Employee Fraud Litigation
In our view, the primary distinction between a corporate fraud and an employee fraud is that the law views the senior management of a corporation as being in a fiduciary relationship with the company, whereas lower level management and mere employees are generally not held to be fiduciaries. A finding of whether a corporate officer or senior management employee holds a fiduciary position in a company is important, in part, to determine the availability of recovery tools such as equitable asset tracing, freezing, and preservation orders. If a court finds an employment relationship is merely an employment contract, injunctive and equitable remedies may not be immediately available.
The variations in the types of employee frauds are numerous. In each case there is an element of a breach of trust, either by omission or by fraudulent misrepresentation. Occasionally, the omission is as simple as the theft of company property. In other cases, the omissions and misrepresentations are complex accounting schemes that are disguised so well that the victim corporation does not discover them for years. In the case of a complex fraudulent scheme where an employer holds an employee in a position of trust for a specific purpose, the Court may acknowledge that the employee stands as a fiduciary to his or her employer-company.
We have handled numerous recovery files against miscreant employees of client-companies. One such example was when a retailer’s cash manager perpetrated a cash skimming scheme over a four-year period. In this case, the cash manager would review the cash bags turned in daily from the cashiers and, in order to maintain the balance of funds received as reported by the cashiers, he would replace cash with the recycled or unused vouchers and gift certificates that were available to him. The downfall of the wayward cash manager resulted from his taking a mental health leave to address his alcoholism. During this period, the losses stopped.
When he returned to work, he continued his scheme, resulting in the internal auditor’s noticing a sizeable difference in voucher and gift certificate use. Covert surveillance was installed in the cash manager’s office, confirming the suspected cash skimming scam.
Fortunately, in this case, the law recognized that an employee who handles corporate money occupies a position of trust, and that this trust imposes a fiduciary duty on him to deal properly with his employer’s money. It was because the Court recognized this low level manager was a fiduciary for this limited purpose that it granted our client a Mareva injunction (asset freezing order), and a Certificate of Pending Litigation (a lien on the employee’s home). The imposition of the asset freezing order and the property lien were significant factors in motivating the wayward cash manager to consent to a significant recovery being made. Criminal proceedings were also instigated in this case so that our client could obtain a public denunciation of their employee’s conduct.
At Investigation Counsel, we are familiar with investigating and litigating many forms of employee fraud, and we welcome you to contact us to discuss an investigation and recovery plan.