How do executives pay themselves $1 per year without running afoul of minimum wage laws? Many executives, especially chief executives, receive nearly all of their compensation in stock. Both for public perception, and for tax reasons, Elon Musk, Eric Schmidt, Jack Dorsey, Larry Page, Mark Pincus, Mark Zuckerberg, and many others pay themselves only $1 per year. Assuming these men and women are legally &quot;employed&quot; by their respective companies, and given that I don't believe compensation in stock is legally pay under the federal Fair Labor Standards Act, how do they manage to avoid receiving at least minimum wage in cash? Where jurisdiction is concerned, I'd like to consider federal law in the United States, as well as state law in New York and California, though I am curious to hear about any other relevant state law as well (maybe Delaware Corporations follow only Delaware minimum wage laws?). Thanks in advance!
Under the Fair Labor Standards Act, employers are generally required to pay a minimum wage of $7.25 an hour. But under 29 U.S. Code § 213, many employees are exempted from this requirement. For Elon Musk and similarly situated individuals, the relevant exemption is found at section 213(a)(1): any employee employed in a bona fide executive, administrative, or professional capacity Although FLSA's definition of &quot;bona fide executive&quot; typically still requires at least a salary $684/week, 29 CFR § 541.101 expands that term to also include any employee who (a) has at least a 20 percent ownership interest in the employing business; and (b) is actively involved in the business's management. By my understanding, this would include all the executives you've mentioned above. Contrary to all the other answers so far, the fact that the employee is salaried is not sufficient to remove him from the protections of FLSA, which applies to both hourly and salaried employees. Some hourly employees are covered; some are not. Some salaried employees are covered; some are not. For more details on determining whether a salaried employee is exempt or nonexempt, you can review the Department of Labor Fact Sheet #17G.
It should be legal (though I can't find an analogous case where the court has ruled that it is). There is a regulation summarizing the government's position (thus, what will be enforced in 17 CFR 240.10b, which prohibits use of "manipulative or deceptive device or contrivance" in stock trading. Section 240.10b5-1 says: The “manipulative and deceptive devices” prohibited by Section 10(b) of the Act (15 U.S.C. 78j) and §240.10b-5 thereunder include, among other things, the purchase or sale of a security of any issuer, on the basis of material nonpublic information about that security or issuer, in breach of a duty of trust or confidence that is owed directly, indirectly, or derivatively, to the issuer of that security or the shareholders of that issuer, or to any other person who is the source of the material nonpublic information. The executives clearly have a direct duty of trust of confidence. Section 240.10b5-2 enumerates the following duties: (1) Whenever a person agrees to maintain information in confidence; (2) Whenever the person communicating the material nonpublic information and the person to whom it is communicated have a history, pattern, or practice of sharing confidences, such that the recipient of the information knows or reasonably should know that the person communicating the material nonpublic information expects that the recipient will maintain its confidentiality; or (3) Whenever a person receives or obtains material nonpublic information from his or her spouse, parent, child, or sibling; provided, however, that the person receiving or obtaining the information may demonstrate that no duty of trust or confidence existed with respect to the information, by establishing that he or she neither knew nor reasonably should have known that the person who was the source of the information expected that the person would keep the information confidential, because of the parties' history, pattern, or practice of sharing and maintaining confidences, and because there was no agreement or understanding to maintain the confidentiality of the information. In the hypothetical, (1) is plainly not applicable. (2) is predicated on having a relationship (which doesn't exist) and the information-having expecting you to keep the information secret (he doesn't know that you have overheard them). (3) is likewise not applicable. The basic rule is that you can't "misapproprate" information, but you can use information that falls into your lap (even from a person who has a duty to not disclose the information). This subsection starts saying "For purposes of this section, a “duty of trust or confidence” exists in the following circumstances, among others", which means they aren't necessarily giving you an exhaustive list. Still, there is currently no legal basis for prosecuting a person who overhears information from someone he has no relationship to, even if you are pretty confident that the information has not been made public.
