The definition of embezzlement is when someone is entrusted with money and defrauds the rightful owner by misappropriating the funds. Embezzlement is different from fraud or theft, but it incorporates both actions. Is embezzlement a felony? The answer is: sometimes. While embezzlement can be a scandalous crime, it’s typically regarded as a misdemeanor. Embezzlement becomes a felony when the value of the property in question reaches a certain amount.
In California, for example, embezzlement is punished either as grand theft or as petty theft. If the crime is determined to be petty theft, the charge is a misdemeanor with a maximum of six months in jail. If the embezzlement is considered grand theft, it can be either a misdemeanor with a maximum of one year in prison or a felony with a maximum of three years of jail time.
Examples of grand theft in California involve unlawfully taking the following with an intent to deprive:
- Property worth more than $950
- Farm crops or equipment worth more than $250
- Ocean or agricultural products stolen from a research facility worth more than $250
- Property taken by an employee from their employer that totals over $950 in a 12-month period
- Any property taken from a car
In many cases, embezzlement occurs when an employee is entrusted with money from their employer. While the person can lawfully possess the funds, they are not allowed to move the funds to another account for personal use. The person in question is usually in a position of trust and abuses that trust for their own personal gain.
Common Embezzlement Defenses
- The money or property was not fraudulently used
- The defendant believed in good faith that they had a claim to the property
- There was no intent to deprive
Necessary Criteria for Embezzlement Conviction
To convict someone of embezzlement, the prosecution needs to prove three aspects: a relationship of trust, fraudulent use, and an intent to deprive.
Examples of a relationship of trust are if the property’s owner employs the defendant or if the owner gave the defendant temporary possession of a property (such as leaving your car with a valet). The last primary example is if the defendant has been granted access to manage the owner’s property, such as an investor.
Fraudulent use is proven by showing that the defendant took advantage of another person or caused a loss to a person by breaching their trust. An example could be a caretaker that is given money every week to buy food for the person in their care. If the caretaker used some of the money to buy the person a gift, it would not be embezzlement because they would not be taking undue advantage of the person. But if the caretaker used some money to buy groceries and some to pay their bills, that would be considered embezzlement.
The intent to deprive can be temporary and still result in a conviction. If an assistant was tasked with handling money for their employer and sets the money aside to consider keeping a portion, that is enough intent for a conviction. If they instead took the money and hid it somewhere as a joke, that would not show the intent to deprive.
Famous Embezzlement Cases
There are many notable examples of felony embezzlement over the years, with some seemingly come out of a movie script. We’ll go over nine of the most famous embezzlement crimes below. In each of these cases, a felony took place.
The founder of Bernard L. Madoff Investment Securities LLC and former NASDAQ Chairman Bernie Madoff pulled off the most significant Ponzi scheme in history. He may have pulled it off for even longer, but his two sons betrayed Madoff to federal authorities on December 11, 2008. However, the scheme should have been shut down much earlier.
A former securities executive and financial fraud investigator, Harry Markopolos, alerted the SEC in 2000, 2001, and 2005 that he believed Madoff was running a massive Ponzi scheme. Markopolos supported his opinion with evidence he started collecting in 1998. The SEC ignored Markopolos’ claims, and it wasn’t until Madoff’s sons came forward that the largest Ponzi scheme in history was shut down.
Investigators believed that Madoff’s fraud might have begun as early as the 1970s, but Madoff claimed that it started in the 1990s.
When you defraud people of eight billion dollars, you’ve committed a felony. That’s what Allen Stanford did using his company, the Stanford Financial Group, which he was the chairman of. The Stanford Financial Group operated an offshore bank in Antigua, and for 20 years, Stanford stole money from investors by pocketing part of the proceeds from certificates of deposits. In total size, Allen Stanford’s embezzlement was second only to Bernie Madoff.
Stanford was operating what is known as a Ponzi scheme. A Ponzi scheme is an investment scam that promises high returns with little risk. To make a Ponzi scheme work, new investors must be acquired, and their investments fund the profits for the earlier investors. By any measure, the depth of Stanford’s Ponzi scheme was enormous.
So what did Stanford do with the money he embezzled? He reinvested it into bad real estate deals, new businesses, and cricket tournaments. By the time he went to trial in 2012, he had so little money left over that he had to rely on court-appointed lawyers for his defense. He was found guilty on 13 of 14 counts and was sentenced to 110 years in jail.
