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Embezzlement grows as a booming business in America


First in a series

Call it a growth industry.

Embezzlement, that is. Though stealing from employers has always been a permanent feature of the American economic landscape, it has been growing by leaps and bounds, particularly in the years since the Great Recession began, though the numbers were arcing upward even before then.

There's no question how costly embezzlement is. According to the National White Collar Crime Center, employee theft results in losses ranging from $20 billion to $90 billion a year, and as much as $240 billion a year or more when intellectual property theft is included.

All totaled, the center states, theft by employees is two to three times more costly than all of the nation's felony index crimes combined and accounts for approximately 30 to 50 percent of all business failures. What's more, the center estimates, as many as three-quarters of all employees steal from their employers at least once.

And while embezzlement is often thought of as a crime that occurs in the upper echelons of business, it is anything but. It is rampant not merely in corporate suites but on suburban streets, involving not just bank executives and financial officers but football coaches and soccer moms.

Indeed, in a quintessential and still pending case in Wisconsin, two women in a local soccer club were charged with stealing from the club - in separate schemes of theft.

Barbara Olson, the treasurer of the New Berlin Soccer Club, was charged with writing unauthorized checks for personal expenses. But, before being charged, Olson had allegedly admitted the thefts to club president Melanie Gretzon, who reportedly advised her simply to resign.

Perhaps that's because Gretzon herself was alleged to have been embezzling from the club. Together, they have been accused of stealing more than $80,000.

Gretzon was charged with four felony counts of theft in a business setting and Olson with one. Gretzon is scheduled for a plea/sentencing hearing on March 20; Olson has requested time to pay up front restitution, and a hearing is set for Feb. 23.

As rampant as embezzlement is, and as much damage as it does, many say the punishment almost never fits the crime. Indeed, a look at both anecdotal evidence and justice statistics reveals that courts tend to go lightly on embezzlers, despite the public's growing view of the crime as one of the most insidious and devastating, and despite the dramatic costs to individuals, businesses, and society.

In the last few years, the pendulum has seemed to swing a bit toward stiffer penalties, but the experts nonetheless say many embezzlement cases still never make it to court, and, when they do, they rarely result in serious prison sentences. And while restitution is commonly ordered, no one really expects the money to be paid back.

For example, in Detroit, the Rev. Timothy Kane was found guilty in October on embezzlement and other charges after he scammed a charity for the poor to the tune of about $131,000. Specifically, he was charged and convicted on multiple counts, including conspiracy to operate a criminal enterprise, using a computer to commit a crime, conspiracy to embezzle, and embezzlement itself.

He faced up to 20 years in prison, and prosecutors wanted him to spend at least five years behind bars, but the actual sentence stunned everyone. In the end, Kane was sentenced to only 12 months in jail, which he could serve over five years, mostly during the months of June and December.

The light sentence severely disappointed prosecutors.

"This is a most unusual sentence that is below the defendant's guidelines," assistant prosecutor Maria Miller said in a statement released to the media. "It is especially troubling considering that he was convicted as charged of multiple counts of stealing money from the poor."

Up in lights

According to one recent study, embezzlement is a marquee crime, a blockbuster among serious offenses.

The 2013 Marquet Report on Embezzlement by Marquet International Ltd. is the company's sixth annual study of major embezzlement cases in the United States. It examined 554 active major embezzlement cases in 2013 - those with more than $100,000 in reported losses.

The company is an investigative, litigation support and due diligence firm that assists corporations with internal investigations, corporate fraud and allegations of employee misconduct.

According to the 2013 report's findings, the number of major embezzlements increased 5 percent over 2012, with the average loss totaling about $1.1 million for major embezzlement cases.

"(The year) 2013 was a gangbuster year for embezzlement in the United States, exceeding even 2012's previous record pace," Christopher T. Marquet, author of the report and CEO of Marquet International, said. "What is remarkable is the depth, magnitude and frequency of employee theft in the U.S. economy."

Though widespread across the nation, certain states pop up more frequently than others in embezzlement statistics. Marquet calculates an Embezzlement Propensity Factor for each state to come up with a ranking of states based on their likelihood to experience losses due to a major embezzlement. It's an average of two figures: one, the amount of fraud in a state proportional to the amount of its economic activity; two, the number of frauds perpetrated proportional to the population of that jurisdiction.

In 2013, the latest year for which statistics are available, Vermont topped the list as the most embezzled state in America, marking the third time in six years it took top honors. It was followed by the District of Columbia, West Virginia, Montana, South Dakota, Virginia, Idaho, Oklahoma, Texas, and Missouri.

While not in the top 10, Wisconsin did sneak into the top 20, at No. 20, with an amount of embezzlement just about equal to what would be expected based on the national average.

Looking at the aggregate data over six years, Marquet says the poor economy was undoubtedly a driver in the sharp spike in embezzlement cases, but, he stressed in an interview with The Lakeland Times, it was not the only cause. The bottom line is, he said, embezzlement has and continues to percolate at every level of the economy.

"Sadly, fraud, waste and abuse are all too common in today's economy," Marquet said. "There is always an ambient level of fraud going on because - 'at any time, in any organization, there is always someone who is up to no good.' The key is to put in place reasonable policies and procedures to make it difficult and then vigorously go after it when it happens. Refer to prosecution to send a message and to alert the public about the perpetrator who should never be allowed again in a fiduciary role."

