant treasurer
...originally charged with 6 counts of conspiracy, filing a false tax return and money
laundering.
-shortly after her husband entered his plea, she pled guilty to a single count of filing a
false tax form for helping her husband hide ill gotten income and received a 12 month
sentence. Their deal was a package deal
Who identified the four components of whistleblowing - answers Roberta Ann Johnson
four components of whistleblowing - answers 1. individual acts with the intention of
making the information public
2. information is revealed to parties outside the organization and becomes a matter of
public record
3. divulges possible or serious wrongdoing
4. Individual is a member or former member of the organization (insider)
...Federal laws protect whistle blowers who reasonably believe they are disclosing
evidence of illegality, fraud or abuse, or endangerment of public health or safety from
adverse job actions through enforcement has been spotty
Sherron Watkins and whistleblowing - answers -Sent an initially anonymous letter to lay
which laid out concerns with Enron's aggressive use of SPEs and related party deals
-later met with Lay and he said he'd do an internal audit
-never went public, memo was discovered and released as part of congressional
hearing process
Broker Fraud - answers -occurs when a stockbroker fails to meet their fiduciary
obligations to investors
-omitting, concealing or misrepresenting material information about a proposed
investment
-violates fiduciary duty
Essentials 2026 edition
Securities and Commodities fraud - answers Crimes that occur whenever investments
made by consumers are managed or influenced fraudulently
Securities - answers A financial instrument that represents an ownership position
--in a publicly traded corporation (stock)
--a creditor relationship with governmental body or a corporation (bond)
--rights to ownership as represented by an option
fungible, negotiable financial instrument, that represents some type of financial value
Derivatives - answers A security with a price that is dependent upon or derived from one
or more underlying assets
-a contract between two or more parties based upon the asset
-its value is determined by fluctuations in the underlying asset
-underlying assets usually include stocks, bonds, commodities, currencies, interest
rates and market indexes
Commodities - answers -raw materials
-tangible items, sold in bulk form
-little differentiation between it coming from one producer or another
...a barrel of oil is basically the same product, regardless of the producer
-examples include grains, gold, beef, oil, natural gas, foreign currencies and indexes
-technological advances have also led to this being applied to cell phone minutes and
bandwidth
Exchange of commodities - answers -usually occurs through futures contracts on
exchanges that standardize the quantity of the thing being traded
-ex: the Chicago Board of Trade stipulates that one wheat contract is for 5,000 bushels
and also states what grades of wheat can be used to satisfy the contract
Fiduciary - answers -involves faith and confidence and is generally established only if
the confidence given by one person is actually accepted by the other
-mere respect for an individual's judgement or general trust is ordinarily insufficient for
this type of relationship
-duties involve loyalty and reasonable care of client's assets
-all of their actions must be performed for the advantage of the beneficiary not
themselves
Relationships normally regarded as fiduciary - answers ...Courts have neither defined
the particular circumstances of these relationships nor set an limitations on
,circumstances from which such an alliance may arise, but certain relationships are
universally regarded as such including:
1. Legal relationships such as those between attorney and client, trustee, and
beneficiary, and executors or administrators and the heirs of a decedent's estate
2. Financial relationships like broker and investor
3. Other relationships involving trust and dependence like principals and agents in
employment and other contexts
Court examination of fiduciary relationships - answers -examine transactions between
people involved in fiduciary relationships toward one another
-particularly scrutiny is placed upon any transaction by which a dominant individual
obtains any advantage or profit at the expense of the party under his or her influence
-all transactions predicated on undue influence of the fiduciary are void
Market Manipulation - answers -executives or other officials intentionally behave so as
to artificially inflate trading volume and subsequently affect the price of the security of
commodity
Ways to manipulate the market - answers -spread false information that pumps up the
value of the stock and then the responsible officials dump their stock on the market at
the inflated price (pump and dump)
...spread false rumors of an imminent merger with a stronger competitor
... especially pervasive in the energy industry
Energy Independence and Security Act - answers Gives the FTC authority to treat
market manipulation by petroleum companies as fake and deceptive business practice
and to fine them for the behavior
How was Enron started? - answers -in 1985, after federal deregulation of natural gas
pipelines, Houston Natural Gas and InterNorth, a Nebraska pipeline company, merged
creating Enron
-In process of merger, Enron incurred massive debt and, as the result of deregulation,
no longer had exclusive rights to the pipelines
-Enron looking for innovative ways to generate profits and cash flow
Enron Solution - answers -CEO lay turned to a consulting firm McKinsey & Co who
