Deck 5: Financial Crimes in Health Care, Mortgages, Securities, and Markets

Question 1

The "rent-a-patient" scheme is a form of health care fraud. Explain how the scheme works.

Answer 1

The "rent-a-patient" scheme is usually perpetrated in a disadvantaged neighborhood. It involves a team of people playing different roles. One person goes out and recruits patients who are usually disadvantaged poor people, such as the homeless, drug addicts, alcoholics, or elderly by offering them small amount of cash. The patients go to a storefront "clinic" where a cooperating doctor "treats" and orders a bunch of unnecessary tests. The clinic bills the insurer (often Medicaid) for the unneeded tests and fictitious services. The insurer pays the clinic which then splits the money with the recruiter and the doctor.

Question 2

Identify and explain two of the five major types of securities violations discussed in the textbook.

Answer 2

The five major types of securities violations are:
1. Misrepresentations - involves lying about or somehow misrepresenting the value or condition of a security or an investment opportunity.
2. Misappropriation - involves stealing or taking someone's assets.
3. Stock manipulation - involves artificially manipulating (usually inflating) the value of a stock or security. It's a complex offense that involves creating the false impression that a stock is going to increase rapidly in value.
4. Insider trading - occurs when people who are involved with a business or their family members or friends trade on the basis of material non-public information.
5. Investment schemes - involves deliberate and deceitful attempts to persuade people to invest in a financial enterprise that does not make money by promising a high return on investments. Also, known as a Ponzi scheme. Early investors are often paid out of the investments of later investors.

Question 3

Explain the importance of subprime loans leading up to the U.S. housing crisis and recession that began in 2008.

Answer 3

Subprime loans = loans given to subprime lenders (lower income, unstable employment, etc) with interest rates and/or fees that were higher than prime loans. There were profitable for lenders, but had higher levels of default when the loan payments interest levels increased. This lead to a very high proportion of defaults on loans that investors (wrongly) believed were better quality loans than they were.

Question 4

Explain the process leading up to the U.S. housing market collapse in the early 2000s, paying particular attention to the roles of subprime loans, credit rating agencies, and the secondary market.

Question 5

Discuss what influences the likelihood of collusion, or cooperation, between competitors as discussed in the book.

Question 6

Here is a scenario that involves white-collar crime. Representatives from three major oil companies meet at a business conference. They begin talking about how all the publicity surrounding the shortage of oil and gas worldwide may give them an opportunity to increase the profitability of their companies by raising the price of gas that they sell to consumers. They decide to keep in touch with each other about prices, and they reach an understanding in which each company agrees to charge the same price for their products. This scenario represents what kind of illegal activity?

A) Predatory pricing
B) Restrictive trade agreement
C) Insider trading
D) Consumer fraud

Question 7

Here is another example. The president of a publicly owned company that is developing a new cancer fighting drug learns from a friend who works for the Food and Drug Administration (FDA) that the FDA is planning to announce in a few weeks that it not going to approve the company's new drug. Because the company's profitability will be hurt when the FDA announces its decision, he tells his stockbroker to sell some of the stock that he owns in his company before the FDA announces its decision. Is this illegal? If so, what type of crime is it?

A) No, it is not a crime, because owners of companies are free to buy and sell stock in their own companies
B) Yes, it is illegal and is an example of a restrictive trade agreement
C) Yes, it is illegal and is an example of insider trading
D) Yes, it is illegal and is an example of consumer fraud

Question 8

The motivations for white-collar crime include:

A) To benefit the offender financially
B) To benefit the financial standing or competitive position of a company or employer
C) To stay in business
D) To avoid losing financial assets
E) All of the above
F) None of the above

Question 9

The largest single industry in the U.S. economy is:

A) The criminal justice system
B) The healthcare system
C) The housing industry
D) The educational industry

Question 10

It is estimated that up to $320 billion is lost per year in the health care industry to fraud and abuse.

Question 11

An example of health care fraud is:

A) Rent-a-patient schemes
B) Billing insurance agencies for services that were not conducted
C) Billing insurance agencies for unnecessary procedures
D) Billing insurance agencies for services for people who were not eligible
E) All of the above
F) None of the above

Question 12

According to the book, a key opportunity for health care fraud exists at the point where the doctor sees the patient.

Question 13

The book reported on "hot spots" or cities with higher than usual Medicare and Medicaid billings. These hot spots included all but which of the following cities?

A) Los Angeles
B) Detroit
C) Tampa
D) Houston
E) Cincinnati

Question 14

Before the housing collapse in the U.S., mortgage brokers were the only people actively engaging in fraud by offering and lending subprime mortgages to unqualified applicants.

Question 15

Before the housing collapse in the U.S. in the early 2000s, subprime loans were offered to people with low credit histories, unsteady employment, and/or low incomes who would not normally be qualified for a loan of that size.

Question 16

According to the book, the U.S. housing market collapsed when:

A) Too many subprime loans defaulted
B) Credit rating agencies rated risky investment loans as "low risk" for default
C) Mortgage brokers and banks approved subprime and risky loans to unqualified applicants
D) Banks sold subprime loans on the secondary market in order to make a profit
E) All of the above
F) None of the above

Question 17

A ________ is evidence of ownership, creditorship, or debt that shows that you have interest or stake in an economic undertaking.

A) Collateral
B) Collusion
C) Security
D) Principal

Question 18

Which is not a type of security offense?

A) Misrepresentation
B) Misappropriation
C) Stock Misrepresentation
D) Misfortune investment

Question 19

_______ is the most well-known type of security offense.

A) Misrepresentation
B) Misappropriation
C) Insider trading
D) All of the above
E) None of the above

Question 20

Ponzi or pyramid schemes are an example of what type of security offense?

A) Misrepresentation
B) Misappropriation
C) Insider trading
D) Investment scheme

Question 21

There is no such thing as a totally "free" market.

Question 22

When competitors agree to manipulate prices to a certain level, they are engaging in bid rigging.

Question 23

_______ are sometimes called offenses of the marketplace.

A) Securities offenses
B) Antitrust offenses
C) Loan shark offenses
D) All of the above
E) None of the above

Question 24

Name two of the three forms of restrictive trade agreements discussed in the book.

Question 25

______ is when competitors decide in advance who will submit the lowest bid as part of a competitive bid process for a contract.

A) Bid rigging
B) Price fixing
C) Market allocation

Question 26

Because of their reliance on collusion between competitors, restrictive trade agreements more likely arise in industries where there are a great many competitors.