BUAD - Criminal Justice
Why do we need a Criminal Justice System?
deference of bad conduct
Allows due process
fits punishment to crimes
Provides specialists to investigate + prosecute crimes
Allows Prosecution of crimes that affect many people but not one specifically
Must balance need for Criminal Justice System against giving police to much power
Our system is designed to let guilty people go free rather than convict innocent people
As practical matter, system doesn’t always work this way
Plea Bargaining
97% of cases end up with plea bargains
Defendant pleads guilty in exchange for significantly reduced sentence
Benefits
Both sides save cost of trial
Both Sides Avoid the risk of unfavorable trial outcome
Victims are often not satisfied with plea bargains
Innocent people sometimes pleas guilty
Fundamentals of crime
Guilty act
act which violates the criminal code
No thought crimes
Cannot be punished for an act which was not a crime when committed
Guilty Mind - Mens Rea
Must have the intent to commit an act that is criminal
Types of Murder
Homicide - Intent is crucial to the determining the degree of homicide
Homicide = Wrongful killing of a human being
First Degree Murder. Premeditation
2nd degree murder - felony murder
intent is to commit a felony
All Participants in the felony are guilty of felony murder
originally committing a felony, leads to murder
Voluntary Manslaughter
Heat of passion killing
Involuntary Manslaughter
Intent recklessness or gross negligence
ex - vehicular man slaughter
Insanity Defense
a result of the mens rea requirement - cant necessary intent if at time commit crime can’t tell difference between right and wrong
In recent years a number of crimes don’t require mens rea
Constitutional Issues
Grand Juries. 5th Amendment
purpose - to determine if enough evidence to hold a person for trial
required for all federal crimes, some states have some do not
If yes - indictment
if no - true bill
grand jury proceedings are secret
only prosecution defense cannot cross exam
Also used for investigation because can subpoena witnesses + force them to testify
PA has investigating grand juries but not indicting grand juries
4th amendment - search + seizures
Must obtain warrant to arrest or search
Warrant obtained from judge on showing of possible cause
no notice to subject of warrant
Exceptions to warrant requirement
hot pursuit - can arrest someone in process of committing a crime
fleeing from crime scene
search - during arrest you can sue subject of the arrest + immediate surrounding area
automobiles - search requires probable cause
In plain sight
4th Amendment - protection is greatest in home
Where greatest expectation of privacy
Less in workplace EX - can do inspections without warrant
5th Amendment - Privilege against self is Incrimination
a person cannot be compelled to be a witness against themselves
Prosecution cannot call defendant as a witness
if defendant calls defendants, defendant can be cross examined
personal papers are covered by privilege, business records are not
because of coercive effect of police custody a miranda warning is required
exclusionary rule - evidence obtained in violation of constitutional rights cannot be used at that
ex - confessions searches
Must affirmatively assert right
can waive constitution of rights
Double Jeopardy - 5th amendment
cannot be tried twice to dispositive conclusion for same crime
You can be tried for a different crime on the same facts
Punishment Issues
Classification of crimes
Summary offense up to 90 days in jail
ex - false id
Mis Demenoar
1. 3rd degree - up to 1 year in county jail
2nd degree - up to 3 years
1st degree - up yo 5 years
Felonies
3rd degree - up to 7 years in state prison
2nd degree - up to 10 years
1st degree - more than 10 years
Classification depends on the seriousness of crimes + severity of punishment
Felony Vs. Misdemeour
felony more serious crime
arson vs distributing the pose
can also be more serious form of same crime
assault with deadly weapons vs simple assault
Victimless crimes
pornography, gambling, prostitution
all participants do something willingly
rationale - they have negative impact on society
However
gives control to criminals
raises the price
in free society, not up to government to protect people from themselves
White Collar Crime
Crimes committed by business persons in converse of occupations
How should they be punished?
