Embezzlement is a common white collar crime in Massachusetts and all states. Embezzlement happens when a person steals or misappropriated funds or property from their employer, business partner or another person.
For embezzlement to happen, there must be three factors present:
- A financial relationship between the victim and the accused; this is called a fiduciary relationship. It means that one party was relying on the other and trusted him or her to handle property, money or something else of value. Typical fiduciary relationships that can lead to embezzlement charges include bankers and their clients, and financial advisers and their clients. Note that the simple handling of money does not usually define a fiduciary relationship. A cashier does not have a fiduciary relationship with customers, but a financial advisor who handles money for a retired couple does.
- The accused must have acquired the property of the person through the financial relationship, and then transferred possession of the property to themselves or a third party. It is not enough if the accused had access to the money or property, although that could be part of the person’s job. The accused must have used the access to the property to convert it for his personal benefit or that of another person. For example, a stockbroker might transfer the client’s stock portfolio to himself, or sell it and keep all of the profits. Or, an employee who pays the bills for a company uses the money to pay his own bills.
- The accused’s actions must have been intentional; this is a requirement of fraud. So, if a financial advisor accidently transfers a client’s property to himself, this would not usually be embezzlement. Also, if a person who has been entrusted with property has a reasonable belief that the property was given to him, this could be a valid defense.
In Massachusetts for example, embezzlement is in the general criminal category of theft or larceny. The state also has several statutes that address this crime. How the are prosecuted and punished depends upon the circumstances that surround the embezzlement.
Embezzlement laws are covered in Massachusetts General Laws, part IV, Title I, Chapter 266:
- Section 50: Embezzlement by employee of state treasury
- Section 51: Embezzlement by county, city or town officer
- Section 52: Embezzlement by bank employees or officers
- Section 55: Embezzlement by liquidating receiver or agent
- Section 56: Embezzlement by agent or broker
- Section 57: Embezzlement by fiduciary
- Section 58: Larceny – embezzlement from a voluntary association
- Section 59: Simple Larceny – embezzlement from a voluntary association
Another type of embezzlement in Massachusetts is embezzlement of trade secrets. It is covered in MGL c. 266, s. 30(4). The law states that any person who embezzles, unlawfully takes, carries away, conceals or copies with intent to convert a trade secret of another is guilty of larceny by embezzlement. For this type of crime to occur, it does not matter what the value of the trade secret was or whether the trade secret was possessed by the offender at the time of secreting or conversion.
A trade secret includes anything intangible or tangible that represents or constitutes a secret scientific, technical, producing or merchandising procedure, formula, invention or improvement.
Punishment for Embezzlement
Punishment for embezzlement varies by each state; most states alter the severity of punishment based upon the type and value of property stolen. This means if millions of dollars is taken, you are much more likely to face serious punishment than if you only stole $5000. Some states also increase the embezzlement punishment when the property is of particular value to who owns it, or if the money belongs to the public.
Trust is a vital aspect of a fiduciary relationship, so many states have several aggravating factors that can be applied to the embezzlement charge, such as if the accused is in a position of public trust. For example, if an accountant works for a city government and steals taxpayer funds, this could be an aggravated charge. The public takes a dim view of taxpayer funds being used for a government employee’s personal expenses.
People convicted of embezzlement will probably face serious time in jail and fines. They nearly always must pay restitution, as well; this is payment that is made to the victim to pay him for their financial loss. It could be the value of property or money stolen, or if the property cannot be precisely valued, it could be determined by the judge.
In Massachusetts, the following are punishments for embezzlement:
- For money or property that is worth $250 or less: First offense can include a fine of $50 to $600, and six months to 2.5 years in prison, or both.
- For money or property that is worth $250 or more: Penalties can be a fine of up to $25,000, five years in prison, or both.
- If the crime is committed by a municipal official, fiduciary, broker or from a bank, it is a felony that can result in two years in prison and/or a fine up to $2000.
Penalties in Massachusetts can be enhanced if the property was stolen from someone 60 years old or older, or from a person with a physical or mental disability. Other penalties can apply if the person committing embezzlement is a state treasury or city official.
Embezzling trade secrets can be punished by a state prison term of 2.5 years, and a fine of $25,000.
Also, an embezzlement charge can be brought in civil court. The aggrieved party can try to get restitution and penalties. There also are serious tax consequences for embezzling money. The IRS may attempt to collect taxes and penalties on the illegal gains.
Common Defenses for Embezzlement
Embezzlement is a serious crime, but there are several potential defenses to consider:
- You did not take the money or property. The best and easiest defense is to prove that you did not actually take what you are accused of taking. Your defense attorney will want to find any evidence he can that proves that you did not embezzle anything.
- Show you took the money or property for legitimate purposes. There are cases where a person took money or property from an organization, but it was done for legitimate purposes and not for their own gain. If this is your defense, you will have to show there were reasonable business reasons for taking the money that you are accused of embezzling. You also will need to show that you did not do anything with the funds for personal gain.
