BY SERGIO PAREJA
Americans who have seen “The Music Man” may believe that they easily can spot a Harold Hill; that is, a traveling salesman intent on defrauding people to make his fortune. Yet day after day, many Americans, and others around the world, fall prey to a similar type of deception – supposed “opportunities” in which 99.9 percent of investors lose their entire investment. In the United States alone, over one and a half million people per year are victims of these pyramid marketing schemes. Although little data is available concerning total losses experienced by victims of these schemes, a recent class action settlement against Herbalife revealed an average loss of $7,953 per claimant in connection with the scheme at issue in that case. Furthermore, these schemes consistently rank in the top ten list of fraud complaints received by the Federal Trade Commission (the “FTC”) and state consumer protection divisions. Unlike the sale of stock, bonds, and franchises, the sale of these “opportunities” is unregulated and occurs with virtually no government oversight.
BY NICOLE Y. HINES
In April 2004, Lucent Technologies fired four top executives in its Chinese subsidiary. In February 2005, InVision Technologies (now GE InVision) paid $1.1 million in penalties consisting of a $500,000 civil penalty, disgorged profits totaling $589,000, and approximately $28,700 of prejudgment interest.3 In May 2005, Diagnostic Products Corp. surrendered $4.8 million in criminal and civil fines and disgorged profits. In August 2005, Alltel Information Services (“Alltel”) faced an informal inquiry by the Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”). All these events share one common theme—they all stem from bribery of public foreign officials by Chinese subsidiaries or Chinese sales agents of U.S. corporations. Regardless of this corruption, U.S. companies still flock to China with dreams of corporate globalization and increased profits.
BY SARAH JOANNE GREENBERG
For the past several decades, Congress and the Supreme Court have been fighting a great tug of war over securities fraud litigation, particularly claims made under Section 10(b) of the Securities Exchange Act of 1934. On July 30, 2002, President Bush signed into law the Accounting Reform and Investment Protection Act, more commonly known as Sarbanes Oxley (SOX), and set the stage for the latest battle in the securities-litigation tug of war.2 Financial scandals involving WorldCom, Qwest, Tyco, and Enron eventually cost shareholders around $460 billion. After the devastating collapse of these corporate giants, the government needed something to restore investor confidence in publicly traded companies, and SOX was born. Introduced by Democratic Senator Paul Sarbanes of Maryland, the SOX Act and amendments to the Securities Exchange Act of 1934 created several mandatory changes in the operations of publicly traded companies.