usually do not involve violence
usually involve breach of trust + often lavage sums of money
they tend to be punished less severely
difficulty + expense of
Investigations + prosecuting produces favorable plea bargains
perpetuations can pay large fines
exposure itself can be a punishment
Sentencing guidelines
Historically sentencing broadly within the authority of trial judge
federal sentencing guidelines
narrow range of base sentences
Punishment can be decreased based on enhancing or mitigating factors
ex - large amount stolen, abused as child
declared unconstitutional because a jury did not consider the enhancing + mitigating factors
now guidelines are advisory
Incarceration In U.S
U.S incarcerates people at 5 times the worlds average
1 out of 3 1 adults in U.S is in prison or on supervised realse
large growing sums spent on prisons
many prisoners are addicts or mentally ill
Supervised Release
Probation and parole
People not sent to prison or released on the conditions they comply with specified restrictions
if breach conditions are sent to jail restrictions must be related to crime
not unduly deprive of liberty
Who is Liable for Business crimes?
executive who orders crime is guilty
employee who carries out crime is also guilty
Crimes Affecting Business
Theft
Larceny - taking or carrying away the property of another
Burglary - Unlawful entry of a building or structure to commit theft or other felonies
Embezzlement - Taking property of another lawfully in your possession + appropriating for own use
theft of services - taking services to which you are not lawfully entitled
Robbery - taking something of value by force or threat of force
Fraud - taking property through false statements
Mail Fraud - using U.S Mail to commit fraud
theft crimes are state crimes mail fraud is a federal crime
can be guilty of more than one as same time, punished according to most serious one of which you are convicted
Arson - malicious burning of a building or structure
Can be revenge crime against a business
Can be Insurance Fraud
Computer Crimes
Have required new criminal laws to deal with hacking, point of service attacks
Fraud is the most common computer crime
Bribery - both the person receiving the bribe + person receiving it are guilty of a crime
Bribery of govt official - requires a direct nexus between payment + an official
commercial bribery - paying a purchasing agent to buy your product
paying an employee to divulge confidential information
1977 foreign corrupt proxies act - crime for U.S Company ro bribe the official of a foreign government
Antitrust Law - bid rigging of price fixing
agreement with competitor on price to be charged
1980 rocketeer Influenced
Corrupt Organizations Act (RICO)
purpose - to fight organized crime
some businesses dominated by organized crime
crime groups would buy legitimate businesses to launder money
Increased penalties for pattern of racketeering
any 2 racketeering acts in a 10 yr period
up to 20 years in prison
forfeiture of all proceeds of crime including entire businesses
Civil Lawsuit
victim can sue and recover triple damages
today most common use of RICO is one business suing anther for triple damages
Property
Real property - Land + Buildings
personal property - everything else
Intangible property
accounts receivable
goodwill - the value of a company’s reputation
information - need legal protection, expensive to compile early for copy
Intellectual Property
inventions - protected
by patents or trade secret
creative works - protected by copyright
representational words + symbols - protected by trademark
Inventions
must choose initially patent or trade secret
why provide legal protection?
inventors want to profit from their inventions
society wants to incentivize inventors to employ the time and money to make new invetions
Patents
provides 20 year monopoly on use of the invention
must apply to U.S patent office
patent office will appoint an examiner to look for reasons not to grant patent
application must fully disclose the invention + becomes public, so after 20 years anyone can use
requirements for Patentability
must be a process, machine, manufacture, or composition of matter
must be novel - no one has thought of it before
novelty most often defeated by a prior writing
must be useful
can get a 2nd patent for some compound if you can show an entirely new vic
2011 patent reform act
changed the U.S to a first to invent to a first to file system
infringement - holder can sue and recover all profits made from patent
can be hard to detect infringement
patent litigation can be very expensive + time consuming
Trade secrets
tort to wrongfully acquire a trade secret
theft, bribery, spying
it is okay to independently invent a trade secret
it is okay to reverse engineer a trade secret
no time limit on a trade secret, as long as you keep it secret
Creative works - copyright
copyright
lasts lifetime of author + 70 years
protection starts at the time of creation
need not apply to U.S copyright office
application provides presumption of ownership
provides notices for money damages
copyright symbol also provides notice
plagiarism is different
using someone else’s work without giving them credit
still violating a copyright even if you get credit
copyright work must be original but not be innovative
cannot copyright facts or ideas only their expression
Copyrights confers a bundle of rights
right to make copies
right to make derivative works
ex - movie out of a book
Fair Use Doctrine
allows limited copying of copyrighted works doe educational, news reporting + researching purposes
VCR recording fair use - as long as only for personal use
parodies criteria -
is it for commercial purposes?
