The global crisis has affected the economy of many countries, including the developed ones (e.g. the U.S., Canada, etc.), contributing to growth of criminal potential of the society. In this regard, the cases of criminal behavior of economic agents, such as the entrepreneurs, have started occurring more often, becoming a common solution to their economic problems. It should be noted that socio-economic, socio-political, and socio-psychological factors have the immediate impact on the characteristics of crimes, as well as people who commit them. The reasons for negative trends in terms of their occurrence are primarily related to socio-economic factors, including general instability of the economic situation on the global scale. As a result, it leads to deepening of population differentiation by income, and the growth of social tensions in the country. Thus, in a study of the crime causes, one cannot exclude a set of psychological factors that may affect them. In particular, in the recent years, there is an increase in the so-called white-collar crimes cases, i.e. the ones committed by managers and the other specialists in the course of their professional activities. They may cause significant damage to the economy of the entire country. In this regard, criminological and psychological characteristics of the criminals may not only help understand their motives but also play an important preventive role, which contributes greatly to the relevance of the problem. Therefore, the following research focuses on the analysis of psychological characteristics of people engaged in the white-collar crimes on the example of a specific case.
In the criminology of the early XX century, crime was considered the activity of the poor and included theft and other attacks on property, as well as begging and vagrancy. The fact that crime was concentrated in the lower strata of the society has resulted in the consolidation of acts that were generated by poverty and considered the criminal ones. However, by the middle of the XX century a fundamentally different approach to the assessment of the causes and nature of crime has been formed, with a special emphasis on the social danger of the crime committed in the course of professional activity of people having high social status. It was primarily referred to as a respectable crime. Such term achieved the greatest popularity as a result of the research of the American criminologist Edwin Sutherland, who referred to it as to a white-collar crime.
It seems that the characteristics of white-collar crime are defined both by the personal traits of the offender and the opportunities and advantages he/she enjoys in the course of social activity and high, often symbiotic, social status. Professional employment creates various opportunities for crimes and serves as an attribute of the external respectability. In addition, in many cases, it is possible to observe the merger of the economic, political, and organized crime. As a head of the criminal community, a public person enjoys a prestige in economic and political circles. As a result, the white-collar criminals are always trying to stay within the law. Moreover, they are not the carriers of the criminal subculture, and do not identify themselves with the criminal world in its traditional understanding.
The following case took place during the periods between 2007 and 2013 and revolved around David Lee Hardin – a 59-year-old chief executive officer of a group of financial services companies that operated in the field of debt services, including home loans. In addition to them, Hardin has established another company that was promoted not as an investment per se. On the contrary, the victims were invited to make loans at a fixed interest rate. On the paper, Hardin’s enterprise was expected to finance housing construction, granting mortgages to purchasers. Additionally, it also provided the working capital for the mentioned debt recovery group of companies. Moreover, the profits of the newly established organization were gained from the sales of property that was built under the construction project, the income from mortgages, and the abovementioned debt collection. In other words, Hardin has established a company that was presented as an investment firm. He has invited the victims to lend money to it, admitting that the investments raised by it will be used in the related business. As a result, to this point, his activities could not be viewed as a fraud. However, the projected profits were not used for their original purpose. Instead, Hardin utilized them to cover both his business and personal expenditures, such as rent and the repayments on car loans. Additionally, he guaranteed a rate of return on the loans made by the victims, using the newly raised money to pay interest to the earlier lenders. In other words, he has created a Ponzi scheme or financial pyramid. In several years, Hardin has managed to involve more than two dozen victims in his scheme, raising approximately 6.7 million dollars. The timing of the crime also presents a particular interest. Hardin has created the new company in April 2007, which is half a year after the debt charities of the U.S. have posted a warning concerning the crisis that may be caused by rapidly growing rate of home repossession. The scheme was discontinued in July 2010, after the fraud was uncovered. In March 2013, Hardin entered into a plea bargain. He has admitted his involvement in the case of a mail fraud, as well as the fact that due to his actions, the victims have lost approximately 1.5 million dollars.
The primary determinant of any criminal behavior, including the white-collar crime, is a motive that stimulates the corresponding activity, encourages it, and reveals its personal sense, namely through the materialization of the criminal’s needs. Figuratively speaking, the motive is a person itself, and it provides an answer to the question regarding the purpose of the criminal behavior, as well as its subjective sense for the individual. In particular, judging by the fact that Hardin has used the profits of his newly established company (i.e. the money of the investors) to cover his personal and business expenses, one may assume that his group of companies has been experiencing financial difficulties. Thus, the desire to fix the situation, and, most importantly, obtain personal gain, has caused the criminal behavior.
