Embezzlement: Protecting your Funds from Trusted Sources

Table of Contents

Embezzlement

What is Embezzlement?

Embezzlement refers to a type of white-collar crime where a person, group, or entity illegally misuses the assets entrusted to them for their own gain. 

Larceny and embezzlement differ in how the misappropriated asset is acquired. In larceny cases, the perpetrator acquires an asset through illegal means and has no right to own it. Embezzlers, on the other hand, gain an asset lawfully and have a right to own it, but they use it for unintended purposes.

For example, a financial advisor could siphon off money from their clients’ funds. The advisor has lawfully received their money and can invest it with their clients’ consent. Nevertheless, they do not have the right to spend some of the funds to make their own purchases. Embezzlement, therefore, violates the fiduciary responsibilities placed upon a person, group, or company.

In this article, the Zero Theft Movement will cover the various types and cases of embezzlement, as well as how business and individuals can protect themselves from this form of theft.

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Understanding Embezzlement

Those entrusted with access to another person or organization’s money must use those funds to achieve defined business objectives. The entrusted, therefore, draws from the pool to finance efforts relevant to achieving said goals. It is illegal for the entrusted to intentionally access the money for their own benefit. 

Embezzlement is a criminal offense, so it gets prosecuted under state law. In cases where the federal government has been embezzled, the federal government can also prosecute the defendant. If found guilty, the defendant might experience any combination of the following punitive actions: incarceration, fines, and victim restitution. Furthermore, the embezzler’s troubles do not necessarily end with the criminal proceedings. Victims could decide to sue the perpetrator in civil court. 

How Embezzlement Occurs

While you might think embezzlement happens only on a wide scale, it can actually occur in small businesses. Take, for instance, the store clerk at a local grocery store. If they pocket a few dollars from the cash register once in a while, they are embezzling the store owner. Of course, complex multi-million dollar embezzlement schemes do occur as well—wherein high-level executives set up shell companies that provide nonexistent services to launder embezzled money. 

Generally, all forms of embezzlement fall under two categories: embezzlement on the job and embezzlement of entrusted property.

Embezzlement on the Job

Embezzlement on the job involves the siphoning of money from one’s employer. This form of embezzlement can happen in the following ways: 

  • Charging more for a product than its retail price and pocketing the difference without the store owner’s knowledge
  • Taking money from the cash register
  • Depositing vendor checks into a personal account
  • Padding an expense account
  • Taking office supplies for your personal use 
  • ‘Cooking’ the account books to cover losses or stolen amounts
  • Transferring money from a customer’s account into a personal account
  • Creating a fake employee to the company payroll
  • Taking bribes or kickbacks
  • Reporting false time records

Embezzlement of Entrusted Property

Embezzlement of entrusted property occurs whenever someone unduly benefits from assets entrusted to them. For instance, embezzlement can happen in the following ways: 

  • ‘Borrowing’ money from a sports league
  • Using a client’s lawsuit award to fund operating expenses
  • Selling someone else’s property and pocketing all the proceeds
  • Using a child’s Social Security check
  • Profiting off of a check or credit card kiting scheme
  • Stealing money through a Ponzi scheme

One important point to note: a single embezzlement scheme can involve a number of fraudulent activities. Ponzi schemes, for instance, involve an embezzler who takes investment from initial investors and pays them with the next rounds of investment in the form of ‘dividends.’ These returns are reported as profit from legitimate transactions.

The embezzler does not actually put the investments into a business; they simply pass along money from one round of investors to the next. The scheme falls apart IF new investment dries up. 

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Potential Cases of Embezzlement

First National Bank of Chicago

First National Bank of Chicago

Source: Newberry Library

 

In 1988, an employee of the First National Bank of Chicago allegedly helped three people embezzle his employer. The trio reportedly posed as executives of big clients of the bank, each reportedly placing telephone orders for around $70 million. $239 million got stopped along the way to three forged bank accounts in Vienna, Austria. The bank’s security systems quickly detected the alleged scheme, and officials thwarted the embezzlers. 

According to a summarizing document submitted to the Court of Appeals, “Defendants were sentenced on September 20, 1989. Applying the Federal Sentencing Guidelines (“Guidelines”), the court sentenced Moore to 125 months of imprisonment; Strickland to 51 months of imprisonment; Carson to 37 months of imprisonment; Wilson to 36 months of imprisonment; and Jackson to 32 months of imprisonment. All defendants also received five years of supervised release and special assessments.”

R. Allen Stanford 

R. Allen Stanford

In 2012, Stanford International Bank (SIB)’s chairman, R. Allen Stanford, was sentenced to “110 years [in prison] for orchestrating [a] $7 billion investment fraud scheme.”

