CORPORATE FRAUD HANDBOOK
In the broadest sense, fraud can encompass any crime for gain that uses deception as its principal modus operandus. There are but three ways to illegally relieve a victim of his money: force, trickery, or larceny. All those offenses that employ trickery are frauds. Since deception is the linchpin of fraud, we will include Webster’s synonyms: “ ‘De- ceive’ implies imposing a false idea or belief that causes ignorance, bewilderment or helplessness; ‘mislead’ implies a leading astray that may or may not be intentional; ‘de- lude’ implies deceiving so thoroughly as to obscure the truth; ‘beguile’ stresses the use of charm and persuasion in deceiving.”
All deceptions, however, are not frauds. To meet the legal definition of a fraud, there must be damage, usually in terms of money, to the victim. Under the common law there are four general elements, all of which must be present for a fraud to exist:
A material false statement
Knowledge that the statement was false when it was uttered
Reliance on the false statement by the victim
Damages as a result
The legal definition is the same whether the offense is criminal or civil; the difference is that criminal cases must meet a higher burden of proof.
Let us assume an employee did not deceive anyone, but stole valuable computer chips while no one was looking and resold them to a competitor. Has he committed fraud? Has he committed theft? The answer, of course, is that it depends. Employees have a recog- nized fiduciary relationship with their employers under the law.
The term “fiduciary,” according to Black’s Law Dictionary, is of Roman origin and means
a person holding a character analogous to a trustee, in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires. A person is said to act in a ‘fiduciary capacity’when the business which he transacts, or the money or prop- erty which he handles, is not for his own benefit, but for another person, as to whom he stands in a relation implying and necessitating great confidence and trust on the one part and a high degree of good faith on the other part.
So, in our example, the employee has not only stolen the chips—in so doing, he has violated his fiduciary capacity. That makes him an embezzler.
To “embezzle” means willfully to take, or convert to one’s own use, another’s money or property of which the wrongdoer acquired possession lawfully, by reason of some office or employment or position of trust. The elements of “embezzlement” are that there must be a relationship such as that of employment or agency between the owner of the money and the defendant, the money alluded to have been embezzled must have come into the possession of defendant by virtue of that relationship and there must be an intentional and fraudulent appropriation or conversion of the money.3
In other words, embezzlement is a special type of fraud.