how extensive is the copying?
does the parody take the heart of the work
does the parody damage the market for the copyrighted work
ASCAP (American Society of Composers, Authors, + Publishers)
Trade Marks
name, word, symbol, device or combination that represents a company or it’s products
purpose of trademarks
allows companies to invest in brand recognition
limits search costs for consumers
provides consumers with assurance of quality
what can be trademarked?
a generic word cannot be trademarked
ex - toy, fish, ball
descriptive words cannot be trademarked
ex - trying to trade mark a company name like insurance agents inc.
fanciful words can be trademarked
ex - nerf gun
suggestive words can be trademarked
ex- apple computers
combinations can be trademarked
ex - general electric
trade dress - yes
ex - bottle shapes
restaurant appearance
colors as long as not functional
trademark can be lost if they become generic
aspirin
escalator
Infringement
key - confusion not exact duplication
Hyatt Hotels + Hyatt Tax services do not infringe
Koke could infringe coke if infringement
Parodies
is there confusion over source of the product
does parody damage the original brand?
Antic cybersquatting act
cannot use a domain name which infringes a trademark
Corporations
how do multiple people engage in business together?
original form was a partnership
today multiple people engage in business w/out designation, considered partnership
partnerships
problems -
each partner has unlimited liability for the debts + obligations of the partnership
withdraw of a partner can lead to the dissolution of the partnership
capital is limited to assets of partners + what they can borrow
it is hard to transfer partnership interests
management can be cumbersome because every partner has an equal vote
Advantages of a partnership
single taxation partnerships do not pay income tax income is allocated to partners who pay the tax on their personal returns
corporation
share holders do not have personal liability for debt + obligation of corp. they risk only their investment
can have perpetual existence
can raise unlimited capital by selling more shares
shares of stock are freely transferable
management is centralized in board of director + officers
Problem - double taxation
corporation pays income tax on earnings, shareholders pay a 2nd income tax on dividends they receive
Nature of a Corporation
legal entity which is separate from its owners
is a legal person
corporations is owned by shareholders who exchange assets for shares of stock
managed by board of directors, every share of stock gets one vote
two shareholders does not mean 50/50
directors elect officers to manage the day to day business of the corporation
classifications of corporations
Public Vs. Private corporations
public corporations is formed by government activities
ex - cities, school districts
Private Corp.
formed by private individuals
Non - profit corporation
organized for charitable, educational, or religious purposes
income used for purposes for which corporation is formed
Business corporation - organized to engage in business for profit
closely held vs public corporations
closely held
owned by one or a small number of shareholders
no public worksheet for shares
often have restrictions on the transfer of shares
most corporations are closely held
public
shares are traded on a stock exchange or over the counter market
most shareholders do not participate in management
C vs. S corporations
sole distinction is tax treatment
S corporations select to be taxed as partnerships
requirements
100 or fewer shareholders
all share holders must be u.s citizens or qualifying trusts
can only have one class of stock
formation of corporations
virtually all corporations are incorporated under state law
every state has a business corporation low dating from early 1800s
Delaware is a popular choice for an incorporation
has very flexible business corporation law
specialized business court
2/3 of fortune 500 companies are incorporated Delaware
most small corporations are incorporated in state where they operate
Procedures for Incorporations
must file articles in incorporations with the secretary of state of chosen state
the secretary of state of chosen state
can be filed by one or persons including business entities
Articles must contain specific things
Name of corporation
cannot be the same or confusingly similar to other corporations
Must include corporation, incorporated, company, limited or an abbreviation there of
Must identify a registered office + registered agent for service of process on the state
No business need be conduct at location
Must Identify the number of shares authorized for issuance
can be other things in the articles
Once secretary of state issues a certificate of incorporation an organizational meeting is held
Incorporators elect a board of directors
board chooses offices
board issues shares + sets their price
Bank accounts + other operating necessities are approved
Bylaws are adopted
bylaws = rules for governing the corporations
ex - # of directors, how often they meet, etc.
