American Greed

Flush With Crime: Study Shows Prison a Career Booster

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The United States has the highest reported incarceration rate in the world, and the debate has raged for decades: does prison reform the bad guys, or simply make them better at committing crimes?

Theories abound, but it's worth considering one study that argues spending time in prison actually helps a person increase their earnings power from criminal activity.

A criminal who continues to engage in illegal activity after serving time will make roughly $6,300 more a year than a person who's served no time in prison, according Ohio University Sociologist Donald Hutcherson.

"I wanted to see if spending time in prison actually led towards failure in the conventional labor market; and once you fail there, does it lead to success in the underground economy," he said. "And I found that's the case."

The author of "Street Dreams: The Effect of Incarceration on Illegal Earnings," Hutcherson based his findings on analyzing eight years of data from the National Longitudinal Survey of Youth.

Hear the "American Greed" story of a repeat offender who graduated from state prison to two stints in federal pens for running multiple multi-million-dollar schemes.

Some argue that prisons act as a"finishing school" for criminals, but Hutcherson does not completely agree. He argues that while prison can boost a person's knowledge of illicit activity, having a prison record is a major factor behind what forces them to make money through crime once they're released.

"You can make the argument that guys are struggling when they get out of prison because they lack skills and [they] have a prison record," he said.

As the overwhelming amount of research shows, it is very difficult for the ex-incarcerated to get a normal job once they return to the "real world." Rates of recidivism — the pattern of ex-cons falling back into crime after leaving jail — exceed 60 percent, according to Department of Justice data.

"Most able-bodied men will not sit around doing nothing when they fail in conventional labor market," Ohio University's Hutcherson said. "They're going to go out and make money somehow; and they do so in the illegal underground economy."

(Read More: "From Pimping and Street Crime to White Collar Scheming")

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Social, Human Capital Factors

Prison time inflates illegal earnings because it creates a deficiency in both social and human capital, the sociologist said, which makes it even more difficult to obtain a job. Additionally, they have the added stigma of having been locked up attached to their name.

In sociological terms, social capital can be thought of as networking. It's the amount and quality of networks a person has that could help them secure a job in the conventional work force.

"What's likely happening is the social capital you build is the kind of social capital we don't want for offenders," Hutcherson said. "The only kinds of people you have networks with are other criminals that can help you advance in the underground economy."

(Read More: "To White Collar Psychopaths, Stealing and Backstabbing Come Easy")

Those who are incarcerated also leave prison lacking in human capital. This particular quality includes essential job-hunting tools like education and experience, which are essential for success in the traditional labor market.

"The more you have, the more likely you are to make it in the workforce," he said. "You need education and experience so you can say 'I've done this elsewhere and I'm capable', or 'I deserve a promotion because I've done this before.'"

On top of that, a person who's served time has a stigma that is often hard to shake.

"If you walk into business and check the box that says, 'I'm a felon and I spent time in prison,' employers will look at you differently and not choose you over someone else, even someone with lesser qualifications," Hutcherson said.

Many employers see a person who's served time in prison as someone who cannot be trusted in the workplace.

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One Potential Answer

Hutcherson believes the answer migh tbe found in taking a look at who we lock up and for what crimes, noting the amount of non-violent offenders serving time for drug offenses and burglaries. Statistics show that these types of criminals comprise a major part of the prison population; whereas prior to the implementation of anti-drug laws 40 years ago, this was not the case.

In 1971, President Richard Nixon declared a national war on drugs. Two years later, New York state was the first to implement mandatory prison sentences for drug dealers and addicts — even if the perpetrator was caught with contraband in small amounts.

Soon after, other states and the federal government adopted tougher guidelines for prison sentences, including mandatory minimums and three strike laws. By the 1980's, prison populations had swelled.

Today, the U.S. has the highest, reported incarceration rate in the world. According to the latest statistics from the Bureau of Justice Statistics, nearly 2.3 million people are incarcerated in state and federal prisons and local jails. Nearly half of all federal inmates, 48 percent of them, were serving time for drug offenses in 2011 while 47 percent of state prisoners were locked up for non-violent crimes.

For Hutcherson, the numbers suggests that stringent drug laws may carry a hefty price.

"The big question for the criminal justice system is did we take a wrong turn with these people and maybe they'd do better if punished with strict probation because they could continue to build social and human capital," he said.

(Read More: Allen Stanford: Descent from Billionaire to Inmate # 35017-183)

Perry Griggs was arrested by the U.S. Secret Service in early 2002 for stealing more than $4 million from more than 50 investors.
Source: U.S. Secret Service
Perry Griggs was arrested by the U.S. Secret Service in early 2002 for stealing more than $4 million from more than 50 investors.

One Case of An Unreformed Criminal

Hardened criminals and drug abusers are hardly the only culprits. White-collar offenders can also fit the profile articulated by Hutcherson.

Perry Griggs is an unreformed criminal. After serving 3 years in a state prison at the age of 28 for running a flooring company Ponzi scheme, Griggs continued to concoct scheme after scheme until he eventually ran a multi-million dollar-scam — from behind prison bars.

Griggs was convicted of bilking more than $4 million from at least 50 victims while posing as a commodities trader with an inside track on coffee futures, and sent to a federal prison in Nevada. Eventually, he landed in the orbit of more than 100 inmates from the Hawaiian Islands,

Upon his arrival, Griggs systematically lied to the inmates. He maintained an image of a successful trader whose only crime was not paying taxes, according to John Waugh, the former Secret Service Agent who investigated Griggs in the early 2000's.

"[The inmates] weren't coming from places where they knew multi-millionaire commodities traders. So the idea of meeting someone like Perry Griggs who was that impressive just really bowled them over," John Waugh told "American Greed."

"He subscribed to magazines like the Robb Report for the affluent lifestyle and Cigar Aficionado, Barons and Forbes, to make it seem as if he was a world; a man from the world of high finance," Waugh added.

Yet it was all part of his plan to rip them off, according to authorities.

Griggs realized that while the Hawaiian inmates didn't have wads of cash in the bank, many had mortgage-free homes that had been in their families for generations. He convinced the inmates they could get rich quick if they, or their families, took out equity on their properties and handed over the cash to his contact on the outside.

That person was his wife, who would collect the money for him to invest.

The scheme worked from behind bars for years. When Griggs was released from prison in September 2009, he and his wife moved into a high-end home in Las Vegas. Soon enough, like all pyramids, the scheme crumbled.

Eventually, Griggs pleaded guilty to the scam. At sentencing, the judge called him a "serial fraud artist" and one of the most blatant criminals he's seen in 24 years on the bench. He's now serving a 7-year-sentence in Terre Haute, Indiana at a special terrorism unit.

Watch the entire story of Perry Griggs on "American Greed" tonight at 10pm ET/PT on CNBC.