Light sentences

Despite the ongoing occurrences of employee embezzlement, the costs those embezzlements incur, and the view by many that the lack of consequences encourages even more embezzlement, sentences remain relatively light, both compared with serious crimes overall and with other so-called white-collar crimes.

Anecdotal evidence of light sentencing abounds, and not just in Detroit. In South Carolina, for example, a bank employee who embezzled $45,000 in 2011 in a fraudulent loan scheme was sentenced to time already served - several months - and three years in a supervised release program.

But the worker had faced up to 30 years in prison and $1 million in financial penalties. Obviously, the sentence did not meet federal sentencing guidelines.

Also in 2011, a nun, sister Marie Thornton, who embezzled $850,000 from Iona college and spent it all gambling in Atlantic City, was sentenced to 2,000 hours of community service and three years probation instead of time in federal prison.

Wisconsin isn't immune from lenient sentencing, either. To cite just one example, the Elcho clerk-treasurer made a plea deal after her alleged embezzlement of more than $150,000. Melissa Bloechl was found guilty of seven felony counts of misconduct in office, one felony count of theft in a business setting, and two felony counts of forgery, but was sentenced to serve only three months in jail and five years probation.

She could have gotten 45 years in jail; prosecutors wanted at least one.

There is statistical evidence for light punishment, too. In the 2013 Marquet report, for example, prison terms ranged from probation or home confinement to 70 years in jail (840 months), but the average prison sentence was only 44 months for an average embezzlement lasting 4.8 years and taking $1.25 million.

That's less than a month in prison, on average, for each month of embezzlement in a million-dollar heist.

Statistics from the 2012 federal United States Sentencing Commission underscore the lenient sentences handed out for embezzlement.

Embezzlement as a primary federal offense is considered among the most serious crimes. For all serious federal crimes, spanning more than 83,000 convictions in all categories for primary offenses in 2012, 87.2 percent resulted in prison sentences. By contrast, only 36.5 percent of embezzlement convictions resulted in prison sentences.

Comparing embezzlement to other crimes with similar or less property costs, or to so-called victimless crimes, is revealing, too. While only a third of embezzlers go to prison, those convicted of auto theft netted an 85.5-percent imprisonment rate, while simple possession of drugs resulted in an 80-percent incarceration rate.

Yet another way to look at the statistics is to look at the incarceration rate of those who were eligible for a nonprison sentence. For all the crimes compiled by the sentencing commission, 64.9 percent of those eligible for a nonprison sentence received such a sentence, while 35.1 percent were incarcerated anyway.

Those guilty of committing immigration crimes, for example, avoided prison 48.4 percent of the time under such circumstances, but went to jail in 51.6 percent of the cases. Those convicted of the simple possession of drugs went to prison 53.8 percent of the time, while in 46.2 percent of the cases those convicted escaped a prison term.

Guilty of counterfeiting? About half of those convicted and eligible for a nonprison sentence managed to avoid prison, but being eligible for a nonprison sentence did no good for 49.2 percent of the people convicted. They went to prison anyway.

Embezzlers fared much better. Those eligible for a nonprison sentence managed to get such a sentence in 79.9 percent of the cases; they went to prison only 20.1 percent of time. That was the lowest rate of incarceration of all primary offense crimes eligible for a non-prison sentence.

And when embezzlers do go to prison, they go for less time than most people confined to federal institutions.

For instance, for crimes tracked by the sentencing commission in 2012, the median months spent in prison was 30. For embezzlement it was 12. Compare that to fraud (24 months), bribery (18), counterfeiting (18) and civil rights crimes (18 months).

Not a victimless crime

Why the light sentences?

That's a complicated question with a complicated answer, but some believe that society - judges and prosecutors, the public, the media - view fraud and embezzlement crimes as less serious than violent crimes, or even nonwhite-collar property crimes, such as car theft. As the statistics show, car thieves go to prison much more often, though in many cases the amount stolen might not be that much different.

Marquet says he sees that pattern around the country, even though he says embezzlement is anything but a victimless crime.

"The crime of embezzlement is very serious and destructive," he told The Times. "Think of the business owners who lose money and can't expand or pay their bills or spend money in the economy on vacations or upgrades or invest in the business. Lots of ripples there. Think of all the other employees. Some may get laid off, others don't get raises or bonuses. What about those businesses that go belly up as a result and all the lost jobs and ripple effect there? Think of the vendors who don't get paid on time. It is very, very destructive."

And while Marquet says he's not sure light sentences encourage embezzlement, those light sentences, compared to those for a crime such as auto theft, are a reality nonetheless.

"I am not sure if the double standard in characterizing the two crimes contributes to encouragement," he said. "Rather, I think they are very different crimes committed by very different sorts of people and the 'white collar' folks seem to have an easier go of it."

That begs some very important questions: If light sentences don't encourage embezzlement, or if they are just one part of the puzzle, what does motivate embezzlers? What does flip the ignition switch on the crime? And just who is the typical embezzler?

The answers may surprise, and we explore that topic in the second story.

Richard Moore may be reached at richardmoore.gov@gmail.com.




 

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