bylaws can be amended by either the board or shareholders
articles can be amended only by shareholders
Boing business in states other than the state of incorporation
corp called domestic in the state of it’s incorporations
called foreign in every other state
foreign corporation must apply to secretary of state + obtain certificate of authority in order to operate
Application must identify a registered office + agent for services of process in the state
must obtain a certificate of authority from every state where you want to be business
without certificate of authority you can be sued in state but cannot sue
when can shareholders be liable for corporations debts
liability of promoters a person who makes a contract for the corporations before it is formed can be personally liable if:
misuse represent corporations has been formed when it has not fail to disclose corporations not yet formed
fail to disclose corporation not yet formed
when can shareholders be liable for corporations debt?
Defective incorporation - incorporation procedures not correctly followed however, shareholders are still protected by face to face corporation rule
no liability if filed in good faith to incorporate + conducted business as a corporation
estoppel rule - no liability if creditor did not know of the defective incorporations + relied solely on corporations credit
piercing the corporate veil, corporate form will be disregarded + shareholders hold personally liable if some or all of the following are present
No corporate records
Not observing corporate formalities
no shares issued, board of directors + share holders meetings
common ownership, not enough by itself
inadequate capitalization given the nature + risks of the business
commenly assets corporation shareholders
ex - no separate bank
evidence of fraud or dishonesty - siphoning funds
sources of funds for corporations
Equity, shares of stock
debt, borrowed money
Equity
securities representation ownership interest in the company
shareholders got shares of stock in exchange for assets
Equity securities have three fundamental rights
to receive distribution when + it declared by board of directors
vote on important corporate matters
to obtain a proportionate share of the assets of corp when it is wound up
articles can create more than one class of stock. preferred stock a typically gets a fixed periodic dividend - must be paid in full before any dividend paid to common share
typically dues not have voting rights unless dividends are missed
typially paid fixed amount per share when corp wowed up before common gets anything
Common stock
holds the residual value of the corporation
entitled to dividend when + if declared by board of directors + only after preferred dividend paid in full
has full voting rights
riskier than preferred
most people prefer common because it gets compared corporate up ride
Advantages + Disadvantages of preferred stock
Advantages
payments come before common stock
has high yield
yield = annual dividend provided by price
price is more stable than common
liquidity is greater than with bonds
Disadvantages
return is fixed
debt holders come ahead of shareholders in bankruptcy
preferred stock often has long maturities
preferred stock is often redeemable - can be called in by the company when the company chooses
interests payments can not be deferred dividends can be
interests payments are tax deductible dividend payments are not, so companies often issue preferred only when cant borrow more
Convertible Stock
can be converted from one class to another at a fixed predetermined ratio
conversion is at option of the shareholder
typically the conversion is preferred to common
often used by financially troubled companies protection of preferred plus upside common
stock options - right to purchase a set of number of shares of a particular class of stock for a fixed price for a fixed period of time
often granted to specific directors, officers + employees
Issuance shares
can create an issue as many shares as are authorized in the article of incorporations
Not all authorized shares need be issued
An Unlimited number of shares may be authorized
shares which have been issued + in the hands of share holders are called outstanding
shares which have been issued + repurchased or redeemed by corp called treasury stock
treasury stock can be sold for any price w/out regard to per value
Accounting for shares
stated capital account = par value of outstanding shares
capital surplus account = excess over par-value of sale price of outstanding shares
returned formings account = profits of company not distributed to share holders
company not distributed to share holders
in many states, dividends, stock repurchases + redemptions can only be made out of the retained earnings account (PA) or retained earnings + capital surplus account
watered shares of stock
stock thats been issued for less than the set consideration
typically issued to insiders
both other shareholders + creditors can sue to recover the short fall
creditors subject to misrepresentations rule
must show relied on states capital in extending credit
