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Embezzlement

From lawbrain.com

The fraudulent conversion of another's property by a person who is in a position of trust, such as an agent or employee.

Embezzlement is distinguished from swindling in that swindling involves wrongfully obtaining property by a false pretense, such as a lie or trick, at the time the property is transferred, which induces the victim to transfer to the wrongdoer title to the property.

Contents

Nature

There was no crime of embezzlement under the common law. It is a statutory crime that evolved from larceny. Whereas larceny requires a felonious trespassory taking of property at the outset, embezzlement is a wrongful appropriation subsequent to an originally lawful taking. Embezzlement is, therefore, a modification of larceny designed to cover certain fraudulent acts that do not come within its scope. Although they are mutually exclusive crimes, larceny and embezzlement do overlap slightly under statutes in some states.

Embezzlement was created by the English legislature, which designated specific persons who might be liable for the offense. These were essentially persons entrusted with another's property, such as agents, attorneys, bankers, and corporate officers.

The English definition of the offense is followed in the United States. Statutes do not usually list the persons who might be liable but, instead, generally describe the offender as a person entrusted with, or in possession of, another's property.

Property

The type of property that must be converted is governed by statute. Generally, property is defined as including money, goods, chattels, or anything of value. Intangible personal property; commercial paper, such as checks, promissory notes, bonds, or stocks; and written documents, such as deeds or contracts, may also be the subject of embezzlement.

Under some statutes, property consists of anything that can be the subject of larceny. In other states, however, the property requirement for embezzlement is broader. For example, the statute might punish the conversion of both real and personal property.

In some states, the embezzlement of public property or public funds is a separate offense. The offense is characterized by the manner in which the money is received. A court clerk who receives bail money is a recipient of public money and the person can be liable if such money is wrongfully converted by him or her.

The property subject to embezzlement must have some value, even though value is not an element of the offense. Although a check without a required endorsement does not have value, the fact that the endorsement can be forged gives it sufficient value to make it a subject of embezzlement.

Elements

Statutes governing the offense vary widely throughout the states. To determine exactly what elements comprise the offense, it is necessary to examine the particular statute applicable.

Elements common to embezzlement are as follows: (1) the property must belong to a person other than the accused, such as an employer or principal; (2) the property must be converted subsequent to the defendant's original and lawful possession of it; (3) the defendant must be in a position of trust, so that the property is held by him or her pursuant to some fiduciary duty; and (4) the defendant must have an intent to defraud the owner at the time of the conversion.

Ownership The principal or employer must be the owner of the property embezzled by an agent or employee at the time the offense is committed. Under many statutes, the ownership requirement is expressed as the property of another. It is sufficient if any person, other than the defendant, owns the property and it does not matter who has title to it or that it is owned by more than one person.

Jurisdictions differ on the question of whether a person can embezzle funds belonging to a spouse. In states that retain the spousal privilege, a person can be prevented from testifying to a crime against a spouse; therefore, spousal embezzlement will not be prosecuted.

Unless a statute provides otherwise, coowners of property, such as joint tenants or tenants in common, cannot be guilty of the offense with respect to the property that is jointly owned. A co-owner who wrongfully transfers jointly owned property converts his or her own property as opposed to that of another; therefore, there is no conversion. If a person has any interest in property held jointly with another, the person cannot be convicted of the offense relating to that property. For example, a coowner of an automobile cannot be guilty of embezzling it if both owners have an equal right to possession. A number of states, however, have statutes punishing embezzlement by co-owners, such as partners who wrongfully convey partnership assets.

In most states, an agent authorized to collect money for his or her principal and to keep a certain amount as commission is guilty of embezzlement if he or she wrongfully transfers the entire sum collected.

Possession or Custody of Property Possession is the essential element for distinguishing between embezzlement and larceny. While larceny requires that the thief take the property out of the victim's possession, the person must lawfully possess the property at the time that it is converted for embezzlement.

It is not necessary for the defendant to have physical or exclusive possession. It is sufficient if the person has constructive possession, a form of possession that is not actual but that gives the holder power to exercise control over the property either directly or through another person. Alternatively, mere custody is insufficient for embezzlement. If a master puts a servant in charge of property for purposes of guarding or caring for it, the master is considered to have constructive possession of such property while the servant has mere custody. A servant who wrongfully converts property over which he or she has custody may be guilty of larceny, but not embezzlement.