According to the Department of Justice ‘closed case report,’ “the defendants allegedly falsely claimed that SIBL’s assets grew from approximately $1.2 billion in 2001 to approx. $8.5 billion in December 2008. The indictment alleges that, in fact, approx. $5 billion of SIBL’s reported assets consisted of notes on loans to Stanford and grossly overstated interests in “island properties,” including more than $2 billion added to the books in 2008 from an allegedly artificial real estate deal that Stanford and his co-conspirators conceived to inflate the bank’s reported assets;

That Stanford and his co-defendants allegedly falsely represented to investors that SIBL’s investment strategy was to “minimize risk and achieve liquidity” and promised rates of return on CDs that in the end were simply too good to be true in light of the bank’s actual investments and assets; andThat Stanford and his co-defendants allegedly made false and misleading representations about the regulatory scrutiny of the bank by Antiguan authorities, when, in fact, Stanford was making corrupt payments of more than $100,000 to King to ensure that the Antiguan bank regulatory authority that he headed did not accurately audit, or verify the assets reported in the bank’s financial statements.”

A 2019 NBC report claimed that 18,000 victims of Stanford’s scheme had not received any restitution whatsoever. Many of them were retirees who had been sold “safe” investments. In the intervening years, it appears that victims have started to recoup a portion of the lost money.

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Bernie Madoff

Bernie Madoff

Source: WIBX 950

 

American financier Bernie Madoff reportedly masterminded one of the largest embezzlement schemes ever, amassing $64.8 billion in the process. 

Here’s how an NBC report described Madoff’s alleged scheme:

“In fact, investigators said, Madoff did not execute a single trade for his advisory clients for years. Rather than employing a so-called split-strike conversion strategy as he claimed, he simply deposited investors’ funds in a Chase bank account, paying off new customers with funds from earlier customers — a pyramid investment strategy — and providing his clients with falsified account statement. The investment “returns” shown on those statements — some $50 billion in all — were pure fiction.”

An FBI press release announced Madoff had been sentenced to 150 years in prison on 11 felony counts. Here’s an excerpt from the press release: 

“As part of his sentence, MADOFF, 71, was also ordered to forfeit a total of $170,799,000,000, which represents the total proceeds of and property involved in certain of MADOFF’s crimes. Judge CHIN had entered a preliminary order of forfeiture on June 26, 2009, which completely divested MADOFF of his interest in all property, including real estate, investments, cars and boats, in partial satisfaction of the forfeiture judgment. In addition, by order entered June 24, 2009, Judge CHIN extended the time for ruling on an order of restitution for 90 days from the date of sentencing.”

Protections Against Embezzlement

Beyond legal protections, employers and individuals can take a number of measures to prevent embezzlement. 

An employer should carefully vet potential employees through background checks and interviews. Hiring the right people, not just in terms of their skills but also their ethics, minimizes the chances of embezzlement happening. Employers can also foster a transparent and honest work environment in which employees truly believe in the company’s mission and values. If the employer’s budget permits, further protections could include a security and monitoring system to prevent corporate crime.  

Much of the same principles apply to individuals. Before making any investment, you should thoroughly research the opportunity. You will always be operating on an information deficiency, but you can reduce your chances of becoming a victim of embezzlement. 

Unfortunately, embezzlement reportedly costs U.S. businesses $50 billion annually. No safe and ethical economy has white-collar crime to such a degree. Retirees and younger investors allegedly lost billions to Madoff and Stanford. We need to better protect ourselves from economic foul play by taking matters into our own hands. 

The Zero Theft Movement has built an independent voting platform to eliminate the rigged parts of the economy. The public investigates potential problem areas, and everyone votes on whether (1) theft is or isn’t occurring in a specific area of the economy, and (2) how much is being stolen or possibly saved. Through direct democracy, we can collectively decide where the problem areas are and start working on addressing them systematically. 

Only through hard evidence can we prove where the rigged parts of the economy exist and force Congress to hold all the bad actors accountable.

Standard Disclaimer

The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.   

Terms like ‘steal,’ ‘theft,’ and ‘crime’ will frequently appear throughout the article. Zero Theft will NOT adhere strictly to the legal definitions of these terms (since congress sells out). We have broadly and openly defined terms like ‘steal’ and ‘theft’ to refer to the rigged economy and other debated unethical acts that can cause citizens to lose out on money they deserve to keep.  

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Beyond the Plunge Protection Team…

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We regularly publish educational articles on ZeroTheft.net, just like this one on the Plunge Protection Team. They teach you all about the rigged layer of the economy in short, digestible pieces.