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Connecticut CPA
September/October 2017
has spent or diverted the illicit income
and has little to no means of making
meaningful restitution. Good intentions
aside, the perpetrator rarely has liquid
assets available to make repayment.
Because travel and entertainment are
common uses of stolen funds perpe-
trators use to support lavish lifestyles,
there are generally no means of recov-
ery in these cases.
In some cases, dishonest employ-
ees purchase real estate, luxury au-
tomobiles, boats, aircraft, and other
big-ticket items, while others invest in
stocks, bonds, and other securities,
held personally or within established
accounts. In one case, an attorney
who stole close to $6 million of his cli-
ent's funds invested the proceeds in
bearer bonds. Purchasing assets sel-
dom occurs in cases involving losses
under $100,000.
Any items purchased by the individual
are potential sources of recovery, if the
assets can be identified and located.
Often, fraudsters structure their use of
the proceeds in ways that make them
difficult to trace, by funneling funds into
the accounts of relatives and friends,
or by utilizing established businesses
and shell companies. The thief's goal
is to retain as much of the money as
possible by obstructing the path to its
When it comes to recovering funds, be
skeptical. Even if the perpetrator's as-
sets are identified, that does not guar-
antee they will be a reliable source of
recovery. Real estate is often encum-
bered with debt, and vehicles, boats,
and aircrafts are frequently laden with
leases or loan balances, leaving little to
no equity for recovery.
Civil Process
In order to establish and maintain
privilege over the matter, every inves-
tigation should be conducted through
counsel, with the attorney directly en-
gaging each team member. Whether
the organization utilizes in-house or
outside counsel, the attorney must be
the point person, establishing privi-
lege and directing strategy. Since le-
gal questions and sensitive issues are
common encounters in these cases,
having all the work performed direct-
ly for counsel is the best strategy for
maintaining the client's privilege over
the team members under the attorney
work-product doctrine.
Initializing a civil proceeding against
the perpetrator and his or her assets
is a common legal strategy once an
employee theft or embezzlement
has been detected and quantified.
In many cases, counsel seeks a pre-
judgement remedy (PJR) to freeze the
perpetrator's identified assets. An at-
torney's PJR motion can fast-track
the matter to a judge, and, if granted,
can place a hold on the defendant's
assets until the civil process is com-
pleted which could take years, de-
pending on the court.
Prior to incurring the hefty legal and
professional fees that accompany a
civil complaint (lawsuit), the victim
needs to discuss two key questions
with counsel. First, what is the likeli-
hood that the victim will prevail and re-
ceive a judgement in the lawsuit? Sec-
ond (and arguably more important),
what is the likelihood that the victim
will actually collect on the judgement?
If the cost of litigation outweighs the
potential benefits, the victim often
foregoes filing a suit against the per-
Criminal Proceedings
If there is sufficient evidence to sup-
port the conclusion that a crime has
occurred, the victim should consider
making a referral to law enforcement.
The victim needs to identify the po-
tential crimes that have occurred and
discuss with counsel the risks and
benefits of involving law enforcement
in the matter. In some contexts, a re-
ferral to law enforcement is required
for example, under certain insurance
policies, the victim must make a re-
ferral if he intends to make a claim on
the policy.
As part of the strategy discussion with
counsel, the victim needs to consider
whether the matter will be referred to
local or federal agencies. Some
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