most suits are by other shareholders
Debt
Debt securities
issued in exchange for loans to the corp
like any loan they require periodic interest payments + ultimate repayment of principal
debt holders have a claim at the corporations assets ahead of any claim by the shareholders
debentures are unsecured
holders are general creditors on a par with all other creditors
bonds are secured - have a first claim on specified asset ahead of all other creditors
corporations can also borrow money from banks + other finical institutions
corporations can also get financing from renders who do not require immediate payment for goals services
loans can also be obtained from share holders
benefit to shareholders because debt comes before equity
benefit to company because interest payments are tax deductible dividends aren’t
IRS will disallow interest deduction if share holders debt to equity ration is too high
leverage - a potential advantage of using debt financing over equity financing is leverage
because debt holders entitled only to repayment do not share in earnings of company return to existing shareholders can be higher using debt instead of equity
ex - 1,000,000 capital needed 10% interest rate profits = 150,000 / year
with 100% equity fininacing
share holders annual return is 150,000/1,000,000 = 15%
with 90% debt financing share holders 150,000-10% of 90,000 = 90,000=60,000
60,000 / 100,000 = 60%
leverage is risky
assume zero profits
100% equity financing = 1,000,000 + 0 = 1,000,000
9090 debt financing = 100,0000 - 90,000 = 10,000
transferring securities
securities can be certificated or uncertificated
certificated means a document is needed to represent the securities - most large corporations
uncertificared securities transferred by giving notice to corporations \
certificated securities can be requested or bearer
register - name of owner is printed on security + recorded in corp records
transfer is by endorsement of the certificate + delivery to new owner new owner presents endorsed certificate to company which issues new certificate + changes corp records dividends paid + to owner of record
bearer of form
name of owner not on certificate
transfer by delivery to the new owner
typically bonds + debentures
debt securities have coupons which are exchanged for interest payments
certificate is exchanged for the repayment of principal
lost, stolen, or destroyed certificates
protected purchaser = good faith purchase for value
owner can request a replacement certificate from the corporation
corporation will issue the replacement if no protected purchaser has previously presented the certificate
certificate holder gives corp. survey bond protecting against protected purchaser presenting certificate in future claim
Distributions + dividends
distribution = transfer of assets from corp to shareholders
dividends = distribution from corporate profit
forms of dividends
cash x dollars y cents per share
property
ex - shares of a subsidiary
stock - not a true dividend as ownership remains unchanged
often used to lower stock price to facilitate trading
every share of stock of the same class must get exactly the same dividend
dividends are payable when if = in the amount declared by board of directors
factors in directors dividends decisions
profitability of company
capital needs of the corporation
expectations of share holders
tax considerations
dividends are within the business judgement of the board of directors
court will not order dividends absent fraud, dishonesty or abuse of discretion
dividends are limited by law to protect creditors + in some cases preferred shareable
cant be paid when corp. is insolvent or will be rendered insolvent by dividend
two definitions of insolvent
unable to pay debts as they become due
liabilities exceed its assets
can only pay dividends out of retained earnings plus capital surplus in most states
directors are personally liable for improper dividends
Corporate Management
shareholders
although they are owners of corporation they play a limited role in it’s management
shareholders rules
elect directors
amend articles of incorporation
vote on extra ordinary corporate matters
ex - mergers winding up
dadded frank act requires public companies to take non-binding vote on executive compensation every 3 years
corporations use required by law to have an annual meeting of shareholders
at these meetings
directors elected
any other voters needed are taken
reports given about state of corporation
special meetings can be called if a vote is needed between annual meeting
quorum is required to transect business at a meeting
by law at least 1/3 of outstanding shares
many corp by laws specify a higher percentage
ex - 59%
vote of majority of shares present is the action of the share holders
share holders can take action by unanimous written consent w/out a meeting - closely held corporations
every share gets one vote unless something different is specified in articles
straight vs. cumulative voting
straight = each share gets one vote for each director
cumulative - shareholders can multiply # of shares by # of directors to be elected and cast those votes for one or more directors
