What is Embezzlement? Definition and Famous Cases

Hundred dollar bills

Chung Sung-Jun / Getty Images

Embezzlement is defined as the misappropriation of funds or property by someone who lawfully controls such funds/property, without the knowledge of the owner. It is considered a crime under the federal criminal code and state statutes, and is punishable by jail time, fines, and/or restitution.

Did You Know?

One of the most famous embezzlement cases in U.S. history was that of Bernie Madoff, who embezzled over $50 billion from investors through a Ponzi scheme.

Elements of Embezzlement

According to the U.S. Criminal Code, in order to charge a person with embezzlement, the prosecutor must prove four elements:

  1. There was a trusted relationship between the person accused of embezzling funds and the institution or owner of the funds.
  2. The person was given control of the funds through employment.
  3. The person took the funds for private use.
  4. The person “acted with the intent to deprive the owner of the use of this property.”

In order to prove embezzlement, a prosecutor must show that the defendant was "substantially in control" of the misappropriated funds. Substantial control can be demonstrated through employment status or contractual agreement.

When proving embezzlement, it doesn't matter whether the defendant remained in control of the funds. An individual can still be charged with embezzlement even if they transferred the funds to another bank account or a separate party. Embezzlement charges also hinge on intent. The prosecutor must show that the embezzler intended to use the funds for himself.

Types of Embezzlement

There are multiple types of embezzlement. For example, some embezzlers go undetected for years by “skimming off the top” of the funds that they are employed to control. This means that they take small amounts of money from a large fund over a long period of time, hoping that the missing amounts will go unnoticed. In other cases, an individual will take a large amount of money at once, then attempt to hide the embezzled funds or even disappear.

Embezzlement is generally considered a white-collar crime, but smaller forms of embezzlement also exist, such as taking funds from a cash register before balancing it at the end of a shift and adding extra hours to an employee timesheet.

Other forms of embezzlement can be more personal. If someone cashes their spouse or relative's social security check for personal use, he or she can be brought up on embezzlement charges. If someone “borrows” money from a PTA fund, sports league, or community organization, they can likewise be charged with embezzlement.

Jail time, restitution, and fines may vary based on how much money or property was stolen. In some states, embezzlement may also be a civil charge. A plaintiff might sue someone for embezzlement to receive a judgment in the form of damages. If the court finds in favor of the plaintiff, the embezzler is liable for the sum of damages.

Embezzlement vs. Larceny

Larceny is sometimes used interchangeably with embezzlement, even though the two terms are legally very different. Larceny is the theft of money or property without consent. According to U.S. federal code, larceny charges must be proved through three elements. Someone accused of larceny must have:

  1. Taken funds or property;
  2. Without consent;
  3. With the intent to deprive the institution of the funds.

The need for embezzlement as a separate charge arose out of these elements. People engaged in embezzlement schemes do in fact have consent to be controlling the funds they take. On the other hand, a defendant charged with larceny never lawfully possessed the funds. Larceny is commonly referred to as outright theft, while embezzlement can be viewed as a form of deception.

Famous Embezzlement Cases

The most famous embezzlement cases unsurprisingly come with the highest price tags. The startling sums of money taken by the defendants accused and convicted of fraud have made some of them household names.

In 2008, an investment advisor named Bernie Madoff was arrested for taking over $50 billion in funds from investors—the largest embezzlement case in history. Madoff carried out his scheme undetected for years. His Ponzi scheme used money from new investors to pay off old investors, making them believe that their investments were a success. Madoff pled guilty in 2009 and received a 150-year prison sentence for his conduct. The scandal rocked the investment banking world and altered the lives of the people and institutions who had invested their savings with Madoff.

In 1988, four employees of the First National Bank of Chicago attempted to steal a total of $70 million in funds from three separate accounts: the Brown-Forman Corporation, Merrill Lynch & Company and United Airlines. They planned to charge the accounts with overdraft fees and transfer the money to Austrian bank accounts through three separate transfers. The employees were arrested by the Federal Bureau of Investigation after the outrageously large overdraft fees were flagged.

In 2012, a court sentenced Allen Stanford to 110 years in prison for embezzling over $7 billion. The international Ponzi scheme gave Stanford and his associates control of investors' assets with the promise of returns from safe investments. Instead, prosecutors alleged that Stanford pocketed the money and used it to fund a luxurious lifestyle. Some of Stanford's investors lost everything, including their homes, after a Securities and Exchange Commission (SEC) investigation landed Stanford in prison.

Sources

  • "Embezzlement." Britannica Academic, Encyclopædia Britannica, 11 Aug. 2018. academic-eb-com.resources.library.brandeis.edu/levels/collegiate/article/embezzlement/32506.
  • LII Staff. "Embezzlement." LII / Legal Information Institute, Legal Information Institute, 7 Apr. 2015, www.law.cornell.edu/wex/embezzlement.
  • "1006. Larceny." The United States Department of Justice, 18 Dec. 2015, www.justice.gov/usam/criminal-resource-manual-1006-larceny.
  • "1005. Embezzlement." The United States Department of Justice, 18 Dec. 2015, www.justice.gov/usam/criminal-resource-manual-1005-embezzlement.
  • Possley, Maurice and Laurie Cohen. "$70 Million Bank Theft Foiled" Chicago Tribune 19 May 1988. Web.
  • Krauss, Clifford. "Stanford Sentenced to 110-Year Term in $7 Billion Ponzi Case" New York Times 14 June 2012.
  • Henriques, Diana B. and Zachery Kouwe. "Prominent Trader Accused of Defrauding Clients" New York Times 11 Dec. 2008.
  • Henriques, Diana B. "Madoff is Sentenced to 150 Years for Ponzi Scheme" New York Times 29 June 2009.