LEGL Exam 3

Enron documnetary review

Core Subject

• The Rise and Fall: The film details the dramatic growth and rapid 2001 collapse of the Enron Corporation, turning from one of the world's largest energy companies into bankruptcy in a matter of weeks.

• Key Figures: It highlights executives like Ken Lay, Jeff Skilling, Andy Fastow, and Lou Pai, who used deceptive accounting practices to hide billions in debt and inflate stock prices while cashing out millions.

• Mark-to-Market Accounting: Enron used a fraudulent accounting method to record projected future profits on paper as actual current income.

• The California Electricity Crisis: The documentary exposes how Enron traders deliberately manipulated the Western power grid, manufacturing rolling blackouts and gouging prices.

• Human Cost: The scandal wiped out 20,000 jobs, destroyed employee 401(k) retirement savings, and led to multiple criminal convictions and suicides.

Enron follow up

Results of trials of Ken Lay, Jeff Skilling, and Andrew Fastow -

Jeffrey Skilling (Former CEO)

• Trial & Verdict (May 2006): A Houston federal jury convicted Skilling on 19 counts (including securities fraud, conspiracy, insider trading, and lying to auditors), while acquitting him on 9 insider-trading counts.

• Sentence & Resentencing: Initially sentenced to 24 years and 4 months in prison, his sentence was later reduced on appeal to 14 years in June 2013. He was released from federal custody in February 2019.

Kenneth Lay (Founder and Former Chairman)

• Trial & Verdict (May/June 2006): A jury convicted Lay on 6 counts of conspiracy and fraud in May 2006, followed by a bench trial conviction on 4 additional counts of bank fraud and false statements in a separate ruling.

• Outcome: Before he could be sentenced, Lay died of a heart attack on July 5, 2006. Under federal law, because he died while his direct appeal was pending, a judge officially vacated his convictions.

Andrew Fastow (Former CFO)

• Plea Deal & Testimony: Rather than facing a full trial alongside Lay and Skilling, Fastow entered into a plea agreement with federal prosecutors in January 2004, pleading guilty to wire and securities fraud and agreeing to serve as the prosecution's star witness.

• Sentence & Release: He was sentenced to 6 years in federal prison and was released in December 2011 after cooperating extensively against Enron's top leadership.

Mark-to-market accounting

is a valuation method that records the value of assets and liabilities based on their current market price instead of their original historical cost.

Arthur Andersen

Consultancy branch remains in operation as Accenture

Sarbanes-Oxley Act of 2002

Created in response to the Enron and WorldCom scandal

Increases criminal sanctions

Expands the SEC

Makes CEOs more accountable

Whistleblower protection under SOX

Sarbanes-Oxley provides protections for whistleblowers (report misconduct internally to a supervisor, human resources, or a compliance department)

Encourages individuals to report the corruption.

Civil damages

General Criminal Law Ideas

Crimes = wrongs against society

Criminal laws vary by state

Criminal codes - a comprehensive written collection of laws that defines criminal offenses, establishes the legal requirements for guilt, and specifies the punishments or penalties a court can impose

White-collar crime

occurs in a business or professional setting; Committed to harm the business or for personal gain

Examples of White-Collar Crimes

Classification of Crime

Felony - Indictment by a Grand Jury - Fine; Prison and/or Probation 1 year or more

Misdemeanor - Information or Accusation - Fine; Jail and/or probation 12 months or less

How it starts

Arrest on the scene - followed by warrant - followed by indictment /information/ accusation

or

Warrant for arrest -followed by arrest - followed by by indictment /information/ accusation

or

Indictment / accusation -followed by arrest

or

Citation (ticket)

District Attorney

prosecutes felonies and misdemeanors (assistants are ADAs)

US Attorney General

federal level (assistants are AUSA)

Solicitor

In some states - prosecutes misdemeanors, traffic violations

Grand jury - 5th Amendment

requires that any person accused of a capital or "infamous" crime (federal felonies carrying a penalty of more than one year in prison) must be charged by a Grand Jury Clause Doctrine and Practice indictment before trial

