This article examines 48 well-known but little analyzed 1980s security fraud cases. Organizational and archival data, personal interviews, and court documents are used as data sources to define the networks involved in insider trading, parking, skimming warrants, taxfraud, and market manipulation. The fraud analyzed was embedded in a high information processing industry with fast-changing markets. It returned exceptional rewards to both host units and individual members who retained nearly one half of every million dollars they grossed from fraud. Findings demonstrate that securities fraud activities require high centrality and intensity of communication combined with highly centralized decision making. These characteristics are incompatible in most multidivisional decentralized firms. Fraud networks emulate neither the structural contingency nor the secrecy models. The answer is found in the structural transformation of securities firms, during the late 1970s and 1980s, from multidivisional to multisubsidiary structures.
References
1.
Albonetti, C.
(1994). The symbolic punishment of white-collar offenders. In G. S. Bridges & M. A. Myers (Eds.), Inequality, Crime and Social Control (pp. 269-282). New York: Westview.
2.
Baker, W. E.
, & Faulkner, R. E. (1993). The social organization of conspiracy in the heavy electrical equipment industry. American Sociological Review, 58(6), 837-860.
3.
Bernard, H. R.
, Killworth, P. D., & Sailer, L. (1979). Information accuracy in social network data IV: A comparison of clique level structure in behavioral and cognitive data. Social Networks, 2, 191-218.
4.
Blau, P.
(1970). A formal theory of differentiation in organizations. American Sociological Review, 35, 201-218.
5.
Blau, P. M.
, & Schoenherr R. A. (1971). The structure of organizations. New York: Basic Books.
6.
Brass, D. J.
, & Burkhardt, M. E. (1993). Potential power and power use: An investigation of structure and behavior. Academy of Management Journal, 36, 441-470.
7.
Bruck, C.
(1988). The Predator's Ball. New York: Simon & Schuster.
8.
Burt, R. S.
(1982). Toward a structural theory of action: Network models of social structure, perception, and action. New York: Academic Press.
9.
Chandler, A. D., Jr.
(1962). Strategy and structure: Chapters in the history of American industrial enterprise. Cambridge: MIT Press.
10.
Chandler, A. D., Jr.
(1977). The visible hand: The managerial revolution in American business. Cambridge, MA: Harvard University Press.
11.
Chandler, A. D., Jr.
(1990). Scale and scope: The dynamics of industrial capitalism. Cambridge, MA: Harvard University Press.
12.
Clinard, M. B.
, & Yeager, P. (1980). Corporate crime. New York: Free Press.
13.
Coleman, J. S.
(1990). Foundations of social theory. Cambridge, MA: Harvard University Press.
14.
DiMaggio, P. J.
, & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48, 147-160.
15.
Drexel Burnham Lambert, Inc.
(1986). 1986 Annual Report. New York: Author.
16.
Eccles, R. C.
, & Crane, H. (1988). Doing deals: Investment banks at work. Cambridge, MA: Harvard Business School Press.
17.
Freeman, L. C.
(1979). Centrality in social networks: Conceptual clarification. Social Networks, 1, 215-239.
18.
Freeman, L. C.
, & Romney, A. K. (1987). Words, deeds, and social structure. Human Organization, 46, 330-334.
19.
Galaskiewicz, J.
, & Wasserman, S. (1994). Introduction. In S. Wasserman & J. Galaskiewicz (Eds.), Advances in social network analysis: Research in the social and behavioral sciences (pp. xi-xvii). Thousand Oaks, CA: Sage.
20.
Galbraith, J.
(1973). Designing complex organizations. Reading, MA: Addison-Wesley.
21.
Galbraith, J.
(1977). Organizational Design. Reading, MA: Addison-Wesley.
22.
Goffman, E.
(1970). Strategic interaction. Oxford, England: Basil Blackwell.
23.
Greider, W.
(1987). Secrets of the temple: How the federal reserve runs the country. New York: Simon & Schuster.
24.
Hage, J.
(1965). An axiomatic theory of organization. Administrative Science Quarterly, 10, 289-320.
25.
Hage, J.
(1974). Communication and organizational control: Cybernetics in health and welfare settings. New York: Wiley-Interscience.
26.
Hage, J.
, & Aiken, M. (1967a). Program change and organizational properties: A comparative analysis. American Journal of Sociology, 72, 503-519.
27.
Hage, J.
, & Aiken, M. (1967b). Relationship of centralization to other structural properties. Administrative Science Quarterly, 14, 366-377.
28.
Hage, J.
, & Aiken, M. (1970). Social change in complex organizations. New York: Random House.
29.
Hagen, J.
, Nagel(Bernstein), I. H., & Albonetti, C. (1980). The differential sentencing of whitecollar offenders in ten federal district courts. American Sociological Review, 45 (October), 802-820.
30.
Hagen, J.
, & Parker, P. (1985). White-collar crime, white-collar time. American Criminal Law Review, 20, 259-289.
