The COVID-19 economic shutdown is expected to lead to a surge in white-collar crimes, from the immediate problem of price-gouging personal protective equipment to insider trading on companies slammed by the crisis to accounting fraud, said a panel of experts convened last week by the University of Maryland.
“This crisis has the potential for affecting companies across the board,” said Bridget Rohde, the former Acting United States Attorney for the Eastern District of New York as well as Chief Assistant United States Attorney, Special Counsel and Chief of the Criminal Division.
“So much of the economy has been negatively affected, with businesses being basically shuttered and workers at home, and trying to eke out some portion of what they were doing but clearly not at full capacity.
“There’s going to be an awful lot of companies and a lot of different industries having trouble meeting their numbers.”
Some of the problems seen today are connected to price-gouging and hoarding of personal protective equipment (PPE), including masks, shields and gloves.
“If there’s a need for people to have personal protective equipment and there’s an opportunity for someone to acquire it and for them to make a buck on that, we see more crime in that area,” said Rohde.
On the other end of the spectrum, economic pressures could result in misconduct among businesses not given to ethical missteps in more stable and prosperous times, the panel was told.
“You’re going to see accounting fraud, you’re going to see insider trading, you’re going to see all sorts of misrepresentations,” said Rohde.
“Some people think it’s a one-time thing and after this crisis, we will go back to ethical behavior,” said Sally Simpson, a Distinguished University Professor of Criminology and Criminal Justice and Director of the Center for the Study of Business Ethics, Regulation, & Crime at the University of Maryland.
While some white-collar crime is carefully planned, others find themselves suddenly faced with a crisis and making the wrong decision, said Bruce Dubinsky, a prominent forensic accountant and Managing Director at Duff & Phelps.
“Sometimes you find very bright people, well-intentioned people, and all of a sudden they find themselves at the top of that ski slope and the skis are over the top of the hill and then they’re going down that hill and they don’t know how to stop,” said Dubinsky.
Dubinsky cited figures from the Financial Industry Regulatory Authority (FINRA) indicating a 200 percent increase of complaints filed about alleged market manipulation at the end of March.
FINRA is “very concerned about people having inside information about COVID-19 and the impact on the company, and how that would impact the financial health and stock price,” Dubinksy said.
Businesses are going to be under “extreme stress” when quarterly reports are due and earning projections can’t be met, the panelists agreed.
Dubinsky said: “Despite the market bounce back, seven months down the road, when earnings are released and companies can’t make their numbers, there are going to be issues.”
“At the corporate level, the pressure is going to increase dramatically to cook the books,” Dubinsky continued. “The wave is going to continue until first quarter and second-quarter 2021.”
How will these crimes be uncovered?
“It often begins with some sort of tip,” said Rohde. “It could be a whistleblower, it could be a witness to something, it could be an investor. But that tip and the nature of the information will lead to the type of investigative techniques used.”
Dubinsky said, “Whistleblowers are extremely helpful and extremely important to any investigation.”
According to Simpson, not enough hard data exists on white-collar crime. However, “when there are pressure, opportunity and rationalization, you’re going to have an increased likelihood of offending.”
The panel was hosted by the University of Maryland Alumni Association and moderated by Edward Lawrence, a reporter for Fox Business Network.
A videotaping of the session can be found here.