Elements

Crimes have elements

All elements must be proven beyond a reasonable doubt to convict someone of a crime

mens rea = guilty mind

actus reus = guilty act

Intent

Specific intent: Willfully or Knowingly (Someone intentionally wants to shoot someone)

Reckless or negligent (criminal, not tort!) (Someone waves their gun around and ACCIDENTALLY shoots someone)

More about criminal trials in United States

Defendant has NO burden of proof; they are presumed innocent unless proven guilty beyond a reasonable doubt

Does not have to prove or disprove any of these elements

Burden of proof is on the prosecutor (state or United States)

Pleas in Criminal Cases

Guilty

Not Guilty

Nolo Contendere (“no contest”) - criminal defense plea where the defendant accepts the conviction and punishment without explicitly admitting guilt

Alford - a special type of guilty plea in a criminal case where the defendant maintains their innocence but accepts the conviction and punishment because they acknowledge the prosecution has enough evidence to convince a judge or jury to find them guilty beyond a reasonable doubt

Charges on state level and fed level

Being charged with state and fed crimes for same set of circumstances does NOT violate double jeopardy because of Federalism

example: Luigi Mangione

(Note that State law can give stronger protections)

Some Specific Types of Business Crimes - Fraud

Fraud is intentional deception aimed at obtaining financial gain unlawfully.

Prosecutors must establish a scheme to defraud

Intent element = Willfully or Knowingly

Ponzi Schemes - a type of business fraud

A fake investment where new people’s money is used to pay earlier people, instead of the organizer earning real profits.

They don’t actually invest the money

They just take money from the next person who joins and use it to pay you

Then they take money from the next person, and so on

Mail and Wire Fraud

Unlawful to willfully or knowingly use the U.S. Postal Service or electronic means of interstate communication to defraud a person/a business.

Embezzlement

the illegal misappropriation or theft of funds entrusted to someone.

kind of like theft but they get the money legally

● trusted relationship (like employer-employee).

● access to the funds

● used the funds for personal gain.

● intentional

Money laundering

disguising the origins of money to make it appear legitimate or from another source

Conspiracy

Agreement or a partnership for criminal purposes.

Each member becomes the agent or partner of every other member.

They are all charged as co-defendants.

Overt act - is an open, observable, and external action taken by a person that moves beyond mere thought, planning, or intention toward committing a crime.

Withdrawing

Aiding and Abetting

Person acting under the direction of someone accused of criminal activities can be held responsible. (diff. from conspiracy)

Obstruction of Justice

Commission of an act (or a statement) with the intent to obstruct the legal process

Obstruction of justice example case :

United States v. Martha Stewart

In United States v. Martha Stewart (2004), media mogul Martha Stewart was convicted of obstruction of an agency proceeding, making false statements, and conspiracy after lying to federal investigators about why she sold ImClone Systems stock. She was sentenced to five months in prison

Preventive Measures

Compliance Team(s)

Internal Controls and Monitoring

Employee Training

3 brances of government - Administrative Agencies

Judicial - Interprets law

Legislative - Create law

Executive - Enforce law

Regulatory Process - Administrative Agencies

Organizations that make up the governmental bureaucracy.

The types of authority :

• Quasi-legislative - an action, power, or function where an unelected administrative agency, board, or commission creates rules, regulations, or standards that have the force and effect of law, even though the entity itself is not a traditional legislative body like Congress or a state legislature

• Quasi-judicial - "court-like". It refers to actions or bodies—such as administrative agencies, boards, or commissions—that hold hearings, weigh evidence, apply existing rules or laws to specific parties, and issue binding decisions, much like a traditional court

Why are they created?

Upton Sinclair - The Jungle

Upton Sinclair’s 1906 novel The Jungle forced federal intervention in the American food industry. Though Sinclair wrote the book to expose the harsh exploitation of immigrant workers and promote socialism, public horror over contaminated meat prompted President Theodore Roosevelt and Congress to pass the Federal Meat Inspection Act and the Pure Food and Drug Act of 1906, eventually leading to the creation of the Food and Drug Administration (FDA)

Reasons for Agencies (in an ideal world!)