The motives of white-collar crimes are also important, since they provide the necessary information about the way in which the criminal perceives and accepts moral and legal norms that protect all forms of property, as well as estimates the corresponding social practices. Motives are showing criminal’s resilience in a selfish criminal behavior, which often lasts for a long time, in spite of the punishment or the threat of it. Such facts are supported by Hardin’s case. First of all, he has chosen to create his scheme during a difficult period for the country that has been threatened by the crisis caused by rapidly growing rate of home repossession. As a result, the number of people unable to pay their mortgage, and, therefore, struggling to find money has increased. By offering them attractive conditions of investment, Hardin has involved them in his scheme, disregarding the potential negative consequences for such people (e.g. the loss of home, worsened financial well-being, etc.). Such fact allows assuming that his moral standards were quite low. At the same time, he did not hide the information regarding the purpose of his newly established company, meaning that he has valued the existing legal norms. Such obedience to the law may have given him a sense of inner comfort, lowering the fear of retribution for his criminal activity. Such statement is supported by the fact that his scheme has lasted for three years, which is a significant term for a financial pyramid.
It should be noted that criminal behavior is usually polymotivated, i.e. it is generated by a number of reasons, in the hierarchy of which one can be the most significant. The personal sense as the motive of some kinds and forms of white-collar crime can be explained not only by the acquisition of material wealth but also the satisfaction of the other vital needs. Very often, they are also based on the selfish motive, which is complemented by the other goals, such as the retention of recognition and credibility in reference to a particular group of people. It should be emphasized that white-collar crimes are always subject to the satisfaction of personal aims, which are not always of a selfish nature. In the case of Hardin, it is clear that he was trying to acquire personal wealth through fraud. However, considering that he used a part of the raised money to cover the business expenses of his group of companies, one may assume that he wanted to support his organization in the difficult times (the mentioned outburst of home recollections). In turn, the company’s workers were deprived of the risk to be dismissed and continued receiving their wages. Nevertheless, regardless of the Harden’s real motives, they do not justify his criminal behavior.
As was mentioned in the case, Hardin has resorted to the use of Ponzi scheme, which adds several specific features to the psychology of his crime. In general, it is based on promising greater profits to the investors that are involved in it. However, in reality, the money of investors is not invested in any real assets. On contrary, the manager paid the initial investors the promised interest of the funds received from the second wave of investors, which, in turn, benefited from the funds collected from the third wave, and so on. The scheme is named after Charles Ponzi, who used a similar model in the United States in 1920. Ponzi scheme encourages early investors to share the stories of their success with other potential investors who, in turn, invest more funds in the scheme, allowing the fraudster to pay the second wave of people and attract more lenders. At some point, the scheme stops functioning as the influx of new investors cannot be infinite, and its organizer is, without a doubt, aware of it. However, he/she still operates it, hoping to leave the scheme without paying the last wave of people, which is usually the biggest one, and hide from the law. On the other hand, the fraudster may expect that it will be possible to find the new opportunities for investment and save the created scheme. In Hardin’s case, the second option was more likely to give results, primarily due to the fact that it was difficult for the CEO of a large group of companies to hide from the law. At the same time, by using his position as the leader of the company, the power, resources, as well as his significant working experience (considering his 59-year experience occupying the position of a CEO), he could have found another way to attract the new lenders.
At the same time, it should be noted that the majority of the initial investors are quite skeptical towards such schemes and, therefore, invest only small amounts of cash. Moreover, the story about the possibility of obtaining a large profit through investment by itself, without any evidence, would not look so convincing to lure many people. In particular, it is obvious that the potential lenders will not be sure in the scheme until they see the results. Finally, the information about the so-called investment payments that are actually made at the expense of the newly arriving funds usually appears in public and is discussed long before the collapse of the pyramid. As a result, the fraudsters have to refute the charges. Surprisingly, even after that, many people still continue believing in a pyramid, which only shows the impact the success of other people has on the individuals. For many people, such examples are the most convincing proof of the plausibility of the investment story of the pyramid, and it outweighs even the strongest arguments against it. Considering that Hardin has managed to attract several dozens of investors, especially during the crisis, shows that he has chosen the right strategy. In particular, the investors who were experiencing the problems with paying their mortgages hoped that Hardin’s project would help them raise enough money to avoid home repossession.
