Defending White Collar Fraud Cases
with the Help of Forensic Accountants
By J.S. Lucas Fleming, Esq.
So when the subroutine compounds the interest, right, it uses all these extra decimal places that just get rounded off. So we just simplify the whole thing and we just round it down and drop the remainder into an account that we own.
So you're stealing.
Ah, no. No. You don't understand. It's, uh, very complicated. It's aggregate, so I'm talking about fractions of a cent that over time add up to a lot.
Okay. So you're gonna make a lot of money, right?
Okay. That's not yours?
Well, it, it becomes ours.
How's that not stealing? 1
As the above exchange from the film Office Space demonstrates, white collar crime may appear deceptively innocuous to the average corporate employee or executive. It might continue unnoticed for years, and even if it is discovered by the company, identifying all of the individuals involved is an educated guess at best. Disproving their intent to steal from or defraud their employer is even more challenging because in some cases, intent may be established through inference or evidence of a person’s knowledge of a plan to embezzle or defraud the employer. Thus, innocent people may be spend the next decade in the big house while the real culprits live out their remaining days in Margaritaville.
Fortunately, a new kind of expert has emerged in the field of white collar litigation: the forensic accountant. Forensic accounting experts may be retained by the defense as well as the government, but they are particularly valuable to the defense in establishing reasonable doubt on the issue of intent.
Elements of White Collar Fraud and Embezzlement
In general, the term “white collar crime” refers to unlawful acts, the most common of which are fraud and embezzlement, committed by corporate executives and other professional workers.2
White collar fraud is divided into three primary categories: mail, bank, and wire. Such cases are typically held in federal court because they affect interstate commerce. In general, the burden is on the government to prove beyond a reasonable doubt that the accused knowingly or intentionally participated in a scheme to defraud another of money or property.3
Embezzlement cases may be held in state or federal court. Under Florida law, embezzlement is considered theft, and it involves “knowingly obtain[ing] or us[ing] . . . the property of another with intent to . . . deprive the other person of a right to the property . . . .”4 Federal law, in turn, provides in part, “Whoever embezzles, steals, purloins, or knowingly converts [property of the United States] . . . or . . . receives, conceals, or retains the same with intent to convert it to his use or gain . . . [s]hall be fined under this title or imprisoned not more than ten years, or both . . . .”5
Mens Rea: The Critical Component
The crux of a white collar case is the issue of intent or mens rea. In order to avoid a fraud or embezzlement conviction, the defense attorney must persuade the jury that the accused did not intend to divert funds or other property improperly. Often, this is a difficult hurdle to overcome, particularly where in some cases, the requisite intent may be inferred by circumstantial evidence or by evidence of the defendant’s knowledge that the acts were unlawful.6
Role of the Forensic Accounting Expert
Over the past few years, particularly in the wake of the Enron case, the use of forensic accountants in white collar cases has increased significantly. Today’s accounting experts are challenging traditional methods of proving or disproving intent in white collar cases. Given that attorneys are rarely financial gurus, these “detectives of the accounting field” are important allies. 7
John Magliano, who has served as a forensic accounting expert in state and federal cases for the past ten years, describes forensic accountants as “CPAs with a nose for investigation” and defines his job as simply “finding the truth.”8 Although financial records alone cannot reveal what was in someone’s mind, the accountant’s inquiry extends far beyond a mere review of financial spreadsheets. For example, a good accounting expert uses digital forensics to scrutinize office and mobile telephone records as well as relevant computer files, including e-mail, instant messages, websites visited, and electronic documents. Even if such files have been deleted, a savvy expert will have the tools to recover them as well as search through meta-tags and backup files.
The defense can benefit from such an expert to cast reasonable doubt on the issue of intent. This can be accomplished by showing, for example, that the defendant was financially viable at the time and therefore would have no reason to steal or defraud the employer. Alternatively, the expert’s findings could demonstrate that the funds were diverted by mistake or oversight, or simply that there was no evidence of the defendant’s knowledge of or participation in the scheme.9 Even if the evidence supports the government’s allegations against the defendant, a forensic accountant may still be useful in helping uncover other perpetrators, giving the defense attorney the opportunity to negotiate a reduced sentence in exchange for the defendant’s information about co-conspirators.
Establishing reasonable doubt on the issue of intent is no small feat in white collar fraud or embezzlement cases, especially where the government can prove intent through inference or circumstantial evidence. As a result, a defense attorney in a white collar action is well-served by a comprehensive defense strategy that incorporates the technical expertise of a forensic accountant who can cast doubt on the defendant’s involvement in a white collar crime.
Former state prosecutor Lucas Fleming is the founding partner of The Fleming Law Group in St. Petersburg, which handles all aspects of criminal defense, including white collar fraud and embezzlement. Lucas is also Chair of the Solo, Small Firm and Practice Management Section of the St. Petersburg Bar Association and serves on the Bar’s Executive Committee.
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1 Office Space (Twentieth Century Fox Film Corporation 1999).
2 Stuart P. Green, The Concept of White Collar Crime in Law and Legal Theory, 8.1 Buff. Crim. L. Rev. 1, 2 (2005), http://wings.buffalo.edu/law/bclc/bclrarticles/8/1/green.pdf.
3 See U.S. v. Ward, 486 F.3d 1212 (11th Cir. 2007); see also 18 U.S.C.A. § 1344.
4 Fla. Stat. § 812.014 (2007).
5 18 U.S.C.A. § 641 (2007).
6 See, e.g., McGeough v. State, 766 So. 2d 454 (Fla. 4th DCA 2000); Safeco Ins. Co. v. Burr, 127 S. Ct. 2201, 2209, 2215 (2007).
7 Anthony Birritteri, Forensic Accountants: Private Eyes Combatting White Collar Crime, New Jersey Business, Sept. 2001, http://www.allbusiness.com/accounting-reporting/forensic-accounting/951158-1.html.
8 Interview with John Magliano, Jr., CPA, in St. Petersburg, Fla. (June 14, 2007).