cumulative allows minority shareholders to elect director
voting is straight unless articles provide for cumulative
voting by proxy
share holders can authorize someone else to vote their shares by giving them a signed written proxy
corporations with significant numbers of share holders must use proxies to get quorum because most share holders do not attend meetings
proxy holders need not be a shareholders
proxy can either dissect holder how to vote or glue them discretion
proxy can be withdrawn at any time before vote is taken
Corporate Records
corporation must keep written accounting record, minutes of board of director and shareholder meetings + share holder lists
shareholders can inspect for a proper purpose one related to their interests as shareholders
Proper purposes include
ascertaining financial condition of company value of shares + the proprierty of dividends
discovering fraud or dishonesty by directors offices
communication with other shareholders
Investigating Corporate Waste + mismanagement
to inspect shareholder must show some evidence to suggest a credible basis that waste or mismanagement occurred
Board of Directors Rules
Make Basic Policy Decision
Select supervised and replace officers + other executives + delegate authority to them
set executives compensation
amend by-laws
approve budgets
approve major corporate transactions
ex - buy another company
decide when if + in what amount dividends will be declared
supervise overall business operations
may have as few as one director
initial directors chosen by the incorporators
permanent directors elect at first annual meeting of shareholders
directors serve one year terms unless board is classified
classified board - directors serve 2 or 3 year terms so only ½ or 1/3 are elected each year
makes it harder to take over the company
# of directors may be increased or decreased by amending articles bylaws
directors serve until there successor is elected + qualified to avoid gap in authority
vacancies due to death, resignation, or increase in # are filled by board of until next annual meetings of shareholders
directors may or may not be employees or shareholders
Board of Directors must act as a group, so it’s decisions are taken at meetings
allows for discussion, deliberation + collective judgement
# + timing of board meetings is set in by-laws
special meetings can be called if action is needed between regular meetings
meetings are require a quorum typically ½
majority of those present is the action of the board
directors may participate by telephones or video conference
directors cannot vote by proxy
boards usually try to operate by consensus
routine matters can be handled without a meeting by a unanimous written consent
larger corporations much of boards work is done through committees
ex - audit, finance, compensation
Officers (Employees)
manage the day to day business of the corporations
elected by the board
can be replaced at any time
president, vice presidents, secretary, treasurer
Duties of Directors and Officers
established by state law
duty of care
must use reasonable care in the management of the corporation
duty of care requires decisions made
in good faith
with a degree of care that a similarly situated person would reasonably believe it is appropriate under the circumstances
in a manner reasonably believed in best interest of corporation
directors + officers are protected from personal liability by business judgement rule
No Liability for honest unbiased decisions taken with reasonable care event if they turn out to be mistaken or ill-advised
in some states negligence decisions are not protected (PA, CA)
in others only grossly negligent decisions are not protected
duty of care requires directors to be reasonably informed about corporate affairs
in so doing they can rely in good far then the reports of others
Smith v Vangorkun (DE 1985)
It is grossly negligent
approve sale of company with no prior notice after a 2 hour meeting
without getting a valuation of the company by a financial
without getting an evaluation of the deal by a financial expert
approval of sale by shareholders does not protect the board from liability
in response many states pass laws allowing corporations to further protect directors from personal liability
PA Section 513
in bylaw approved by the shareholders corporation can limit the liability of directors for money damages to situations of self-dealing willful misconduct or recklessness
no protection for violation of criminal or bylaws
Graham V Allis-chalmeus
No personal liability of director for criminal activity of which they had no knowledge or knowledge of any facts which should have put them on notice
directors can rely on the honesty + integrity of subordinates until cause for suspicion
caremark - board must set up legal compliance + reporting program
Revlon (DE 1986)
when relling corporation board must get the best price for shareholders
often thought to require an auction
duty of loyalty does not allow board officers to protect own jobs at expense of shareholders
board can respond to offer to buy company by saying no it is not for sale