Looking for a legal term

[ffutures]

Is there a technical name for the type of fraud we see in the film / play The Producers? Specifically, overselling shares in the profits of some venture, then ensuring that the venture fails and there are no profits, so the overselling never becomes apparent?

The example I'll be using involves selling shares in the profit of a space expedition, then sabotaging the ship.

Comments

[daveon.livejournal.com]

Technically it's a securities fraud. Before the 20s it technically wasn't illegal (if memory serves) and the rules were brought in because of the crash.

Interestingly, the US is going back to allowing this type of behaviour on a more Caveat Emptor basis.

[jordan179.livejournal.com]

I do believe it would still have been criminal fraud even before 1929, though it would have been harder to prove under the laxer reporting regime of that time. Several real-life stock manipulators did some variant of this before the Crash of `29, and mostly got away with it. It's an especially bold variant of "selling watered stock," and it's been illegal since at least the chartering of the first joint stock companies in the 17th century. Though as I said, good luck proving it!

[ffutures.livejournal.com]

Thanks to you both - watered stock and securities fraud may be the phrase I'm looking for.

[jordan179.livejournal.com]

Sounds like at its root simple criminal fraud. If I sell shares of a business enterprise, by definition the most shares I can possibly sell amount to 100% of the enterprise. If I try to shares in excess of 100% I am selling property I do not own: this is criminally fraud (selling something one has no intent of delivering) remedied by imprisonment under the appropriate statutes; and civilly could be remedied by requiring repayment of the investors at least to the value of their investment (irrelevant in Max Bialistok's case as he had no assets with which to make his victims whole).

Max, incidentally, would have profitted from his fraud both by simple salary (if he paid himself a salary) and more importantly by tax evasion (he was going to declare the play a loss on his tax returns to the extent of his indebtedness). This means that he was also guilty of attempted tax evasion, though I don't know if he got prosecuted or convincted for that as well (since he never actually got to declare any losses and hence it would be difficult to prove the attempt, unless his accountant ratted on him in every detail of their plan, which I don't remember if he did).

But yeah. It's very illegal. Even if the illegality of the scheme would not have been obvious from the outside had the play flopped, which was of course their plan. :)

[ffutures.livejournal.com]

I never doubted that it wasn't, I was hoping that there might be a technical term or common name for it., as for "Pyramid scheme" etc.

[whswhs.livejournal.com]

As a literary note, a fraud of this kind forms part of the plot of The Fountainhead. A group of confidence men raise funds to build a vacation area, and hire the hero, a modernist (and controversial) architect, to design the housing, confident that his design will be a disaster and will lose huge amounts of money.

[bemused-leftist.livejournal.com]

I was going to mention that. The book gave a good short explanation. Also, it didn't have to be about stock sales; the same thing could be done just taking simple loans.

Did Rand give a name to this resort project? If so, it might be used in a future set SF as a generic name for that sort of swindle.

[ffutures.livejournal.com]

I wonder if The Producers got the idea from that? Thanks!

[whswhs.livejournal.com]

Monadnock Valley. It's described in the first couple of chapters of Part IV of the book.

[heliograph.livejournal.com]

Creative Accounting.

[ffutures.livejournal.com]

That might be a good title for the sidebar. Thanks!