assigned Jeff Skilling to the project
-Skilling came up with the gas bank
...Enron would buy gas from a network of suppliers and sell it to a network of
consumers, contractually guaranteeing both the supply and the price, charging fees for
the transaction and assuming the associated risks (the energy derivatives was born)
Gas bank - answers -Enron would buy gas from a network of suppliers and sell it to a
network of consumers, contractually guaranteeing both the supply and the price,
charging fees for the transactions and assuming the associated risks (the energy
derivative was born)
,Enron Finance Corp - answers Lay was so impressed with Skilling he created a new
division and hired Skilling to run it
Enron's Business - answers -Under Skilling's leadership, Enron Finance Corp. soon
dominated the market for natural gas contracts, with more contracts, more access to
supplies and more customers than any of its competitors
-With its market power, Enron could predict future prices with greater accuracy, thereby
guaranteeing superior profits
-Enron became a very profitable "trading business" but not so much a gas company
-Fastow was an early hire of Skillings and was CFO by 1998 - an MBA with complex
transactional experience, his job was to keep Enron financed
-Lay and Skilling became hooked on this business model and tried to apply it to
electricity in the wake of deregulation and and made forays into ever more exotic futures
in coal, paper, steel, water and even weather
-Launched Enron Online, and electronic commodities trading web site in 1990
-When they tried to make the move to broadband (internet) with an ambitions plant to
build a high-speed broadband telecommunications network and to trade network
capacity (spent big, revenue didn't materialize)... Blockbuster deal
-Also a number of disastrous international deals for power and water (India)
Enron was in financial trouble - answers -Think about Cressy's unshareable financial
problem but on an organization scale
-This was the impetus for much of the unethical and illegal
Enron's culture - answers -Culture of youth over experience, best and the brightest
-winners and losers mentality, ends justify the means
-Performance Review committee and forced rankings 1-5, with bottom 15-20% getting
fired
-obsession with hitting quarterly numbers
...sell hard assets for paper profits NOW
...Rewarded "doing deals" immediately without regard for long range considerations,
risk management tended to be ignored
Unethical and Illegal accounting practices - answers -exploited mark to mark accounting
to book profits on speculative future earnings
-exploited fair value accounting to inflate the value of assets
-Hid losses through various special purpose entities (SPEs) and did related party deals
(Fastow)
...LJMs let Enron disguise losses while grossly enriched Fastow and friends
...Raptors used to hedge broadband losses
...When the Joint Energy Development Investment Limited, known by its acronym JEDI
started to tank Chewco was created to keep losses off Enron's balance sheet
Mark to mark accounting - answers -exploited by Enron
-booked profits on speculative future earnings when the deal was signed
, Effect of Enron's illegal accounting practices - answers -Created a false impression of
Enron as a financially profitable business duping both analysts and investors
Andrew Fastow, Enron's CFO - answers -many experts believe it was his financial
shenanigans which caused Enron's collapse
-some experts put the losses from Enron collapse at about $89 billion
-The Enron collapse didn't just hurt Enron investors, it also deprived thousands of
employees of their retirement funds, led to the demise of Arthur Anderson (a Big Five
accounting firm), and contributed significantly to a more generalized financial downturn
-as part of his plea, he agreed to testify against Skilling and Lay (Who to that point had
not been charged)
-him and his wife forfeited about $25 million in cash and property to the government
-he was sentenced to six years in prison, four years less than his plea agreement... he
actually served more than 5 but less than 6 years
Lea Fastow - answers -worked for Enron as the assistant treasurer
...originally charged with 6 counts of conspiracy, filing a false tax return and money
laundering.
-shortly after her husband entered his plea, she pled guilty to a single count of filing a
false tax form for helping her husband hide ill gotten income and received a 12 month
sentence. Their deal was a package deal
Who identified the four components of whistleblowing - answers Roberta Ann Johnson
four components of whistleblowing - answers 1. individual acts with the intention of
making the information public
2. information is revealed to parties outside the organization and becomes a matter of
public record
3. divulges possible or serious wrongdoing
4. Individual is a member or former member of the organization (insider)
...Federal laws protect whistle blowers who reasonably believe they are disclosing
evidence of illegality, fraud or abuse, or endangerment of public health or safety from
adverse job actions through enforcement has been spotty
Sherron Watkins and whistleblowing - answers -Sent an initially anonymous letter to lay
which laid out concerns with Enron's aggressive use of SPEs and related party deals
-later met with Lay and he said he'd do an internal audit
-never went public, memo was discovered and released as part of congressional
hearing process
Broker Fraud - answers -occurs when a stockbroker fails to meet their fiduciary
obligations to investors
-omitting, concealing or misrepresenting material information about a proposed
investment
-violates fiduciary duty
