Suppose Profit and Loss Inc is a publicly traded corporation that was chartered in Delaware in 2003. Imagine that it specializes in the production of computer hardware, and that its corporate culture involved the use of an aggressive valuation/accounting procedure (computer simulation) to report financial transactions in its income statement. Its reserves constitute a substantial amount of estimated revenue and its auditing firm, Pitt and Bull (headquartered in America), partly consented to its aggressive accounting style in 2003. Pitt and Bull dislikes accounting procedures that are based on simulations, but prefers the conservative acquisition-sale variety. In 2004, Pitt and Bull therefore advised Profit and Loss Inc not to use simulations to report its earnings to the SEC and the investing public.
For two consecutive years the reported annual revenue of Profit and Loss Inc (on its Form 10-K) to the SEC increased astronomically, but the supposed earnings were retained for future growth or reinvestment. In the third quarter of the second year (2005), Pitt and Bull advised Profit and Loss to make public disclosure of its accounting procedures. Profit and Loss Inc subsequently disclosed its accounting procedures to some investors, who reacted appropriately to the disclosure. In the first quarter of the third year (2006), Profit and Loss Inc reported a precipitous net loss to the SEC in its Form 10-Q.
Company employees were instantaneously prevented from selling their shares and the loss of revenue adversely wiped out their retirement funds or life-time saving. The loss to the investing public is immeasurable. The SEC became concerned about the situation and notified Profit and Loss and Pitt and Bull of an impending inquiry. Pitt and Bull got very upset with Profit and Loss Inc for what it felt might be, but not necessarily a failure to comply with SEC regulation and professional advice. It therefore turned over all the accounting documents and files of Profit and Loss to the SEC and relocated to London.
Identify and discuss the evidence of white collar crime in this case, if any.
Are there social and economic dimensions to crime in this case? Why?