Law Commons^™

The Problem With Predators, June Carbone, William K. Black

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Both corporate theory and sex discrimination law start with presumptions that CEOs seek to advance legitimate ends and design the internal organization of business enterprises to achieve such ends. Yet, a growing literature questions why CEOs and boards of directors nonetheless select for Machiavellianism, narcissism, psychopathy, and toxic masculinity, despite the downsides associated with these traits. Three scholarly literatures—economics, criminology, and gender theory—draw on advances in psychology to shed new light on the construction of seemingly dysfunctional corporate cultures. They start by questioning the assumption that CEOs—even CEOs of seemingly mainstream businesses—necessarily seek to advance “legitimate” ends. Instead, they suggest …

Testimony Before The Financial Crisis Inquiry Commission, Miami, Florida September 21, 2010, William K. Black

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"Control frauds" are seemingly legitimate entities controlled by persons that use them as a fraud "weapon." (The person that controls the firm is typically the CEO, so that term is used in this testimony.) A single control fraud can cause greater losses than all other forms of property crime combined. Neo-classical economic theory, methodology, and praxis combine to optimize criminogenic environments that hyper-inflate financial bubbles and produce recurrent, intensifying financial crises. A criminogenic environment is one that creates such perverse incentives that it leads to widespread crime. Financial control frauds’ "weapon of choice" is accounting. Neoclassical theory, which dominates law …

How Trust Is Abused In Free Markets: Enron’S 'Crooked 'E’', William K. Black

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A market can have a lemon's problem when one party to the transaction has far superior information to the other and defects are not obvious. The classic bad car, the "lemon" led to the name for this theory. A lemon's market is inefficient. Both consumers and reputable sellers of high quality goods are harmed by the consumer's inability to distinguish superior goods. Frauds, who sell poor quality goods by misrepresenting quality are the only winners. Markets beset by lemon's problems may be improved by government intervention, which can aid both consumers and honest sellers.

In his article "How Trust is …

Those Who Forget The Regulatory Successes Of The Past Are Condemned To Failure, William K. Black

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This paper shows that the reregulation of the savings & loan (S&L) industry was successful because the regulators correctly identified the primary cause of the second phase of the debacle as an epidemic of “accounting control fraud” and took effective measures to contain such frauds. Control frauds occur when the persons controlling a seemingly legitimate organization use it as a “weapon” to defraud. In the financial sector, accounting control fraud is the “weapon of choice.” The regulators’ primary insights were (1) that lenders optimize accounting fraud by engaging in a distinctive operational pattern that would be irrational for any honest …