While the victims of the Bernie Madoff Ponzi scheme received a large amount of their money back, Allen Stanford’s victims haven’t been so lucky. The Securities Exchange Commission missed vital signs of Stanford’s scheme, and lawmakers have asked the SEC to step up their aid to Stanford’s victims. As of October 31, 2018, Stanford’s victims had only recovered about five percent of the money they invested.
Girl Scout Cookies
If you want clear examples of embezzlement, the Girl Scouts do not disappoint. The biggest embezzlement case related to the Girl Scouts took place in Los Angeles, where Channing Smack embezzled close to $370,000 from the organization.
Smack was a property manager for the Girl Scouts, and he embezzled his money by approving invoices to a maintenance company for work that was supposedly done at the 22 properties he managed. The company was called ZB Land Maintenance & Engineering and was registered in the name of Zachary Smack, Channing’s deceased brother. Between August 2012 and October 2013, the Girl Scouts had paid ZB Land Maintenance & Engineering $368,278 for services that were never rendered. Girl Scout officials became suspicious and hired private investigators to look into Smack. The FBI arrested him as he began to turn some of his embezzled money into cash after the agency first confronted him.
Smack wasn’t the only California resident to embezzle from the Scouts. Patricia Cascione was found guilty in December 2019 of felony embezzlement and was sentenced to one year in prison. Cascione was a volunteer treasurer for the Girl Scouts, and CFO of a cancer center, and embezzled over $93,000 over the course of four years from the two organizations. Between 2013 and 2017, Cascione embezzled over $58,000 from the Girl Scouts account. She also diverted $34,500 worth of donations from the Beverly Hills Cancer Center over to the Girl Scouts account to embezzle those funds as well. A new employee in the accounting department noticed discrepancies and alerted authorities, which led to Cascione’s arrest after a one-year investigation. Cascione was ordered to pay restitution to the two organizations and was sentenced to one year in jail.
As you may suspect, some parents just can’t resist stealing money off the hard door-to-door work of their daughters. In 2018, a Girl Scout mom in Colorado pled guilty to a felony theft charge for embezzling money that her daughter had made selling the cookies. She was caught when Girl Scout leaders checked an account that should have had $2,400 and found that it was overdrawn. Although she was found guilty of a felony, Jennifer Hooten’s sentence was light as far as felonies go. She was fined, ordered to pay back $1,400 in restitution, and had to put in 48 hours of public service.
First National Bank of Chicago
“You’re not as smart as you think you are,” said Judge Harry Leinenweber to Armand Moore in late-September of 1989. Moore was one of five schemers who attempted to embezzle $69 million from the First National Bank of Chicago.
They successfully made three transfers from the accounts of First National Bank customers: $25 million from the account of United Airlines, $24.3 million from the account of Merrill Lynch, and $19.7 million from the account of Brown-Forman Corporation. The embezzlers were able to pull off the transfers with the help of an insider working in the transfer room at First National, Gabriel Taylor.
The money was transferred to a bank in Austria, and if the conspirators had been in Austria at the time of the transfer, investigators believe they may have gotten away with it. Moore received the maximum sentence of ten years and five months in prison, while his co-conspirators received sentences ranging from two years and eight months to four years and three months of jail time.
When you gamble so much that casinos charter private planes to fly you out to Las Vegas, you have a problem. That was the case for Fry’s Electronics vice president Ausaf Umar Siddiqui who embezzled over $65 million from his employer and used a large chunk of those funds to pay back gambling debts.
The scheme pulled off by Siddiqui involved cutting side deals with some of Fry’s suppliers. Siddiqui gained direct access to these companies by convincing senior management that it would save the company commission fees that they would have typically paid to sales reps. With his access, Siddiqui would buy products at higher than standard prices, and in return, the suppliers would give him kickbacks. Siddiqui set up a shell corporation to hide the $65.6 million in payments that were received between 2005 and 2008. Of the $65.6 million, $17.9 million was used to pay back the Venetian Resort Casino.
Siddiqui was sentenced to six years of jail time and was ordered to pay restitution on the $65.6 million.