It is the common knowledge that the other party of a fraud is a potential or actual victim of malicious deception. It would seem that the situation is obviously different from that of a criminal: the victim clearly deserves protection, sympathy, and support. However, the reality is not so simple, because the victim of the white collars often has features that unite him/her with a fraudster. In order to clarify such aspect, it is required to imagine a situation that is unlikely to occur in real life, but is possible in theory. It involves the people as objects of fraud, which have become smart, intelligent, and honest, gaining the ability to solve fraudulent situations not as victims but as whistleblowers. The consequences of such event are simple to predict. The fraud as a kind of human activity is likely to reduce and, finally, disappear. However, its hypothetical death will occur not only because the victims develop critical thinking and skills that protect them against fraudsters, but due to their exemption from the certain qualities that motivate the criminals.
In Hardin’s case, the psychological portrait of a victim involves the natural desire for something unusual, surprising, or even miraculous. The fraud (especially the one based on Ponzi’s scheme) always contains the element of extraordinariness, as well as the temptation to experience something special (e.g. a significant wealth in a short period of time). Such feature consists of the external content that is revealed for the victim (i.e. the stated idea and purpose). Moreover, the intrigue presented by the criminal often targets the people’s need for something unusual, which is difficult to be explained properly. It is directed not only towards their curiosity but also the desire for something extremely cheap, fast, easy, prestigious, etc. At the same time, the people possessing such traits can often be characterized as the ones having weak critical thinking. Indeed, Hardin has clearly stated the purpose of his newly established enterprise, showing he has nothing to hide from the lenders, which contributed to his credibility. At the same time, the conditions he has offered to the investors (e.g. fixed interest rates) provided the element of temptation. Considering that the scheme was launched during the crisis, it is possible to assume that such temptation was additionally enhanced by the fear of losing one’s home or apartment due to inability to pay the mortgage. As a result, several dozens of people were willing to lend their money to Hardin.
Among other psychological qualities that are especially attractive for the white collars are gullibility, excessive credulity, naivety, and infantilism. They can be considered a natural continuation of the neutral human talents: the ability to trust the others, openness and accessibility, understanding, and the preservation of the purity and sincerity of feelings and perception of reality. However, in case such features of the human psyche are not being developed, they do not reach the state of maturity and become weaknesses, as well as the source of people’s mistakes and defeats. In Hardin’s case, the investors did not pay attention to the obvious signs of Ponzi’s scheme despite them being stated by the finder himself. One may assume that the primary reason for that was the respectable image of Hardin. Indeed, he was an experienced person, and, most importantly, the CEO of the companies dealing with home loans. As a result, he was perceived as a person that can be trusted, and, as was mentioned earlier, the fact that he did not hide the purpose of his company has also added to his credibility. However, the company had several issues that questioned the feasibility of lending money to it (the provision of working capital to Hardin’s original business and the varying sources of profits), which were ignored. As a result, it is possible to say that Hardin’s investors have fallen victims of their gullibility, as well as the lack of critical thinking.
As a conclusion, it is possible to say that the psychology of white-collar crime consists of the two intertwined parts, namely the psychology of a criminal and that of a victim. The offender may have multiple motives for resorting to the criminal activity, but they are always of a selfish nature. Moreover, the severity of the consequences of such activity depends not only on the skills of a fraudster but also his/her perception of the moral and legal norms of the society. In particular, in the reviewed case, the time of the criminal scheme launch has coincided with the beginning of the crisis in the market of property, which has increased the number of potential victims. At the same time, the victim of white-collar crime usually possesses the personal traits that attract the criminal. In the reviewed case, the lenders were rather gullible and did not demonstrate the ability to think critically, which has contributed to a long-term success of the scheme.
Thus, as any fraud, white-collar crime is a collision, competition, and struggle between the two psychologies: a psychology of defeat of one side and the victory of the other. The analysis of two psychological complexes, the understanding of the actions and mentality of the criminal and his/her victim provides a strong basis not only for the successful investigation of the cases of white-collar crime, but for a decent opposition to fraud as a whole, which is manifested as a set of preventive measures and actions.