Monetary penalties charged by the judge are the largest explicit expense incurred by a defendant firms. The monetary compensation awarded to plaintiffs varies with the severity of the violation committed by the defendant firm and litigation time. Karpoff, Lee, and Martin (2008) examine firms targeted by the SEC between 1978 and 2002 and document that the average monetary fees equal $23.5 million. McTier and Wald (2011) document gross (net) settlements in securities class actions of $58.4 million ($103.5 million). Sometimes penalties assigned to the defendant firms include legal expenses suffered by the plaintiffs. For example, in a case of class actions, the cumulative compensation paid to the class members, includes legal fees, which usually …show more content…
Politicians can also use their connections to federal district courts and the judicial bodies to negotiate the final penalties charged to the firm. It might be possible to substitute non-monetary alternatives, such as changes to corporate policies, for expensive monetary fees. Additionally, politicians can use their oversight and investigative powers to question the fairness of the assigned penalties. Finally, politicians can assist the firm in showing the large negative impact of the penalties to the firm, its employees, and the public. Monetary penalties assigned by the court typically vary with the severity of the offense. Thus, to proper estimate the effect of political connections on the monetary penalties I control for the violation committed by a defendant firm.
Though explicit monetary expenses from litigation can be quite large, Karpoff, Lee, and Martin (2008) estimate the implicit reputational costs to be 7.5 times the explicit costs. They additionally calculate that reputational losses represent 88% of the total losses incurred by firms engaged in financial
…show more content…
As the news of the lawsuit spreads, the firm's investors assess the probability of an unfavorable verdict and potential damages from litigation. Such calculation often leads to investors exiting their positions and selling the firm's stocks. Information about corporate support for politicians is publicly available. Investors have access to the list of politicians supported by a firm and the amounts of their political donations . Since the overall view of political connections is that they create value for a firm’s shareholders , investors expect politicians to help the firm to defend against the lawsuit and achieve a more favorable verdict. The expectations from political connections leads to a less negative investor reaction to news of the litigation and ultimately less negative cumulative abnormal returns to lawsuit filing and verdict.
The firm's value loss and damage to the firm's reputation are larger, however, when the firm is found guilty by the court. The formal indictment of the defendant firm leads to more negative abnormal returns, increased risk to operations, larger transaction costs, and a reduced interest from investors. Hutton, Peterson, and Smith (2014) thoroughly examine the consequences of litigation to firms. They find that the reduction in sales, return on assets, and institutional ownership are all statistically significant when firms
Damages are a fundamental principle in the American legal system. However, a number of recent cases in the United States have sparked a debate on the issue, the most famous one being the “hot coffee lawsuit”1. In 1994, Stella Liebeck bought coffee at a McDonald’s restaurant, spilt it, and was severely burnt. She sued the McDonald’s company, received $160,000 in compensatory damages, and $2.9 million in punitive damages. A judge then reduced the punitive damages to $480,000. The final out-of-court settlement was of approximately $500,000. For many, this case is frivolous (meaning that the plaintiff’s prospects of being successful were low or inexistent), but it really highlights the question of excessive punitive damages compared to the damage suffered and its causes.
After the time of financial crisis, JP Morgan was not the only national bank in US which got involved in trade of toxic loans related to mortgage. Before JP Morgan, it was Goldman Sachs-another large US Bank that faced the allegation of manipulating the trades in its own self interes, ended up in favor of SEC while GoldMan Sachs were asked to pay $500 Million during late 2011 in a deal called Abascus 2007-AC1 where the bank were alleged to mislead its investors on a deal related to Collateral Debt Obligation(CDO). (Eaglesham, 2011) The ab...
Pitzer, Matt. "The Case Against Goldman Sachs." Last modified 04/21/2010. Accessed October 5, 2011. http://www.business.missouri.edu/ifmprogram/reports/2010WS/GS.doc
Campaign finance reform has a broad history in America. In particular, campaign finance has developed extensively in the past forty years, as the courts have attempted to create federal elections that best sustain the ideals of a representative democracy. In the most recent Supreme Court decision concerning campaign finance, Citizens United v. Federal Election Commission, the Court essentially decided to treat corporations like individuals by allowing corporations to spend money on federal elections through unlimited independent expenditures. In order to understand how the Supreme Court justified this decision, however, the history of campaign finance in regards to individuals must be examined. At the crux of these campaign finance laws is the balancing of two democratic ideals: the ability of individuals to exercise their right to free speech, and the avoidance of corrupt practices by contributors and candidates. An examination of these ideals, as well as the effectiveness of the current campaign finance system in upholding these ideas, will provide a basic framework for the decision of Citizens United v. FEC.