The life of a comedian is already tenuous enough as it is, so you have to feel sorry for comedian Dane Cook when you learn that his half-brother and sister-in-law embezzled $12 million from him. Cook’s half-brother, Darryl McCauley, was Cook’s business manager and handled his financial affairs from the early 90s to 1998. But it wasn’t until 2008 that Cook and his lawyer contacted the police to start an investigation. McCauly went as far as to forge Cook’s signature to pay him $3 million, and he pled guilty to embezzlement, forgery, and larceny charges.
At the time it was committed, the Day-Lee Foods embezzlement was the largest corporate embezzlement case in U.S. history. The perpetrator was Yasuyoshi Kato, a Japanese citizen who embezzled $62 million from his employer in his role as chief financial officer. Kato was 39 at the time and used about half the money providing a life of luxury to his estranged wife and kids, while also showering girlfriends with gifts.
The scheme was not very elaborate. Kato wrote checks to himself in the name of Day-Lee Foods, a meatpacking company in Santa Fe Springs, California. He then borrowed money on behalf of the company from U.S. subsidiaries of Japanese banks to replace the money that he stole.
The penalty for Kato though, did not come close to matching the crime. He received five years in jail when he could have received up to 76 years, but his lack of criminal record softened the blow. When he was sentenced, the judge lamented, “It seems remarkable that the sentencing guidelines, as stringent as they are in other areas, only permit a sentence of this amount for something as extraordinary as this case.”
A character perfectly suited for the flash of the big screen, Robert Vesco led the life of a fugitive financier on the run. Sometimes it was on his million-dollar yacht, traveling to and from the Caribbean islands. Other times it was on his Boeing 707 as he eluded the CIA for 35 years.
The SEC claimed that Vesco embezzled $224 million, which would be worth close to a billion dollars today. Vesco’s adventures began in 1970 when he completed a takeover bid for Investors Overseas Service after its financier got into trouble with the SEC. Vesco then took funds from IOS investors and parked them in several different dummy corporations. He was even alleged to have broken into a Swiss vault to steal shares of stock.
In February of 1973, Vesco was facing criminal charges, so he took the IOS corporate jet along with close to $200 million of IOS investments and fled to Costa Rica. Once in Costa Rica, Vesco got right to work to secure his safety. He donated $2.1 million to the Sociedad Agricola Industrial San Cristobal, a company that was started by Costa Rican president Jose Figueres. In return, Figueres created a law that guaranteed Vesco would never be extradited to the United States.
Vesco stayed in Costa Rica until 1978 when the new president, Rodrigo Carazo, repealed what was known as the “Vesco Law.” His next destinations were in the Caribbean Islands, as Vesco traveled first to Nassau, Bahamas, and then to Antigua. In 1982 he relocated to Cuba after a failed attempt to return to Costa Rica.
Vesco managed to stay out of trouble until May of 1995 when he attempted to defraud Raul Castro, Fidel Castro’s brother. He was charged with fraud and illicit economic activity and was sentenced in 1996 to 13 years in jail, eligible for release in 2009. In 2007 though, it was reported that Vesco had died of lung cancer. However, many believe the death was a ruse, and Vesco’s associate and former CIA operative Frank Terpil claimed he fled to Sierra Leone in West Africa.
One of the more recent embezzlement cases to cause a stir came courtesy of the man in charge of the world’s biggest smartphone maker, Samsung. Lee Jae-Yong, the billionaire Samsung heir, was sentenced to five years in jail in a South Korean court for embezzlement, bribery, and hiding assets overseas.
Lee had been standing in as the chairman of Samsung after his father, Lee Kun-hee, had a heart attack in 2014. One of the crimes committed by Lee was giving $36 million worth of donations to a non-profit controlled by South Korea’s former President Park Geun-hye in exchange for political favors. The scandal eventually led to President Park’s impeachment, and Lee was sentenced to five years in jail.
Victims Often Left Without Justice
Unfortunately, in many of these cases, the money was never recovered or returned to the victims. In each case, retribution is ordered from the perpetrator to the victim. But often, the perpetrator has already wasted the embezzlement.
Embezzlement, in most cases, leads to pain for all parties involved. The moral of the story is, if you’re considering embezzling money, think again. You’re likely going to be caught. And if an investment sounds too good to be true, it probably is.