Anyone found not guilty may apply to the judge to have his legal costs paid out of central funds; this is not automatic, but is usual if the court agrees that the charges should not have been brought. The amount payable is set out by regulations depending on where the case was heard; since October 2012 it has been set at legal aid rates, which are unlikely to cover a full defence team. Somebody who did not have a lawyer can charge for the time he himself spent on the case, but this is assessed at a standard rate similar to minimum wage, even if he happens to be an expensive lawyer. No compensation is payable for health or other problems incident on a criminal case; it is considered a part of the rule of law that charges will be brought against defendants, and that some of them will be found not guilty. It may, of course, be possible to sue the complainant for defamation or even to bring an action for malicious prosecution; a lawyer would have to advise on this, but the mere fact of acquittal is certainly not enough to found an action.
What happens to a corporation, or any of its executives, when that corporation is dissolving but has unpaid state franchise tax fees that it does not have the assets to pay? You can't get blood out of a turnip, even if you are the tax collector. This said, if assets were transferred without consideration to someone, the tax due could be recovered from the recipient of the assets in a fraudulent transfer action against that recipient. Can these corporation liabilities transfer to their executives? Depends upon what the applicable state statute says. More than one state has franchise taxes and the consequences for violating them are not the same. The magnitude of the taxes are also not the same. In some states it is basically an annually filing fee of a couple of hundred dollars or less, and simply forcing the corporation to dissolve for nonpayment would be considered punishment enough. In California, franchise taxes amount to a full fledged and significant state level corporate income tax. Many states impose personal liability as a matter of law on directors of corporations that pay dividends or make liquidating distributions to owners of a corporation when it is insolvent.
In general it is illegal to gamble on life. However, you might not even need to go to a bookmaker: A contract that pays money upon the death of a specific person is known commercially as "life insurance." In order to avoid the moral hazard (or reality) of creating a contract killing market, it has long been illegal to trade life insurance with any person or entity who does not have an "insurable interest" in the insured. (See also: The Insurable Interest Requirement for Life Insurance, by Peter Swisher, who also has a good review of laws and regulations surrounding exceptions to the rule like viaticals and STOLI. Further reading on the subject here.) I don't know if it has been tested, but I think anyone could argue that they would face a significant financial loss if the U.S. President were killed or died in office: the stock markets plunged on JFK's assassination. Therefore, it could be both legal and possible for anyone to buy life insurance on the U.S. President. (Note that, in the U.S., the disputes about third-party life insurance have revolved for generations around the tax benefits associated with insurance premiums and benefits. See corporate-owned life insurance (COLI), a.k.a. "janitor's insurance.")
I don't think so. When it comes to wages, there may be a Tarifvertrag (union-negotiated wage schedule), which may apply even if the employee in question is no union member. It is enough if the employer is member of the employer's association negotiating the schedule, or in certain other cases. (Clever, really, by extending union benefits to non-members they weaken the unions ...) The Tarifvertrag stipulates minimum wages for certain positions, and it may define those positions implement that. An employer could not underpay a skilled machinist by calling her a 'gadget specialist' or similar non-scheduled position. But the deputy department head is likely paid above the highest bracket of the wage schedule, called außertariflich (AT, beyond the schedule). At this level, it comes down to individual negotiations between the employee and employer.