To provide:

• Specificity - They draft detailed rules and regulations to fill in the broad, general language of statutes that Congress cannot cover in minute detail.

• Expertise - They employ specialized professionals and technical experts to manage, study, and solve complex industry or social problems.

• Protection - They safeguard the public and consumers from unfair, deceptive, or dangerous business practices.

• Regulation - They oversee and control specific economic sectors, natural monopolies, and market behaviors to ensure legal compliance.

• Services - They deliver direct operational benefits to the public, such as issuing licenses, permits, and social welfare programs

Functions of Agencies

Rule making - The process of creating, amending, or repealing binding regulations and guidelines to implement statutory laws passed by Congress or state legislatures

Adjudicating - The trial-like or hearing procedure used to resolve disputes, enforce regulations, and determine whether a business or individual violated the law

Advising - Providing guidance, evaluations, and policy recommendations to elected officials or the public

Investigating - Gathering facts, monitoring compliance, and auditing regulated entities to uncover potential violations of the law

A little more about the advising function of agencies

Advisory opinions! - a court's nonbinding interpretation of the law that provides guidance on a legal question without resolving an actual case or controversy between opposing parties

A little more about the investigating function of agencies

Subpoenas! - a formal, legally binding written order issued by a court, government agency, or authorized party that compels an individual to provide testimony or produce physical or electronic evidence under penalty of law.

Order of authority/ hierarchy:

1. US constitution

2. Federal statutes

3. Agency rules

Does the President control these agencies?

1.Independent = an administrative agency that is governed by a board of commissioners, appointed by the president.

1.Or executive = the agency serves at the pleasure of the president

Yes, the president controls standard executive branch agencies, but the level of control over "independent agencies" is a subject of ongoing legal debate and court battles

Organization of Agencies

• Agencies, Boards, or Commissions consist of five to seven members.

• One member is appointed as chairperson

Quasi-judicial

• Administrative law judges: Hear cases of alleged admin law violations and apply the law to the facts.

• Perform the adjudicative fact-finding functions.

Procedure with the Administrative Law Judges

Starts with a complaint. No jury.

If the Judge finds violations of the law, the agency may issue cease and desist orders

often end up with a Consent order

Courts determine if there is substantial evidence to support the action taken by the agency.

Influencing Agency Decisions

• Agencies give public notice of proposed rules and hold public hearings

• Federal Register - the official daily journal of the United States federal government. It publishes updates on government agency rules, proposed regulations, public notices, executive orders, and presidential proclamations

• Interested parties present evidence in support or opposition to the regulation.

Role of CCO in a company

Chief Compliance Officer (CCO) ensures that the organization's operations comply with the agency's regulations and standards

• The volume of rules adopted by agencies is a lot for the business community to follow!

• Regulation can be a form of taxation

Pros and Cons to the agencies existing, Cost to Businesses, Cost to the Public

Pros:

● Specificity

● Expertise

● Protection

● Regulation

● Services

Cons:

● High cost of paperwork, staff, etc. to comply with regulations

● High cost to taxpayers

● Slows down business

● Inhibits innovation and competition

What is IP?

IP = creations of the mind

IP Law = Mechanisms to enforce right to exclude; Creates the ability to “control” and profit from an intangible

4 types: Trade Secrets, Trademarks, Copyrights, Patents

Trade Secrets - Confidential, non-public business information that provides a competitive economic advantage and is actively kept secret using reasonable security measures (like non-disclosure agreements).

Trademarks - Distinctive signs, words, symbols, logos, slogans, or even sounds and colors that identify and distinguish the source of goods or services in commerce.

Copyrights - Original works of authorship and creative expression (not underlying ideas).

Patents - New, useful, and non-obvious inventions, functional processes, or technical solutions (such as machines, software algorithms, or chemical formulas).

What is a violation of IP law?