The fact that an accused person lawfully receives property at different times will not negate an embezzlement charge provided all other elements of the offense are met.

Trust Relationship Since the offense is aimed at punishing persons who convert property for their own use when possession is lawfully acquired, prosecution is limited to instances where the parties are in a fiduciary, or trust, relationship.

Generally, a debtor and a creditor, or an agent and a broker, do not have a fiduciary relationship sufficient for the offense. There must be some further indication that one person has a duty to care for and exert some control over the other's property. The most common type of trust relationships are those existing among corporate officers, partners, and employers and their employees.

Conversion of Property

Conversion is an act that interferes with an owner's right of possession to his or her property. For purposes of embezzlement, conversion involves an unauthorized assumption of the right of ownership over another's property. It may, for example, occur when a person is entrusted with property for one purpose and uses it for another purpose without the consent of the owner. Generally, any type of conversion that occurs after a person obtains lawful possession of property is sufficient.

Although a failure to return property is evidence of conversion, it does not necessarily constitute embezzlement—absent proof of criminal intent. However, if a statute imposes an absolute duty to return property, the failure to do so is embezzlement, provided all other elements are met.

In certain circumstances, a demand is required before a person can claim that his or her property has been converted. Usually, no demand is required if it would be futile, such as when an accused has fled the jurisdiction with the property. If, however, there is no definite time specified for the return of the property, a demand might be necessary. The demand is merely a request that the wrongdoer return the property. The request does not have to be formal, and there is no requirement that the word demand be used.

When an agent is given authority to sell property and thereafter converts the proceeds of the sale, he or she is guilty of embezzlement of the proceeds, as distinguished from the property sold. A person with authority to cash a check but who converts the cash is, likewise, guilty of embezzlement of the cash and not of the check. The person, might, however, be guilty of embezzling the check if at the time of cashing it, the person has a fraudulent intent to convert it.

Intent In a majority of jurisdictions, a fraudulent intent to deprive the owner of his or her property is necessary for embezzlement. It is characterized as intent to willfully and corruptly use or misapply another's property for purposes other than those for which the property is held. The defendant's motive is not relevant to the intent element.

Although it is not essential that the intent exist at the time possession is first taken, it must be formed at the time the property is converted. The offense is not committed if there is an intent to return the specific property taken within a reasonable period of time. If, however, there is a fraudulent intent at the time the property is converted, a subsequently formed intent to return the property will not excuse the crime. An offer to restore the property will not bar a prosecution for embezzlement. Some courts have held, however, that an offer of restoration can be considered on the question of intent.


A person who believes that the property to be transferred is his or hers is considered to act pursuant to a claim of right. The possibility that the belief is mistaken, or unreasonable, is not important. If one has a good faith belief that one has a right to withhold property or devote it to one's own use, the conversion cannot be fraudulent, and there is no embezzlement.

The validity of a claim of right is a question of fact determined from circumstantial evidence. It is not sufficient if the person merely states he or she acted honestly. If circumstances evince that there was a willful and knowingly wrongful taking, a claim of right defense will not succeed.

Persons Liable

One or more persons may be guilty of embezzlement. If there is a conspiracy to embezzle, parties to the agreement are liable as principals. A person who aids and abets in the conversion can also be guilty of the offense.

Punishment

Since the offense is defined differently in several jurisdictions, the punishment for embezzlement can vary. Generally, the penalty is a fine, imprisonment, or both.

Some states distinguish between grand embezzlement and petit embezzlement on the basis of the value of the property stolen. The former involves property of a greater value and is punishable as a felony, while the latter involves property of a lesser value and is punishable as a misdemeanor.

Further Readings

Frazer, Douglas H. 2002. "To Catch a Thief: Civil Strategies for Handling Embezzlement Cases." The Wisconsin Lawyer 75 (February): 6

Johnson, J. A., Jr. 2000. Thief: The Bizarre Story of Fugitive Financier Martin Frankel. New York: Lebhar-Friedman.

Kahl, Leah A., and Peter C. Ismay. 1998. "Exceptions to Discharge for Fiduciary Fraud, Larceny, and Embezzlement." Journal of Bankruptcy Law and Practice 7 (January-February): 119–60.

McClintick, David. 1982. Indecent Exposure: A True Story of Hollywood and Wall Street. New York: William Morrow.



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