Q: Why don't US prosecutors press for imprisonment for crime in the banking industry? Q. Why aren't US prosecutors (and UK prosecutors for that matter) not pressing for imprisonment in such cases? Is this because there are no such laws under bankers can be so indicted (notably, in the case reported on above, there is the additional complication of extradition) . . . ? Prosecutors have the legal authority to prosecute bankers for crimes, and not infrequently do press charge bankers with crimes and press for imprisonment for crimes in the banking industry, and have obtained many very long prison sentences in cases like these. For example, "following the savings-and-loan crisis of the 1980s, more than 1,000 bankers of all stripes were jailed for their transgressions." And, in 2008, the laws involved were, if anything, easier to prosecute and had stricter penalties than they did in the 1980s. There were 35 bankers convicted and sent to prison in the financial crisis, although arguably only one of them was really a senior official. This said, the real question is not why they don't do this at all, but why prosecutors exercise their discretion to refrain from seeking imprisonment or lengthy imprisonment, in cases where they either have a conviction or could easily secure a conviction. A former justice department prosecutor (in the Enron case) argues in an Atlantic article that it is harder than it looks. But, he ignores the fact that a lot of people looking at the very Enron case he prosecuted after the fact has concluded that the criminal prosecution may have done more harm than good, leading to significant harm to innocent people (for example by destroying the careers and wealth of Arthur Anderson accountants who had no involvement with the case, due to a conviction that was ultimately overturned on appeal). This changed the pro-prosecution of corporations attitude that had prevailed before then (corporations are easier to prosecute than individuals since you don't have to figure out exactly who in the corporation committed the wrong). This time, regulators and securities law enforcers sought mostly civil fines against entities with some success: 49 financial institutions have paid various government entities and private plaintiffs nearly $190 billion in fines and settlements, according to an analysis by the investment bank Keefe, Bruyette &amp; Woods. That may seem like a big number, but the money has come from shareholders, not individual bankers. (Settlements were levied on corporations, not specific employees, and paid out as corporate expenses—in some cases, tax-deductible ones.) The same link also points out the two very early criminal prosecutions against individuals resulted in acquittals by juries at trial, for reasons that may have been very specific to those trials, undermining the willingness of prosecutors to press even strong cases for almost three years and undermining the credibility of their threat to prosecute criminally. Also, this is not a universal rule. For example, China routinely executes people who are convicted in summary trials of banking law violations and corruption charges. Q. Is this due to the principle of limited liability? No. Banking officials in a limited liability entity (and all banks are limited liability entities) can have criminal liability for acts in violation of banking and fraud laws, notwithstanding limited liability. Is this because . . . powerful vested interests prevents the actual execution of the law as it is intended? If so - how exactly are they prevented? This does happen but not often. Sometimes this happens, but not very often. The corruption angle is a popular narrative on the political very progressive left of American politics, but as I explain below (as you note "Chomsky, the formation of Western capitalism was in large part by due to "radical judicial activism".", and Chomsky is a very left wing social and economic historian almost to the point of Marxist analysis), this visceral narrative isn't really accurate most of the time. First, for what it is worth, the prosecutors play a much larger role in this than "activist" judges do. Secondly, the decision making process is more nuanced and less blatantly corrupt and self-interested than his attempt at "legal realist" analysis would suggest. There are legitimate reasons for someone in a prosecutor's shoes to focus less on these cases, even if in the end analysis you think that they have made the wrong choices in these cases. The case for prosecuting banking fraud severely is basically a utilitarian one, but criminal prosecution is guided by norms beyond utilitarian norms. There are certainly cases where an elected prosecutor or high level elected official is persuaded not to bring criminal charges or to be lenient due to pressure from powerful vested interest. When this is done, a white collar criminal defense attorney, or a "fixer" who deals with political sensitive cases (sometimes on an elected official's staff and sometimes not), or an elected official or political party official contacts the prosecutor or the prosecutor's boss or is the prosecutor's boss, and based upon the plea from the powerful interests (direct or indirect) urges the prosecutor to back off and the prosecutor complies. At the most extreme level, a Governor or President or parole board can pardon someone facing prison for banking crimes, which has happened, but is extremely rare. But, this sort of direct intervention in an individual case is not terribly common. My guess would be that 1% to 10% of banking prosecutions are affected by this kind of influence particular to a given case. This is far too small a number of cases to reflect the reluctance