'Embezzlement' is explained in detail and with examples in the Laws & Regulations edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
Embezzlement is a type of crime that is considered to be white collar. It is usually committed by well educated and employed individuals. In this type of economic crime, the individual takes or misallocates the assets or funds with which he or she has been entrusted.
With this kind of fraud, the perpetrator does not steal the money in the first place. The individual concerned obtains it legally and even is rightfully entitled to hold them. The crime comes when these assets or funds are utilized in a way they are not allowed or intended. This is why the crime of embezzlement is breaking the legal and financial responsibilities with which someone entrusted a person.
It is entirely possible for embezzlement to involve a large or a small amount. If a clerk in a store puts money from the register in his pocket, this is a minor case of embezzling money. The term generally refers to larger scale instances. An example of this is when major corporate executives illegally expense off even million of company dollars. They would then transfer such money into their own bank accounts. Authorities punish embezzlement on larger scales with huge fines and significant jail time.
Among the largest cases of embezzlement ever recorded was Bernie Madoff and his enormous Ponzi scheme. The man received a 150 year prison sentence for operating the biggest fraud in the history of the United States. Thousands of investors had entrusted him with billions of dollars to manage on their behalf.
He promised to make them significant outsized profits for this trust. Authorities eventually caught up with him in December of 2008. In the trial that followed, they charged the man with eleven different counts of money laundering, fraud, theft, and perjury. When authorities examined what remained of his lavish assets such as foreign homes, boats, and planes, it became clear he had used much of the funds legally entrusted to him for his own personal ends. Very few of the Madoff victims every recovered much in the way of their losses.
Madoff’s particular embezzlement and Ponzi scheme allowed him to cheat his numerous investors out of $65 billion. He kept this a secret for several decades. He would take in money from newer investors and use this to pay off promised returns of his older ones or those who requested redemptions from his hedge fund. Meanwhile, he used much of the money from the older investors to fund his high flying lifestyle around the globe for decades.
Madoff’s financial crime started out as a legitimate business until he began to lose control of the operation. When he took losses, he felt he had no choice but to keep older investors in the fund. He promised them greater amounts of money if they remained. His investing strategies were kept secret in order to protect the hedge fund and business. Madoff’s operation produced statements of accounts showing balances that no longer existed as he continued to lose money and live large with the funds.
In his case, Madoff was able to keep the fraud going far longer than is typical of people who have embezzled funds or run a fraudulent scheme. This was because he had been a former chairman of the NASDAQ. He was also a well respected investor for years before he began his crimes. No one bothered to look into the consistent outperformance his fund claimed to have because owner and operator was Bernie Madoff.
His crimes only became clear when investors demanded $7 billion in redemption at a point when he only had $200 to $300 million in funds on hand. At this point, he confessed what he had done to one of his sons who turned him over to the police.
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