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  1. #1
    Join Date
    Jan 2016
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    3

    Default Embezzlement of Client Funds by a Former Employee

    My question involves business law in the state of: There is a former employee who receives 50% of the profit but has no ownership of the company. Recently we have found out that this employee has been funneling our clients from our company by using the same software but instead of it being linked to our company they linked it to theirs without our permission. Now in regards to this being done they have taken the money from our clients that is supposed to go into our company and funneled it to theirs. As of the moment the software holds all of our records and we believe it to have been tampered with. We currently hold no hard proof at the moment but it has been confirmed by the employee himself of course now this would not hold in court at all as they will deny any of it.

    The matters at hand will come into federal matters if taken into court , which at that point if the court orders the employee to give up any records in regards to aiding this matter then our clientele will add up from our software from the previous year to their software in which they have then funneled our clients through their company. If Is stand corrected this might not even be enough proof to hold the case for long and prove them guilty. We can try to gain a witness out of an estimated 1,000+ clients which is realistic to gain even 5 from them.

    Now in present time we have a lose that is in the six figure ball park in regards to money as a company. Also we have a lose of clients file that is now in their hands as it is in their company name.

    What would be the step that I would have to take to handle this situation correctly in regards to gaining our clients back our money and to prove that they funneled both while at our company.

  2. #2
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    Sep 2005
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    Default Re: Embezzlement of Client Funds

    Why did you choose not to follow the instruction to identify your state?
    Quote Quoting UnruffledST
    View Post
    There is a former employee who receives 50% of the profit but has no ownership of the company.
    Why would you compensate a former employee in this manner?
    Quote Quoting UnruffledST
    Recently we have found out that this employee has been funneling our clients.... We currently hold no hard proof at the moment but it has been confirmed by the employee himself of course now this would not hold in court at all as they will deny any of it.
    If you have no proof, that's a problem. You can work with your accountant and business lawyer to try to assemble evidence, and you may retain a computer expert to look for signs that the data has been altered, if you believe it's worth the investment.
    Quote Quoting UnruffledST
    If Is stand corrected this might not even be enough proof to hold the case for long and prove them guilty.
    If your best case scenario in court is, "We may still not be able to prove our allegations", you need to consider carefully whether it's worth the cost of litigation. Speak with your business lawyer.

  3. #3
    Join Date
    Jan 2016
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    3

    Default Re: Embezzlement of Client Funds

    I figure that at the moment state law is not much of an importance at the moment as I am trying to get a general view on the matter. Also the more discreet that I can be at the moment the better.

    As with the form of payment I understand that it is not the best way to pay an employee , at the time of employment it was more of a partnership still not a reason to them to much control.

    There is proof laying around it is just that we have to gather it. There are witness that we can gather to verify that they did come into our office and that they did not know that their information ended up in someone else's hand. This can prove that they where stealing our clients and using their company information at our company. Also the numbers will add up in court as far as the client that where with is in a certain year and the somehow how maybe 40% also ended up with them unknowingly.

    What are the key points of evidence that we need to gather in order to build a strong enough case?

    I understand that going in with not enough proof is something that I should not do which is why We are being patient to gather up evidence before taking any action in court. As far as a business lawyer the one that we have does not prove to be sufficient in this situation. Also it is a pain paying more than a thousand dollars a day on a lawyer for useless information. I will have to take the time to find a good lawyer for this situation.

  4. #4
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    Sep 2005
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    Default Re: Embezzlement of Client Funds

    If you are going to choose not to follow the instruction to identify your state, you should go and retain a lawyer in your state to advise you. Laws are different in each state.

  5. #5
    Join Date
    Oct 2014
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    8,238

    Default Re: Embezzlement of Client Funds

    Nothing you have mentioned indicates any federal crime has been committed. Whether any state crime has been committed depends on the exact details of what he did and which state’s law applies.

    As for any civil claim against the employee, that will almost certainly be based on state law, not federal law. And assuming you and the employee/partner are both located in the same state a lawsuit based on state law claims would have to be litigated in the state courts, not federal court. Thus, for a number of reasons the state matters because each state has different laws.

    It is not quite clear to me what you are alleging the ex employee is doing. Are you alleging he is simply poaching the customers, i.e. directing them to his company and his company does the work and collects the fees, or are you saying that the customers come to you, you do the work for the customer, but the employee is redirecting the payment for that work you did to his company? The details of what it is that is going on will matter greatly in determining whether any crime has been committed and exactly what kind of civil claim you may have to pursue against him and/or his company. That will also determine what kind of evidence you need to pursue your claims.

  6. #6
    Join Date
    Jan 2016
    Posts
    3

    Default Re: Embezzlement of Client Funds

    The client comes to our company and the ex employee then does the work under his company name when it should be done under ours as he is working for us. He does not coach the client into going to his location instead he just pretends like he is doing all the work under our company in our location and the sneaks them in through his company software and not ours.

    Also yes the case will not be federal , our clients are protected federally and any tampering with their files or obstruction can become a federal crime. Also the state that we reside in is NY.

  7. #7
    Join Date
    Jul 2010
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    8,006

    Default Re: Embezzlement of Client Funds

    You really need to be speaking to your corporate counsel regarding this. We cannot really help you. This is going to require a lawyer fully versed in all the details to work out.

  8. #8
    Join Date
    Oct 2014
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    8,238

    Default Re: Embezzlement of Client Funds

    Quote Quoting UnruffledST
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    Also yes the case will not be federal , our clients are protected federally and any tampering with their files or obstruction can become a federal crime. Also the state that we reside in is NY.
    What you have here is basically state law fraud/embezzlement going on as you have described it. I doubt very much the feds would have any interest in the software angle on this one. You need to prove that the customers came to your company and believed they were getting the work done by your firm and that the employee doing the work diverted the money to himself instead of your company. It is the diversion of the funds that seems to be the part you have trouble with apparently given how your system was set up and the software you use. You may need to consult a computer expert on how to trace the flow of the funds through that system.

  9. #9
    Join Date
    Jan 2016
    Posts
    13

    Default Re: Embezzlement of Client Funds

    Quote Quoting Mr. Knowitall
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    If you are going to choose not to follow the instruction to identify your state, you should go and retain a lawyer in your state to advise you. Laws are different in each state.
    This.

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