of prosecutors to bring criminal bank fraud cases that we observe. More Often Policy Decisions Are Involved Budgets And Institutional Case Prioritization Much more common would be for the elected prosecutor or the administration that employs an appointed prosecutor to decide to deprioritize a particular kind of case and/or to reduce funding (both at the law enforcement/regulatory agency level and at the subdepartment of the prosecuting attorney's organization level) for prosecution of these kinds of cases as a matter of broad policy. Every prosecutor's office and law enforcement office on the planet has more crimes that it could prosecute and pursue than it has resources to do so, so it is always necessary to have some kind of priorities to decide which of those cases will be pursued. For example, perhaps the Justice Department funds a white collar crime enforcement office with the resources to prosecute only 750 cases a year, and there are 7,500 strong cases that the offices could prosecute. The white collar crime prosecution office has to then prioritize which of the 7,500 strong cases is chooses to pursue. It might, for example, in good faith, decide the focus on white collar crime cases that harm "widows and orphans" and other large groups of people who can't afford to hire their own lawyers to bring civil cases to sue the wrongdoers themselves to mitigate the harm that they suffer. More specifically, a policy set in place by Deputy Attorney General Eric Holder in the Justice Department in 1999 was followed: The so-called Holder Doctrine, a June 1999 memorandum written by the then–deputy attorney general warning of the dangers of prosecuting big banks—a variant of the “too big to fail” argument that has since become so familiar. Holder’s memo asserted that “collateral consequences” from prosecutions—including corporate instability or collapse—should be taken into account when deciding whether to prosecute a big financial institution. That sentiment was echoed as late as 2012 by Lanny Breuer, then the head of the Justice Department’s criminal division, who said in a speech at the New York City Bar Association that he felt it was his duty to consider the health of the company, the industry, and the markets in deciding whether or not to file charges. This was a top level policy choice made a decade before the Financial Crisis arose, not an individualized act of corrupt interference. Advocacy From Representatives Of Victims Another common voice for leniency are lawyers on behalf of victims of white collar crimes (I've been in this spot myself on behalf of clients). Why? Mostly for two reasons: People in prison don't make future income to compensate the victims out of. People prosecuted criminally pay fines and court costs that don't go to the victims and reduce the pool of available funds for the victims. The private lawyers representing victims recognize that not prosecuting a white collar criminal leaves that person at large to commit future economic crimes (white collar criminals are rarely a physical threat to the people in the community around them or to anyone who doesn't do business with them) and that it fails to strongly discourage others from doing the same thing in the future. Institutional victims of banking crimes and other white collar crimes may also urge prosecutors not to prosecute the crimes that victimized them, because they fear that the publicity would harm them more than the criminal penalties for the offender (whom they have ample means to sue in a civil action) would benefit them. The fact that victims seek leniency more often in white collar crime cases than in almost any kind of case (other than domestic violence cases, where victims also often urge leniency out of love and as a result of their economic dependency on the perpetrator), often causes prosecutors to determine that criminal prosecutions seeking long prison sentences are not a priority for the victims of these crimes and to prioritize their case loads accordingly. To get the $190 billion of settlement money that was paid from individuals would have required convictions of 1900 people capable of paying $100,000,000 each in 1900 very hard fought individual criminal cases, instead of 49 civil cases. This may or may not have been possible, as the most culpable figures were often in upper management, while the most affluent potential defendants were in top management and would have been harder to pin with personal criminal liability. Many top managers are relatively hands off in their management style and didn't get into the culpable criminal details. There are plenty of very influential and powerful bankers who were highly culpable who would have had less than $10,000,000 of net worth, much of which wasn't tainted with improper conduct, which isn't to say that prosecutors couldn't have seized it from them for fines and restitution, but it does make the moral case for doing so less clearly compelling. Evaluating Priorities For Limited And Expensive Prison Resources Prosecutors sometimes reason in white collar crime cases that keeping a white collar criminal in prison is very expensive to the state (up to $70,000 per person per year), and doesn't change the risk of physical harm to the general public, and that a felony conviction itself and fines and publicity and probation conditions are often sufficient to mitigate the risk that the convicted person will reoffend and to discourage others from doing the same thing in the future. Parole boards, in systems that have them, often release white collar criminals as early as possible, applying the same reasoning. Also, white collar criminals tend to be model prisoners. An incarcerated white collar