In short, profiting off someone else’s IP without their permission

Causes consumer confusion over products

Legal Consequences for IP Law Violation

Civil:

● injunctions - is a formal court order that commands a person, business, or organization to either stop doing a specific action or perform a required act. (type of specific performance),

● money damages (compensatory, maybe punitive)

Criminal:

● Federal crime:

○ Pirating, counterfeiting

Prevention Strategies

● NDAs

● digital security measures

● Employee training

● legal audits to ensure compliance

Pros and cons to protecting IP

Pros-

● Encourage research and development funding

● Encourage invention

● Protects investments

Cons-

● High cost and complexity of law

● Restricts access to knowledge or life-saving inventions

● Could drive up consumer prices

Failure to follow the IP registration rules may mean

information that could have been captured is instead dedicated to the public domain, meaning that anyone can use it.

Trade Secrets

Confidential business information that provides a competitive edge, such as formulas, practices, or processes. Must have economic value.

Term - Lasts forever as long as it remains secret

Uniform Trade Secrets Act

Steps to Protect a Trade Secret

1. Identify the valuable knowledge

2. Keep it secret

3. Take reasonable measures for it to stay secret (like the prevention strategies covered

before)

To Preserve Secrecy:

•Lock written material.

•Secure computer-stored knowledge with firewalls and encryption.

•Impose confidentiality restrictions.

•Regulate visitors.

•Ask employees, customers, and business partners to sign nondisclosure agreements.

Steps to bringing a lawsuit for violating a trade secret

1. Information must actually be secret

2. Business had to have taken reasonable steps to keep it secret

3. Misappropriation of the trade secret

Misappropriation

Happens via a crime (theft, hacking, etc)

Or violating duty to keep secret (example: employee violating NDA)

Independent creation is not misappropriation; reverse engineering is not misappropriation

Example Case

•Al Minor & Associates, Inc. v. Martin, •881 N.E.2d 850 (Ohio, 2008).

Issue:

•AMA filed a lawsuit against Martin, claiming that he violated Ohio’s Trade Secrets Act by using confidential client information to solicit clients.

Court determined: client lists can be trade secrets; employee who memorized lists is still violating trade secret law

Employee creation of Trade Secret

• If Employee independently creates a TS unrelated to work and using own resources, Employee owns it

• If created at work, connected to job, or using Employer resources:

1. Belongs to Employer if:

(a)Express employment contract or

(b)Employee was “hired to invent”

Remedies for Trade Secret Violation

Trade secret owners can acquire injunction or receive money damages

Criminal - Economic Espionage Act (federal) - a federal law that criminalizes the theft or misappropiation of trade secrets and proprietary economic information

Patents

Exclusive rights granted for inventions, allowing the inventor to control how the invention is used.

Term- Last for 20 years from the date the application is filed in the Patent and Trademark Office

Do NOT require the owner to make and/or sell the product; patent is a right to exclude/control

Utility Patent

A property right awarded for a new and nonobvious process, machine, invention with a useful function.

Examples:

Safety Glide Needle Shield

Covers: Utility patent for a needle with a built-in safety shield.

Apple’s Slide-to-Unlock Feature

Covers: A method for unlocking a device by sliding an image across the screen.

Dyson’s Cyclonic Vacuum Technology

Covers: A vacuum cleaner that uses cyclonic separation to remove dust without losing suction.

Design Patent

Protects ornamental appearance, not function.

These only last for 15 years, all others for 20 years.

Coca-Cola Bottle

● Design Patent Number: USD48,160

● Filed: 1915

● Covers: The iconic contour shape of the glass bottle.

The patent process

1. Pay a filing fee and submit an application with Federal Patent and Trademark Office

a. Application must show:

i. How to make and use the invention

ii. Why it is different from prior ones

iii. Precisely detail the invention

2. An examiner looks over the application and communicates with the inventor

3. Can take several years

(Contrast with trade secrets which are never filed anywhere)

Novelty, nonobviousness, and utility

35 U.S.C. § 103: An invention is not patentable if it would have been obvious to an ordinary person in the industry at the time of filing.