- Lack of evidence. If you are able to disprove any underlying assumption that is key to the idea that you embezzled funds, or you can show there is any reasonable doubt that you committed the crime, the charges could be dropped.
- No intent. It is impossible to commit embezzlement by accident. For example, if it can be shown that you believed the property was yours, you cannot be convicted of embezzlement. You must have known the money or property stolen belonged to someone else for you to be convicted of embezzlement.
- A less common but still valid defense is you thought some harm would come to you or loved ones if you did not embezzle funds. You may be able to prove that you were acting under duress. This could result in the charges being dropped. But there is a fine line in these cases. It is not duress if you embezzled funds to keep the mortgage paid for your family. There must be an actual chance of real harm that could come to you or your family if you did not commit the crime. You also could argue duress if your supervisor threatened to fire you if you would not participate in an embezzlement scheme.
Embezzlement Statute of Limitations
Each state has a statute of limitations for the crime of embezzlement. In Massachusetts, the statute of limitations for this crime is six years from the date of the alleged offense. The statute of limitations for embezzlement is detailed in MGL c. 266, Section 63.
Famous Embezzlement Cases
Over the decades, the United States has had more than its share of major, famous embezzlement cases. Below are some of the most notorious ones.
- Robert Vesco: According to the SEC, Vesco embezzled more than $200 million. But he never had to face a jury against these allegations. As soon as federal charges were filed, Vasco left the country for Cuba. Eventually, the CIA tracked him down, but Cuba would not extradite him. Vesco spent the rest of his life in South America where there were no extradition laws.
- First National Bank of Chicago: In March 1998, the FBI brought federal charges against four bank employees. The case became well known because of the huge amount of money involved: nearly $70 million. First National employees were planning to send the money to multiple fake accounts in Australia; these are anonymous and untraceable bank accounts. The only issue with this scheme was that Merrill Lynch found out there was $20 million missing from one of their accounts.
- Dane Cook: This embezzlement case involved comedian Dane Cook and his brother Darryl McCauley. In 2010, Darryl McCauley was found to have embezzled millions of dollars from Cook. McCauley was Cook’s business manager for many years. Having open access to Cook’s finances meant he could easily steal from his accounts and hide the money. One of the most shocking examples of this embezzlement was a $3 million check that McCauley wrote while forging his brother’s signature.
- Girl Scout Embezzlement: There have been many cases over the years where adult leaders in Girl Scout groups have stolen funds from children who were selling cookies for the Girl Scouts. While most of these cases are for amounts less than $10,000, stealing money from children is a particularly odious form of embezzlement.
- Bernie Madoff: Possibly the most famous embezzlement case in US history. The total of Madoff’s pyramid scheme and embezzlement totalled almost $60 billion. He was taking money from new investors and using it to pay old investors’ non-existent investment returns. He eventually was sentenced to 150 years in prison. Hundreds of large and small investors lost vast sums of money due to Madoff; some of them lost their entire life savings and committed suicide.
- Omar Siddiqui: In 2008, Siddiqu was the VP of Operations and Merchandising for Fry’s Electronics. He established a dummy company that got kickbacks that totalled $80 million. He continued to embezzle funds to pay off millions of dollars in gambling debs. He received six years in federal prison and had to pay $65 million in restitution.
- Kenneth Lay: Lay was the CEO of Enron and is well known for the accounting fraud and embezzlement that led to shareholders losing $11 billion. Enron was one of the biggest sellers in the world of natural gas, but illegal and unethical accounting practice resulted in the company going bankrupt. He was facing 50 years in prison but he died before he was sentenced.
- Allen Stanford: Stanford was CEO of the Stanford Financial Group of Companies. The SEC started an investigation into his business in 2009 and found a huge fraud that involved a Ponzi scheme worth $8 billion. He was eventually charged with fraud and embezzlement and sentenced to 110 years in federal prison.
- Day-Lee Farms: CEO Yasuyoshi Kato of Day-Lee Foods in California embezzled at least $90 million from his firm. He was the only worker in the company who had access to the firm’s banking statements. It made it easy for him to hide his embezzlement for years. However, his lavish lifestyle far above his means helped the IRS to catch on.
- What Is Embezzlement? (n.d.). Retrieved from https://www.nolo.com/legal-encyclopedia/what-is-embezzlement.html
- Embezzlement Overview. (n.d.). Retrieved from https://www.justia.com/criminal/offenses/theft-crimes/embezzlement/
- Embezzlement Laws by State. (n.d.). Retrieved from https://www.criminaldefenselawyer.com/crime-penalties/federal/embezzlement.htm#states
- Top Five Embezzlement Cases in US History. (n.d.). Retrieved from https://mass.calcagnilaw.com/top-5-embezzlement-cases-u-s-history/