defendant is also depriving the public of tax revenues on income that person would otherwise receive if out of prison. A long prison sentence can victimize the public economically in amounts comparable to a moderate magnitude economic crime. Crudely speaking, prosecutors reason: "Why spend huge amounts of scarce prison money to lock someone up when we have murders and rapists and people who steal things at gun point and violent criminals who seriously injure people without justification who really need to be our priority to get off the streets? The devious and dishonest banker doesn't present the same sort of risk to the general public and his conviction and probation conditions should suffice to prevent him from having the ability to do this in the future." Social Class Bias Yet another reason is that often prosecutors and the people who set policy for prosecutors don't see white collar crimes as culpable in the same way that they do blue collar crimes. Most prosecutors spend the vast majority of their careers prosecuting blue collar criminals, terrorists and the like. These are people from a different social class, who live lives very unlike their own, and the people who are victimized by these crimes tend to be middle class or more affluent people and businesses. Banks, for example, are routinely victims of armed robberies which prosecutors prosecute, and of embezzlement by low level employees, which prosecutors prosecute. Bankers socio-economically and culturally are a lot like the prosecutors themselves (who are lawyers), their peers, and the victims they usually defend, and are rarely like the people that they usually prosecute (lower class, often minority people, who have never worked in an office, failed in school, are quick to anger and hurt others, etc.). At an individual case level, a white collar criminal defense lawyer can often marshal very impressive character witnesses to say that the defendant is basically a good guy who messed up once, while this is frequently very difficult for blue collar criminal defendants to do in a way that really reaches prosecutors and judges. The bottom line is that prosecutors (and judges, many of whom are former prosecutors) sympathize with, understand and relate to white collar criminals far more than they do with ordinary blue collar criminals. And, this colors their judgments about what kinds of punishments (criminal or non-criminal) are appropriate for the kind of conduct that these people commit. Their instinct is that a crime that might be committed by someone like me is probably not as serious as a crime that a judge or prosecutor would never dream of committing like an armed robbery of a bank, even though economically, the banking fraud crime may have caused $500,000,000 of harm while the armed bank robbery may have caused only $5,000 of harm.
Yes. There have been indictments of individuals for failing to pay taxes on fringe benefits, such as the 2019 prosecution related to multiple instances of fraud including failing to report $410,000 of fringe benefits for People's Express, a bankruptcy start up airline. Often executives are prosecuted criminally, but corporations are actually easier to obtain convictions against (for example, corporations do not have protections under the 5th Amendment against self-incrimination). But since civil and criminal fines are hard to distinguish, it is more common to seek civil fines than criminal convictions against corporations, while pursuing criminal penalties against key officers and employees of the corporations. The U.S. Department of Justice has a set of policies (also here) regarding when corporations themselves should be prosecuted criminally that have parallels in state prosecutor's offices. A list of corporate criminal prosecutions in the 1990s (mostly for non-tax violations) can be found here. For example, in 1991, the Georgia Pacific Corporation was convicted of tax evasion and fined $5 million. Tax fraud prosecutions are rare but hardly unprecedented, although large civil penalties are vastly more common. There is nothing terribly new about it either. For example, an academic article on defending criminal tax prosecutions against publicly held companies was published in 1978. Simply stealing money meant for employee fringe benefits or taxes on those benefit is a more commonly prosecuted crime. At the federal level, in 2020, there were 593 tax evasion convictions in the US. In 2019, 848 people were sentenced, and in 2018 — 1,052. 945 prosecutions were recommended for tax crimes in 2020 in the U.S. In 2018, there were 1,050 recommendations. In 2019, the number of recommended prosecutions was 942, and in 2020 — 945. State tax fraud prosecutions are similarly rare but not unprecedented, although the raw number of cases per year is smaller because the federal statistics cover the entire United States, while state tax fraud cases comes from just one of fifty states. Almost all tax code provisions are the subject of fraud prosecutions at some point, and the common bond of the provisions is not the nature of the tax code section violated, but the willfulness of the violation. Detailed breakdowns of tax fraud prosecutions by type of tax code provisions violated are hard to determine, without detailed reviews of court records, because they all fall under the same criminal code sections. Many current federal prosecutions focus on tax fraud related to COVID related tax credits and cryptocurrencies. But federal tax prosecution agencies don't track fringe benefit fraud as a distinct subtype of case, and fringe benefit tax fraud could be variously classified as employment tax fraud, abusive tax schemes, general tax fraud, or corporate fraud.