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Understanding White-Collar Crime: What Constitutes Fraud, Embezzlement, and Insider Trading

January 13, 2025

White-collar crime is a general term used to describe non-violent (or not directly violent) crimes that are financially motivated and typically involve deceit or concealment. They may be committed by individuals or organizations. While they may not result in physical harm directly, they can have a significant financial impact on victims and society. As a result, the penalties can be serious for convicted defendants. Three of the most common types of white-collar crimes are fraud, embezzlement, and insider trading. Federal and state laws may differ in some of the specifics, but generally, they are defined as follows:

Fraud

Fraud is a misrepresentation of current material facts for illegal gain. To establish criminal fraud, the government must show that the defendant had a specific intent to defraud. Typically, the victim must also have relied on the misrepresentation resulting in harm.

Notably, under federal criminal law, defendants are charged with a specific type of fraud as opposed to fraud generally. Common examples include securities fraud, bank fraud, mail fraud, wire fraud, bankruptcy fraud, health care fraud, and tax fraud. Each of these crimes has different elements and nuances that must be proven beyond a reasonable doubt in order to convict a defendant. 

A defense to most fraud cases is the good faith defense. The defendant must show that their illegal actions were inadvertent or careless, based on a mistake or error in judgment, or based on a misinterpretation of a vague or unsettled law. 

Embezzlement

There are multiple federal embezzlement statutes. However, they all basically state that embezzlement occurs when someone in a position of trust illegally moves funds or property or steals services for self-enrichment. Often, the individual may have had some authority to control the property, but they exerted or obtained unauthorized control over the property for their own benefit. Examples include a bookkeeper or other individual who directs payroll tax payments to themselves, creates fictitious employees and takes the paycheck, or creates fictitious vendor invoices. Employees who steal merchandise or use a company credit card for unauthorized expenses also may constitute embezzlement. 

Prosecutors usually must prove that the defendant had the intent to permanently deprive the owner of the services or property. Therefore, defenses include showing a lack of intent because the defendant believed they had the right to the property or were using it for legitimate purposes.  

Some federal criminal investigations of embezzlement can involve multiple organizations. In this situation, the defense may be able to raise procedural defenses, like search warrant problems. 

Insider Trading

Insider trading occurs when an individual buys or sells a company’s securities based on non-public information about the company. Material, nonpublic information is information not disclosed to shareholders or the public that can substantially impact an investor’s decision to buy or sell a security. It may include information on the company’s financial performance, product launches, merger discussions, and other facts.

The defendant may be a corporate insider with access to the material, nonpublic information, or someone who misappropriates the information to trade securities. An insider is anyone with a duty to the company, including officers, directors, and employees of a company; shareholders with more than 10 percent of the company’s stock; temporary insiders (lawyers, accountants, and others working with the company); and those who receive information and know or should know that the information is confidential and cannot be used for trading.

Defenses to insider trading include that the information was not material or confidential, or the trade was not made based on the information. For example, it wouldn’t be insider trading if the defendant didn’t have access to the information at the time of the trade or made automatic trades pursuant to an instruction given prior to learning of the confidential information.

Penalties

All of these crimes can carry severe penalties, including fines, imprisonment, and other penalties under federal law and the sentencing guidelines. However, an experienced attorney can advocate for lower penalties and prison terms. 

Since white-collar crimes are so varied, it’s critical to work with an attorney experienced in handling the specific crime alleged. If you are being investigated or have been arrested, contact us to learn how we can help you.