31.
Hedberg, B.L.T.
, Nystrom, P., & Starbuck, W.H. (1976). Camping on seesaws: Prescriptions for a self-designing organization. Administrative Science Quarterly, 21 (March), 41-65.
32.
Ibarra, H.
(1993). Network centrality, power, and innovation involvement: Determinants of technical and administrative roles. Academy of Management Journal36, 471-501.
33.
Katz, J.
(1979). Legality and equality: Plea bargaining in the prosecution of white-collar and common crimes. Law and Society Review, 13, 431-459.
34.
Knoke, D.
, & Pappi, F. U. (1991). Organizational action sets in the U.S. and German labor policy domains. American Sociological Review, 56, 509-523.
35.
Krackhardt, D.
(1987). Cognitive social structures. Social Networks, 9, 109-134.
36.
Lipset, S. M.
(1956). Union democracy: The internal politics of the international typographical union. Glencoe, IL: Free Press.
37.
Meyer, J. W.
, & Rowan, B. (1977). Institutional organizations: Formal structures as myths and ceremony. American Journal of Sociology, 80, 340-363.
38.
Oliver, C.
(1991). Strategic responses to institutional processes. Academy of Management Review, 16, 145-179.
39.
Perrow, C.
(1986). Complex organizations: A critical essay (3rd ed.). New York: Random House.
40.
Powell, W. W.
, & Smith-Doerr, L. (1994). Networks and economic life. In N. Smelser & R. Swedberg (Eds.), The handbook of economic sociology (pp. 368-402).
41.
Shapiro, S. P.
(1976, February). A background paper on white-collar crime. Paper presented at the Faculty Seminar on White Collar Crime, Yale Law School, New Haven, CT.
42.
Shapiro, S. P.
(1984). Wayward capitalists. New Haven, CT: Yale.
43.
Shapiro, S. P.
(1987). The social control of impersonal trust. American Journal of Sociology, 93, 623-658.
44.
Simpson, S. S.
(1986). The decomposition of antitrust: Testing a multi-level, longitudinal model of profit-squeeze. American Sociological Review, 51, 859-875.
45.
Staw, B. M.
, & Szwajkowski, E. (1975). The scarcity-munificence component of organizational environments and the commission of illegal acts. Administrative Science Quarterly, 20, 345-354.
46.
Stewart, J. B.
(1991). Den of thieves. New York: Simon & Schuster.
47.
Stewart, J. B.
, & Hertzberg, D. (1988, August 5) Five Princeton/Newport partners indicted in racketeering, fraud case. Wall Street Journal, p. 3.
48.
Stinchcombe, A.
(1990). Information and organizations. Berkeley: University of California Press.
49.
Sutherland, E.
(1983). White-collar crime: The uncut version. New Haven, CT: Yale University Press. (Original work published 1949)
50.
Thompson, J. D.
(1967). Organizations in action. New York: McGraw-Hill.
51.
Tillman, R.
, & Pontell, H. (1995). Organizations and fraud in the savings and loan industry. Social Forces, 73(4), 1439-1463.
52.
Useem, M.
(1993). Executive defense: Shareholder power and corporate reorganization. Cambridge, MA: Harvard University Press.
53.
Wasserman, S.
, & Faust, K. (1994). Social network analysis: Methods and applications. New York: Cambridge University Press.
54.
Wasserman, S.
, & Galaskiewicz, J. (1994). Advances in social network analysis: Research in the social and behavioral sciences. Thousand Oaks, CA: Sage.
55.
Wheeler, S.
, Weisburd, D., & Bode, N. (1982). Sentencing the white-collar offender. American Sociological Review, 47, 641-659.
56.
Williamson, O. E.
(1975). Markets and hierarchies: Analysis and antitrust implications. New York: Free Press.
57.
Williamson, O. E.
(1985). The economic institutions of capitalism. New York: Free Press.
58.
Zey, M.
(1990). The organization of securities fraud. Paper presented at the Harvard Law School, Cambridge, MA.
59.
Zey, M.
(1993). Banking on fraud. Hawthorne, New York: Aldine de Gruyter.
60.
Zey, M.
, & Camp, B. (1996). The transformation from multidivisional form to corporate groups of subsidiaries in the 1980s: Capital crisis theory. The Sociological Quarterly, 37(2), 327-351.
61.
Zey, M.
, & Swenson, T. (1998). Corporate tax laws, corporate restructuring, and subsidiarization of corporate form: 1981-1995. The Sociological Quarterly, 39(4), 555-581.
62.
Zey, M.
, & Swenson, T. (in press). The transformation of the dominant corporate form from multidivisional to multisubsidiary: 1981-1995. The role of the tax act of 1986 in the capital accumulation process. The Sociological Quarterly, 40.
63.
Zey-Ferrell, M.
(1979). Dimensions of organizations: Environment, context, structure, and performance. Santa Monica, CA: Prentice Hall, Goodyear Division.
