Review of Federal Corporate Fraud Charges and Defenses
Corporate fraud is a broad term that falls under the big umbrella of white collar crimes. It covers numerous types of fraud offenses that are typically committed by business professionals.
All fraud crimes have a common theme in that a perpetrator uses deceit, trickery, false statements, concealment, and often involves a major violation of trust.
These type of crimes don't normally involve force, violence, or threats, rather they are motivated to remain secret while fraudulently obtaining money, property, or services.
While many people call these type of crimes “victimless,” they are not. Fraudulent scams have completely destroyed businesses financially forcing them to close.
A common federal crime that falls under the category of corporate fraud includes illegal account schemes to deceive investors and auditors.
Other crimes include public corruption, money laundering, securities and commodities fraud, mortgage fraud, bank fraud, embezzlement, among others.
Corporate fraud is one the FBI's primary targets as it causes significant financial loss to investors and can even possibly damage the United States economy.
Other agencies such as the Securities and Exchange Commission, IRS, and other federal agencies, all devote substantial resources to pursuing corporate fraud cases.
Federal corporate fraud charges can be among the most frightening and vexing of legal actions for a white collar worker to face.
If you are facing corporate fraud charges, you and your federal criminal defense attorney must understand what you're up against to help you raise a successful defense.
What Is Corporate Fraud?
Corporate fraud is a so-called white collar crime and is a highly complex area of law that involves several federal statutes.
It's not a crime committed by masked bullies threatening violence, but by deceitful business executives, controllers, accountants, and managers.
The criminal wrong is manipulating information, often financial information, to swindle, defraud, and deceive.
Federal law enforcement agents normally uncover corporate fraud with audits using sophisticated measurements.
White collar crimes within a corporate profession by normally respectable people of means includes numerous type of federal crimes, such as:
- mail fraud,
- wire fraud,
- securities fraud,
- major fraud schemes,
- money laundering,
- false statements.
The wrongdoer's intention is personal undue financial gain, not murder, property destruction, or other physical damage or harm.
Both the state and federal government provide penalties for corporations who misrepresent facts for unjust financial gain, including charging the company and their officers and managers with fraud crimes.
If you know you are suspected of fraud, received a grand jury subpoena, a search warrant was executed, or you were already indicted, you will need to retain a federal criminal defense lawyer to protect your constitutional rights.
Why Does the FBI Investigate?
As noted, the FBI asserts that it prioritizes corporate fraud investigations because of the great harm corporate fraud causes to investors and the U.S. economy.
The FBI is not alone in ferreting out corporate fraud. The FBI works with the following agencies to detect and prosecute corporate fraud:
- Securities and Exchange Commission,
- Commodity Futures Trading Commission,
- Financial Industry Regulatory Authority,
- Internal Revenue Service,
- Department of Labor,
- Federal Energy Regulatory Commission, and
- U.S. Postal Inspection Service.
Detection of corporate fraud often involves these other federal agencies' reporting and compliance requirements.
The IRS and SEC, in particular, can discover suspected fraud through anomalies, omissions, and patterns in filed returns and reports or from omitted or incomplete returns and reports.
Whistleblower rewards spur reporting of suspected fraud. The varied interests of these other federal agencies over security trading, commodity trading, banking, taxes, employment, energy development, and the postal service also show the broad impact fraud schemes can have on the economy–and the reason for FBI investigation and enforcement.
What Type of Corporate Fraud the FBI Investigates
Most of the FBI's corporate fraud cases involve schemes to deceive auditors and analysts and cheat investors through false financial information. The Federal Bureau of Investigation states that it focuses its corporate fraud investigations on:
- false accounting entries;
- fraudulent trades inflating profits or hiding losses;
- misrepresenting value of the business;
- concealment of debts or assets;
- submission of false tax returns;
- transactions evading regulators;
- insider trading based on non-public information;
- misuse of corporate property for personal gain;
- embezzling corporate funds;
- fraudulent transfer of corporate assets;
- stealing business trade secrets;
- misuse of pension funds;
- market timing schemes; and
- falsified asset values.
Victims include not only investors and their families but also corporations and their employees.
An example case involves a corporate controller convicted of diverting nearly $500,000 from her corporate employer. The controller concealed her diversions by altering and hiding bank records.
She suffered a twenty-month sentence of imprisonment, a $7,500 fine, a $442,064 order of restitution for her employer, and forfeiture of $459,222.
Federal Statutes Criminalizing Corporate Fraud
Many federal crimes find their definition in a single federal statute, like mail fraud under 18 USC § 1341, wire fraud under 18 USC § 1343, or bank fraud under 18 USC § 1344.
Federal prosecutors, though, can pursue corporate fraud charges under a very wide range of federal statutes. Those federal statutes can include the three just named and, among many others:
- 18 U.S.C. § 1956 for laundering of monetary instruments;
- 18 U.S.C. § 472 for counterfeit obligations or securities;
- 18 U.S.C. § 873 for extortion and blackmail;
- 18 U.S.C. § 1001 for filing a fraudulent document with an official;
- 18 U.S.C. § 1031 for major fraud against the federal government;
- 18 U.S.C. § 1342 for using a fictitious name to obtain a postal package;
- 18 U.S.C. § 1347 for healthcare fraud;
- 18 U.S.C. § 1348 for securities or commodities fraud;
- 18 U.S.C. § 1350 for certifying false financial reports;
What are the Criminal Penalties?
Federal charges for corporate crime can carry harsh penalties, including substantial federal prison time and restitution. Each type of fraud will carry a separate maximum sentence and punishment, which are stated in the federal statute.
Criminal penalties under these and other federal corporate fraud statutes vary under the federal sentencing guidelines, but can range upward from five years to twenty-five years of imprisonment.
As the above example case indicates, a fine, restitution to the victim or victims, and forfeiture of all gains are other common terms of a sentence.
Between these financial penalties, defendants convicted of federal corporate fraud may end up repaying twice the amount of any ill-gotten gain.
A federal criminal fraud conviction also destroys reputation. Along with that loss, a conviction can also end any prospect for meaningful employment in a finance-related field.
Notorious federal corporate fraud convictions include those of Wall Street financier Bernie Madoff, Enron CEO Jeffrey Skilling, Ponzi schemer Allen Stanford, and Peregrine Financial CEO Russell Wasendorf, each convicted on federal fraud charges relating to losses in the hundreds of millions, or even billions, of dollars.
Best Federal Corporate Fraud Defenses
Your defense to federal corporate fraud charges always depends on the specific details of your case. Any effective strategy by a federal criminal lawyer will be built after a thorough review of all the documentation.
Federal corporate fraud is generally a specific intent or guilty-mind crime. Defenses to federal criminal fraud charges thus tend to focus on the defendant's intention, knowledge, and state of mind.
Financial transactions can be exceedingly complex. So, too, can financial reporting requirements.
Business executives, controllers, financiers, and others who oversee or manage financial transactions and financial reporting can make honest mistakes, even ones that work in their favor. Honest mistakes are not generally federal criminal frauds.
If you face a federal criminal fraud investigation or already face charges, then retain skilled counsel for your defense.
We might be able to negotiate with the federal prosecutor for a favorable plea bargain, but are prepared to take the case to trial if necessary.
Eisner Gorin LLP is based in Los Angeles County, but serves clients facing all type of federal offenses anywhere in California and throughout the United States.
If you are under a federal investigation or an audit for corporate fraud, contact our law firm for an initial consultation at 877-781-1570.