Our nation’s recent economic difficulties have seemingly spurred an increase in financial-related crimes. One particularly common financial crime is embezzlement of corporate money by corporate officers, employees, or financial professionals. (Recently, we have also seen a number of incidences of embezzlement involving co-op/condominium associations, charities, religious groups, and social organizations). In New York, the majority of these crimes are prosecuted under state law, and the applicable charges are generally contained in Penal Law Chapter 155. In these types of cases, charges of “falsifying business records” under Penal Law Chapter 175 are also common.
The classic embezzlement case involves a corporate treasurer, in-house accountant, or employee with access to the company checkbook diverting money from the corporate account into his own account, and then “cooking the books” to hide the missing money from other officers. Thieves generally hide their actions by only taking a small amount at a time so as to not raise any red flags; however, they inevitably get caught when the missing amounts become quite substantial over an extended period of time. Sometimes these cases can be as simple as a cashier stealing from the register, and other times they are extraordinarily complex matters involving shell accounts and numerous offshore wire transfers.
Regardless of their methodology, embezzlers that get too greedy are almost always caught and confronted by another employee or officer. Of course, everything the embezzler says to the other employee during that confrontation can be used against them in a court of law – civil or criminal – and the accused has no Miranda rights because the other employee is not a law enforcement officer.
Once caught, embezzlers now face a difficult choice: do they repay the money or not? On the one hand, repayment of the money may be the only way to persuade the organization not to report the theft to the police and thus avoid arrest. On the other hand, the thief could repay the money and still be arrested, as the repayment of the money does not “cure” the original crime. In fact, repayment of the money could even be construed as an admission of guilt in a criminal prosecution.
From the corporation’s standpoint, there are some advantages to simply calling the police immediately. Law enforcement can relieve some of the time and effort spent pursuing the investigation, and an arrest may eventually result in the thief being forced to pay court-ordered restitution as part of his plea bargain. (It may also prevent the thief from simply fleeing the jurisdiction). However, a criminal defendant could be incarcerated during the pendency of his criminal case and/or be forced to pay significant legal fees. Thus, the arrest may render him incapable of repaying the money that he stole.
One important thing for both sides of this equation to take into account in making their decisions is the potential penalty for the crime. Unsurprisingly, the criminal penalties increase in step with the amount of money that was taken. Also, the amount of money taken is aggregated, so the important number is the grand total taken from the particular victim. (Put another way, for example: 5 thefts of $10,000 from the same victim are almost always charged as a single aggregate theft of $50,000, not as five counts of $10,000 theft). Theft of $1000 or more typically qualifies as a Class E non-violent felony (Grand Larceny in the Fourth Degree, Penal Law Section 155.30), theft of $3000 or more is a Class D non-violent felony (Grand Larceny in the Third Degree, Penal Law Section 155.35), theft of $50,000 or more is a Class C non-violent felony (Grand Larceny in the Second Degree, Penal Law Section 155.40), and theft of $1,000,000 or more is a Class B non-violent felony (Grand Larceny in the First Degree, Penal Law Section 155.45). The potential sentencing ranges for these charges are further explained here. In our experience, plea bargains that involve restitution in lieu of jail can sometimes be negotiated where the amount of money stolen is not too great and the arrestee has an ability to repay the money.
Furthermore, the embezzler may potentially face charges relating to the falsifying of business records. Those charges come from Penal Law Chapter 175. Penal Law Section 175.00 defines the applicable terms in the chapter:
175.00 Definitions of terms. The following definitions are applicable to this article: 1. “Enterprise” means any entity of one or more persons, corporate or otherwise, public or private, engaged in business, commercial, professional, industrial, eleemosynary, social, political or governmental activity. 2. “Business record” means any writing or article, including computer data or a computer program, kept or maintained by an enterprise for the purpose of evidencing or reflecting its condition or activity. 3. “Written instrument” means any instrument or article, including computer data or a computer program, containing written or printed matter or the equivalent thereof, used for the purpose of reciting, embodying, conveying or recording information, or constituting a symbol or evidence of value, right, privilege or identification, which is capable of being used to the advantage or disadvantage of some person.
Falsifying business records charges can be Class A misdemeanors or Class E felonies. The elements of those crimes are explained in Penal Law Sections 175.05 and 175.10 (see below). In a nutshell, the misdemeanor charge becomes a felony when the accused falsified the business record in order to commit another crime (such as Grand Larceny). Thus, the typical embezzler is liable for a Class E felony that could make him subject to a consecutive prison sentence.
S 175.05 Falsifying business records in the second degree. A person is guilty of falsifying business records in the second degree when, with intent to defraud, he: 1. Makes or causes a false entry in the business records of an enterprise; or 2. Alters, erases, obliterates, deletes, removes or destroys a true entry in the business records of an enterprise; or 3. Omits to make a true entry in the business records of an enterprise in violation of a duty to do so which he knows to be imposed upon him by law or by the nature of his position; or 4. Prevents the making of a true entry or causes the omission thereof in the business records of an enterprise. Falsifying business records in the second degree is a class A misdemeanor.
S 175.10 Falsifying business records in the first degree. A person is guilty of falsifying business records in the first degree when he commits the crime of falsifying business records in the second degree, and when his intent to defraud includes an intent to commit another crime or to aid or conceal the commission thereof. Falsifying business records in the first degree is a class E felony.
Interestingly, Penal Law Section 175.15 does provide a defense for suspects that may have only falsified business records per the instructions of their superiors:
S 175.15 Falsifying business records; defense. In any prosecution for falsifying business records, it is an affirmative defense that the defendant was a clerk, bookkeeper or other employee who, without personal benefit, merely executed the orders of his employer or of a superior officer or employee generally authorized to direct his activities.
The attorneys at Galluzzo & Arnone LLP are former Manhattan prosecutors with extensive experience investigating embezzlement and other forms of in-house theft and fraud. We have defended individuals suspected of having committed these types of crimes in courts throughout the New York area. We also assist corporations, condo/co-op boards, and other organizations with their internal investigations in situations where they believe that one of their employees is stealing from them. Thus, if you need either criminal defense representation or assistance discovering the thief in your organization, you should strongly consider hiring the experienced former prosecutors and criminal defense attorneys at Galluzzo & Arnone LLP. Call them today to schedule an appointment and receive a fair quote for their services.