An infringer can argue that the invention is previously known, obvious, or lacks utility

For utility patents only, the new design/invention must be useful (so it has to actually work)

20 year time limit for utility and plant patents, 15 for design patent

When that time expires, it is in the public domain and others may use it without permission of the creator

BUT there are ways around this

Example: Pharmaceuticals (they are NOT allowed to be trade secrets under the law)

Steps to protect a patent

Register it

Defend it through legal means when it is infringed upon

Patent Owner – stop others from making, using, importing, offering to sell, selling, etc. your patented invention or obvious variants thereof.

• Litigation is very expensive

Trade Marks

Signs, logos, phrases, or expressions that distinguish goods or services of one entity from another.

Goal – Allow consumer to identify manufacturer

Brand v. Trademark

Trademark can also be called the brand or brand logo. Trademark - the legal designation given to a mark that serves as a source identifier

“Brand” = a marketing concept that invokes a corporate strategy to capture a family of products and services in a identifiable manner.

High quality

Health conscious

Women 25-45

Stylish

Minimalist

Trademarks

• Distinctiveness - the capability of a trademark to identify the goods of a particular merchant and to distinguish those goods from others.

• Generic Terms cannot be trademarked.

• Genericide - Mark becomes the generic name for the goods or services.

• Escalator, Dry Ice, Trampoline, Zipper

Slogans - type of Trademark

• A registrable slogan is one that is used in a trademark sense and functions as a trademark

• If slogan is generic, merely informational, or is otherwise not being used as a mark, registration is refused.

Sound marks - type of trademark

Sound marks function as trademarks when they create in the hearer’s mind an association with a good or service

Trade Dress

Ownership right over a distinctive appearance

Total image and overall appearance of a business

How to register and protect a trademark

● Make sure yours is unique enough

● Trademarks exist under state and federal law

● Must actually use the mark to obtain and protect rights

● If registered, must be renewed every 10 years

● Prosecute infringement

How to defend against a trademark infringement case

Defenses:

1. Mark is not distinctive enough to be a trademark

or

2. No chance of confusion —>

or

3. Fair use

a. Parody

b. Education

c. News reporting

TM and R

Copyrights

Rights that protect original works of authorship, including books, music, films, software, and artwork.

Expression rather than invention

Goal - promote creativity

The copyright

95 years from publication by a company, or 120 years from creation by a company

Automatic protection under the Copyright Act (federal) from the moment of creation by author or company

© is not required

Public Domain

Mickey mouse

movies inspired by a shakespeare play

Requirements for copyright protection:

1. Original

2. In a tangible medium (digital is ok) - any physical or digital form that captures a creative work with enough permanence or stability to be perceived, reproduced, or communicated for more than a brief moment

3. Show creativity

Copyright enforcement

There is no way to accidentally infringe like with patents or trademarks

You cannot begin legal action for copyright infringement unless you have registered your work with the Copyright Office

Must show the infringer took your work, not just had a similar idea

Example: Vampire novels

What a court can do

Injunction - a court order that legally requires a person or business to either stop doing something or perform a specific action

Compensatory - money awards in civil lawsuits that reimburse an injured party for actual losses, injuries, or harm caused by another's negligence or wrongful conduct

Statutory damages - refers to formal written laws created by legislative bodies, such as the U.S. Congress, state legislatures, or local city and county councils.

Criminal action - piracy laws - federal only

A little about music

Sampling = cutting and pasting a portion of a song into your song

Needs permission from owner, or the song must be in public domain, or fair use: parody

(Weird Al), use in a news source, education, etc.

Does Weird Al need permission?

No because it’s a parody and satire and no one will confuse with the two songs

Copyright Fair Use

Criticism

News Reporting

Teaching

Research

Parody/satire

Derivative works need permission/licensing UNLESS they fall under fair use

Interpolation - not the same as sampling

Re-creating a melody or portions of a melody from a previously recorded song

Courts consider - purpose, amount used, and market impact

Fanfiction?

Legal grey area

Derivative works usually require permission

BUT fair use? Parody?

When types of IP law mix!

Frequently overlap to form a multi-layered shield around a single product, software, or brand.

Think of coca-cola like the trade marks, the secret formula, design patent, etc.