The Fraud Examiner
Reverse Embezzlers: When Employers Steal From Their Employees
By: Annette Simmons-Brown, CFE
Senior Paralegal, Hennepin County Attorney's Office
A simple definition of embezzlement is “the misappropriation of funds that have been entrusted to one for care or management.” Typically, embezzlement is a bottom-up offense, in which an employee, who could be anyone from an entry-level clerk to the director of the organization, steals from their organization’s financial assets.
However, every now and then the embezzlement occurs top-down. The employer actually steals from the employees’ financial assets, for largely the same reasons as traditional bottom-up embezzlers: because they want to and because they can. I have come to call these top-down embezzlers “reverse embezzlers.” While the amounts they steal are usually smaller than the amounts stolen from the business’ assets, the comparative damage reverse embezzlers inflict on their victims is much more dramatic and profoundly distasteful. In that spirit, I now give to you Evan Short, The High-End Guy, and Jerome Aronson, The Employee Hater.
The High-End Guy
Evan Short ran a kitchen and bathroom remodeling company (High-End Home Improvements Ltd.) As the owner and president of the business, Short solicited remodeling contracts from residential homeowners in affluent suburbs in his home state by a combination of advertising, targeted marketing and wining and dining high-end potential clients. He also traveled extensively to Europe and South America, claiming he was developing business with contacts. Surprisingly, no actual business resulted from these numerous trips (during more than one trip he brought a daughter along). By sheerest coincidence, he had mistresses in both locales as well.
High-End Home Improvements Ltd. employed 17 workers, some of whom were office-based and others of whom performed remodeling work. Short offered 401K profit-sharing plans, a group health coverage plan and a group dental coverage plan to his employees.
As the owner of the company, Short was the sole trustee and administrator for all of these benefit plans. The employees had their voluntary plan contributions withheld from their paychecks intended for their 401Ks, for repayments for loans against their 401Ks, and for their health care and dental care coverage plans. These withholdings from their gross wages were put into the business’ general operating account, and subsequently paid to the various plan custodians at Short’s direction.
For a long time, this process went off without any problems. However, the economic downturn from the late 2000s swamped the home improvement industry as much as it did the real estate sales industry, and Short’s book of business started to slim down considerably. With much less money coming in the door and with Evan’s appetite for high-end living both locally and abroad, cash stopped flowing and started trickling.
Short had on staff Zelda, the long-suffering bookkeeper, who was responsible for forwarding contributions to the plans but did not have signatory authority on the bank accounts, including the general operating account. As the business began to struggle, Short began instructing her on a regular basis to not pay the amounts to the respective plans despite having withheld the money from the employees’ gross wages. Zelda repeatedly emailed Short about the danger zones of termination of coverage from the health plans, and Short kept pleading poverty. The payments never got sent to any of the respective plan providers.
Short embezzled more than $20,000 from his employees by using the funds withheld from their paychecks to pay general business expenses rather than forward these amounts to their intended respective plans.
Short did not just embezzle from current employees, he also embezzled from former employees who made COBRA payments, in person by checks, after they left the company. He put these payments into the general operating account and failed to forward them to the health plans. And, perhaps to complete his race to the moral basement, Short also failed to pay over child support withholdings to the state from one of his employee’s earnings.
Short’s failure to pay the 401K withholdings resulted in loss of contributions to the employees’ individual 401K accounts, and taxable events for those employees who were making loan repayments. His failure to pay the group health and group dental coverage payments resulted in termination of coverage for the entire business and participating employees, and his failure to pay over the child support withholdings caused terrible financial problems for the employee, the employee’s ex-wife and their child.
Short was eventually reported to the U.S. Department of Labor and Industry, then charged with two counts of felony theft by swindle over $5,000. The case went to trial, a one-week affair in which the defrauded employees, Zelda and Short himself testified at length. Short was convicted on both counts, received a stayed sentence and a restitution order, stiffed his criminal defense attorney for legal fees, appealed his conviction with a public defender, lost the appeal and blew off the restitution order — his company now destroyed by his own hand.
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