DEFINITION of 'Major Fraud Act Of 1988'

The Major Fraud Act of 1988 is a piece of American legislation passed during the Reagan administration that modified and strengthened previous fraud legislation. Among the many changes, the Major Fraud Act increased the maximum statutory penalties for those convicted of fraud, added protection for employees who assist the prosecution of fraud cases (such as whistle blowers), and introduced mandatory annual reports on fraud investigations by the attorney general.

The timing of the Major Fraud Act makes it seem like a reaction to the increase in securities fraud cases and related lawsuits during the late '80s and early '90s. However, much of the legislation actually targeted government contractors' persistent cost overruns and suspect bidding practices. The increase of penalties to $1 million for a single count and $10 million for multiple counts may not have significantly deterred this type of fraud, but it did increase the amount the government was able to claw back through the courts.

BREAKING DOWN 'Major Fraud Act Of 1988'

The Major Fraud Act of 1988 was passed as a response to the rise in white collar crimes, such as fraud, in the United States during the 1980s. A perceived increase in the case of lawsuits filed involving mortgage fraud, accounting irregularities, securities fraud, and more became a major concern for both investors and policy makers. The lawmakers who crafted the bill cited some examples: on March 1, 1988, the Washington Post reported that the Department of Justice charged Goodyear Aerospace Corporation with fraudulently over-billing the Pentagon by more than $7 million during the three years when it was the military's sole supplier of inflatable bomb parachutes; on March 10 1988, there was another report that Bell Helicopter Textron, Inc., had agreed to return $90 million to the U.S. Government to resolve a Justice Department investigation into overcharging on helicopter spare parts; on March 24 1988, a Department of Justice press release announced that Motorola, Inc., one of the nation's top 50 defense contractors at the time, had agreed to US $16,776,057 in criminal fines, restitution and civil penalties in regard to labor and materials overcharging and defective pricing.

The Major Fraud Act sought to increase the minimum penalties owed if convicted of fraud and helped protect whistle blowers from repercussions for coming forward in such cases. According to this law, major fraud involves that amounting to more than $1 million in damages, in which case the perpetrator, if found guilty, could be subject to monetary fines as well as prison terms. As the examples above show, however, the actual aim of the law seems to be to protect overbilling by firms to government agencies rather than to protect individuals.

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