What Small Business Owners Should Know About Embezzlement
The United States Sentencing Commission states that 10% of all federal offenders in Arizona are sentenced for fraud, theft, or embezzlement. Many of these offenders were probably small business owners, and some may have unwittingly embezzled funds. This offense is all too easy to commit, and even a single fraudulent transaction can drastically alter – or end – an entrepreneurial career. Small business owners may be able to avoid embezzlement charges after educating themselves about this complex crime. Those who already face embezzlement charges may wish to contact a business law attorney in Arizona. Consider a consultation with Harrison Law, PLLC – and call (480) 320-2310 to continue this discussion in more detail.
What Is Embezzlement in Arizona?
Embezzlement is a federal and state offense in Arizona – and the definition of this offense is similar in both contexts. The Department of Justice states that small business owners may face embezzlement charges if they “fraudulently appropriate” property others have entrusted them to keep. The classic example is someone who convinces investors to give them money for some kind of investment strategy – often promising incredible returns in the process. However, this individual simply takes the investor capital and spends it on themselves.
The Elements of Federal Embezzlement
In order to prove that someone is guilty of embezzlement, federal prosecutors must establish four key elements. First, they must show a “fiduciary relationship” between the defendant and the victim. In other words, there was some kind of promise (whether implied or stated) that the defendant would safeguard the property. Second, prosecutors must show that the defendant took possession of the property “by virtue of their employment.” For example, a defendant might have taken control of customer funds while acting as an investment banker. Third, prosecutors must show that the defendant “fraudulently converted” the property for their personal use. For example, the investment banker might have transferred the funds into their personal account. The fourth and final element is intent – and accidental acts of embezzlement are not illegal under federal law.
Arizona Embezzlement Laws Explained
Arizona also has its own federal embezzlement laws. However, there is no specific mention of the word “embezzlement” under Arizona law – and this offense instead falls under the general category of “theft.” According to Arizona Revised Statutes § 13-1802, small business owners may face theft charges if they convert property to their own possession – assuming the property was entrusted to them by another person. Arizona also defines theft as obtaining property through material misrepresentation (fraud). In addition, it is illegal to control property owned by a “vulnerable adult” while intending to deprive them of it. Note that embezzlement may apply to both property and services in Arizona.
While the definition of embezzlement in Arizona is slightly different compared to the federal definition, the general concept is the same. Embezzlement involves the intentional abuse of trust to deprive people of their property.
Larceny vs. Embezzlement
Embezzlement is not the same as larceny. When someone embezzles property, they steal something that they initially had permission to hold. In other words, the first act of taking the property is legal – and embezzlement only becomes an offense when defendants later convert this property to their personal use. In contrast, larceny occurs immediately when defendants steal property – and no secondary transfer is necessary to trigger criminal charges.
In Arizona, “theft” may refer to both larceny and embezzlement – as both offenses fall under Arizona Revised Statutes § 13-1802. This can be somewhat confusing, as larceny and theft are interchangeable terms in many circles.
Will I Face Federal or State Charges for Embezzlement?
As a general rule, small business owners in Arizona can only face federal embezzlement charges if the alleged crime falls under federal jurisdiction. In other words, federal charges occur when the offense occurs over state lines. For example, a defendant in Arizona might accept investor funds from an individual in New York or Nevada. If the defendant is accused of embezzling those funds, they could face federal charges because the funds crossed state lines. Defendants may also face federal charges if their alleged offenses impact federal programs or federal agencies. This could be a concern for small business owners who conduct business with the federal government – perhaps as contractors. For all alleged embezzlement offenses that occur within Arizona, state charges will most likely apply.
When Might Small Business Owners Face Embezzlement Charges?
Small businesses engaged in financial services are particularly at risk for embezzlement charges. If the company takes or controls customer funds, they must be very careful about how they safeguard this property. Small business owners should avoid mixing customer funds with company funds (and their own personal funds) at all costs. A Ponzi scheme represents a classic example of embezzlement, and this involves using new investor funds to pay previous investors without actually generating legitimate investment profits. This is also called a pyramid scheme, and the authorities in Arizona are very wary of these practices.
Embezzlement Can Harm Small Businesses in Arizona
On the other hand, small businesses may also lose considerable funds due to embezzlement. An employee could take company funds into their own possession – perhaps hiding their tracks by “cooking the books.” One of the simplest examples of embezzlement is an employee who pockets cash from a register. Like an investment banker, a cashier is responsible for safeguarding funds – and they can face serious consequences for betraying that trust. Speak with Harrison Law, PLLC to assess options for fighting embezzlement within the company.
Contact Harrison Law, PLLC for More Insights
Small business owners face numerous challenges as they strive for entrepreneurial success. Many can overcome business-related challenges with their own creativity, wit, and determination. But when it comes to legal challenges – including embezzlement charges – assistance from a lawyer could prove more appropriate. Although many entrepreneurs are reluctant to ask for help, there is no sense in facing legal issues alone. A business law attorney in Arizona may be able to guide small business owners through the legal process ahead – starting with a consultation. During an initial meeting with Harrison Law, PLLC, entrepreneurs have the opportunity to discuss their unique situations for more targeted guidance. To take the next step beyond online research, call (480) 320-2310.
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This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.
