Corporate fraud involves the intentional misrepresentation of company activities or financial information in order to mislead the public and increase company profits.  Corporate fraud has become increasingly common in today’s internet-driven world. Any allegation of corporate fraud must be vigorously defended against, as a conviction for fraud could destroy a business or career and potentially result in prison time along with considerable fines.

Common Types of Corporate Fraud

Corporate fraud can consist of a wide array of activities, including the following:

  • Skimming:  In this scheme, funds coming into the company are intercepted before they are recorded as part of the company’ income. This can happen when one person is entrusted with opening the mail and keeping a record of accounting transactions.
  • Tax avoidance:  A corporation may alter its tax returns to avoid paying the full tax penalties which it would otherwise owe.  Senior management is typically involved in this scheme.
  • Personal purchases:  Corporate employees could use company funds to buy goods or services for their personal use.  Those in a senior position often have more authority and opportunity to commit this fraud.
  • Money laundering:  Fraudulently obtained funds need to be laundered so criminals often use corporate entities to launder those funds to make them appear legitimate.  Knowledge regarding the source of such funds can implicate the entity (such as a financial institution) in the money laundering.

Corporate fraud charges often start with a whistleblower.  The whistleblower will alert senior management or an outside agency as to the fraudulent activities.  At this time, the individual or individuals must take action to defend against the allegations of corporate fraud.

Penalties for Corporate Fraud

Penalties associated with corporate fraud could include:

  • Prison time
  • Substantial fines
  • Seizure of assets
  • Appointment of a receiver over corporate operations
  • Increased monitoring and oversight by regulatory agencies

For the company, corporate fraud can be extremely damaging.  Enron is a famous example of a company that was destroyed by allegations of corporate fraud.  Employees within the company who are found guilty of committing corporate fraud will face the loss of their position and career.  Another example is Wellcare, a healthcare HMO that was raided by law enforcement based on allegations of Medicaid fraud.  Ultimately, the company had to pay $80 million in fines and a number of executives were charged and sentenced to prison terms.   The allegations of fraud arose from a business-friendly interpretation of an obscure statute.

Executives v. Entities

While corporate executives have certain constitutional rights, such as the right against self-incrimination, the corporate entity does not necessarily have the same rights.  For instance, corporations must often turn over information that a person may have a right to keep private.  Because of this, the interests of the corporate entity and the interests of the individual executives or employees can diverge wildly.

Corporate entities should be represented by different counsel from the individual executives in order to effectuate the duties of the corporation to the shareholders. This will help ensure that the corporation does not open itself up to liability for not maintaining its fiduciary duties.

Defending Against Corporate Fraud Charges

When corporate fraud is detected, prosecutors may cast their net wide and charge several people that were not intimately involved in the scheme to defraud.  Often, prosecutors will have employees wear wires to record conversations and use those conversations as evidence of fraud.  In a corporate fraud case, every aspect of the government’s case must be subjected to scrutiny.  Allegations of criminal intent must be challenged, evidence must be tested, legal theories must be presented to contradict the prosecutions assumptions about the law.

Given how high the stakes are in a corporate fraud case, no stone can be left unturned.   With a strong defense, your corporate defense firm will work to protect you or your company.

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Posted in: Commercial Litigation, Corporate Fraud, White Collar Crime