Political systems within the United States work together to establish laws and create boundaries for their people. Government officials work with the Senate in Congress to help establish regulations not only for the American people but also for corporations in order to not become monopolies in today’s market. This all corresponds to a legislative process in order for Congress to have a clear idea of passing effective laws that help reinforce results within our society. Members of Congress and political affiliations are impacted by representatives from large business corporations through the process of bribing these government officials into supporting the ideas and desires of these corporations. In order for this to occur, these companies engage in lobbying. Lobbying is the attempt to influence government officials in decision making processes or swaying the government by employing tactics through various agreements in the form of verbal or written statements to public officials in Congress. This usually occurs through donations of large amounts of money to members of Congress as a way of bribing them to support the representatives of these corporations. Therefore, corporations have widely influenced Congress, making it difficult to pass laws and bills that are not in favor of these corporations. Thus, lobbying is influenced by money and promotes the interests of these specific corporations.
Turner, Billy. 1986. “Race and Peremptory Challenges During Voir Dire: Do Prosecution and Defense Agree?” Journal of Criminal Justice 14: 61-69.
Many inequalities exist within the justice system that need to be brought to light and addressed. Statistics show that African American men are arrested more often than females and people of other races. There are some measures that can and need to be taken to reduce the racial disparity in the justice system.
In the articles written by Richard L. Abel and Peter W. Huber both have valid arguments with extremely different viewpoints on the litigation process. Peter W. Huber feels there is too much litigation in our country to where it cripples our society to become more successful. Huber feels there is less encouragement for citizens to take matters in their own hands and take responsibility for their actions. With a rather different perspective Richard L. Abel feels we have too little litigation rather than too much, he believes that manufacturers' products and services cause this and more litigation is actually needed. Abel feels that all injuries that happen to individuals should never go uncompensated. Whether you agree with Abel's theory or Huber's theory on the litigation process today, each makes perfect sense and also has statistics and scenarios to support their theory.
In order to analyze our “sue happy” society one must first find out, what actually is a lawsuit? A lawsuit is a legal action brought by a plaintiff, a person who claims to have been wronged, against a defendant, the person being sued. If a judge decides that a case has enough evidence to go to trial then the verdict may be decided by either a judge or a jury. Yet, 90 percent of cases reach a settlement out of court. (Cannell)
Despite the longstanding acceptance and promotion for the crime-fraud exception, it appears that the use of the exception to report fraud has been relatively scant and use of ethical rules to sanction lawyers is similarly rare. For those that may favor private regulation or the ability of the market to dictate its own terms it seems that the equilibrium reached was one without lawyers disclosing of their own accord. This could be just viewed as an information failure problem—even if the ability to report fraud up the ladder was technically already available, lack of knowledge may have prevented lawyers from reporting fraud when they otherwise would have done so.
This research essay discusses racial disparities in the sentencing policies and process, which is one of the major factors contributing to the current overrepresentation of minorities in the judicial system, further threatening the African American and Latino communities. This is also evident from the fact that Blacks are almost 7 times more likely to be incarcerated than are Whites (Kartz, 2000). The argument presented in the essay is that how the laws that have been established for sentencing tend to target the people of color more and therefore their chances of ending up on prison are higher than the whites. The essay further goes on to talk about the judges and the prosecutors who due to different factors, tend to make their decisions
The stock market is an enigma to the average individual, as they cannot fathom or predict what the stock market will do. Due to this lack of knowledge, investors typically rely on a knowledgeable individual who inspires the confidence that they can turn their investments into a profit. This trust allowed Jordan Belfort to convince individuals to buy inferior stocks with the belief that they were going to make a fortune, all while he became wealthy instead. Jordan Belfort, the self-titled “Wolf of Wall Street”, at the helm of Stratton Oakmont was investigated and subsequently indicted with twenty-two counts of securities fraud, stock manipulation, money laundering and obstruction of justice. He went to prison at the age of 36 for defrauding an estimated 100 million dollars from investors through his company (Belfort, 2009). Analyzing his history of offences, how individual and environmental factors influenced his decision-making, and why he desisted from crime following his prison sentence can be explained through rational choice theory.
CEO Kenneth Lay’s ambition for ENRON a company he had helped form went beyond the business of piping gas. Enron went to become the largest natural gas merchant in North America and the United Kingdom. But the reality is, this company business model never worked. This was a company that was so desperate to win Wall Street 's respect that it kept it stocks shares prices going up despite the losses it was incurring in order for executives to keep lining their own pockets. Over the course of this Case Assignment, I will identify the examples of financial reporting misconduct, I will explain the deontological as well as a utilitarian ethical perspective and lastly I will identify the stakeholders likely to be affected by that misconduct.
Some in the business world would argue that the recently intensified sentencing guidelines for white-collar crime provide sufficient punishment for the criminals involved. However, with the increase if the promi...
Compensation involves monetary awards and can be difficult to decide the proper amount of compensation to make the plaintiff whole. In some instance the compensatory damages may seem too far exceed the actual loss of the plaintiff. In addition to over compensation to the plaintiff, another concern is how lawyers are paid for their services. The perception is that lawyers make to much money compared to the plaintiff. Many people, politicians, and companies believe that tort system is defective and requires reform to bring the system more in line with the original intent of tort