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Many people work in normal business settings without knowing how decisions on the job can expose them to government investigations. Investigations can result in fines, injunctions, disgorgement, and potentially, charges for white-collar crimes. People do not know how easily their behavior on the job can lead them to prison. Because of far-reaching criminal statutes, simple business decisions can result in investigations, prosecution, and prison time when funds originate from a government source.
Our nation’s government continues to grow. With bigger government, more investigations will follow. With more government investigations, more companies will face enormous expenses in civil litigation, defending against those investigations. More people may face charges for white-collar crimes—despite their not having any intent to commit crimes.
This case study profiles David Shulick, who served as the President of DVHS Management Corporation, an educational services company based in Pennsylvania. According to the indictment and prosecution records, Shulick’s company violated Title 18 USC §666. That federal statute covers the crime of embezzlement.
Embezzlement occurs when someone steals or misappropriates money or property from an employer, business partner, or another person who trusted the embezzler with the asset. It is different from larceny or theft or stealing, because the “embezzler” had permission to handle the property—but only to use in accordance with the contract, or permissions granted.
The government argued that Shulick’s company violated the embezzlement statute because, although he had authority to disburse funds, prosecutors alleged that he did not comply with the terms of the contract. The contract included an appendix with an out-of-date, one-page budget item that Shulick overlooked.
The budget, allowing for approximately $1 million in annual revenue, granted Shulick authority to hire teachers, pay employee benefits, and hire other staff members to deliver services. As a for-profit business, Shulick used his discretion to hire a qualified team, but he used his business acumen to get the best market rate. Through good negotiations, he succeeded in saving money from salaries; and he could use those funds to advance objectives such as purchasing school buses and supplemental educational software.
When investigators were looking at Shulick’s employee, the congressman’s son, they learned about Shulick’s business. Investigators widened their net, bringing Shulick into the investigation. The government investigation lasted for several months, costing Shulick’s company hundreds of thousands of dollars to defend.
Then, the civil investigation turned criminal. Prosecutors convened a grand jury. The grand jury is a body of citizens that listens to the government’s version of events. No defense attorneys are present during grand jury investigations. Prosecutors persuaded the grand jurors that a crime was committed and asked the members of the grand jury to return an indictment. The grand jury indicted Shulick for embezzlement of funds through misapplication and violation of Title 18 USC §666.
Contesting his innocence, Shulick chose to go to trial. During the jury trial, the client or school district testified that Shulick’s company fully performed and provided all services under the contract despite the budgetary deviations. The charge did not require jurors to find that Shulick had any intent to violate the law.
Prosecutors persuaded jurors that Shulick misappropriated funds. They convicted him of the crime of embezzlement. At a sentencing hearing, the Court calculated all budget deviations over a two-year period. That sum equated to the “loss amount” which influenced the federal sentencing guidelines. Relying upon the guidelines as a starting point, the judge sentenced Shulick to serve 60 months, but also imposed monetary penalties known as restitution and forfeiture, which required Shulick to repay the amount of loss.
When government investigators begin their work, they identify people as either witnesses to the investigation, subjects to the investigation, and targets of an investigation. Although the government may identify a person as a potential witness or a subject, they can expand the scope of their investigation. In Shulick’s case, the investigation began with a congressman’s son. The case expanded to include the target’s place of work. As the employer, Shulick may have begun as either a witness or a subject to an investigation. Then, the investigation broadened, and Shulick became a target.
Investigators bring the full force of the government with them. Shulick didn’t only face a civil investigation. When prosecutors convened a grand jury, they wanted to convict him of white-collar crimes. After a jury trial in federal court, the jurors convicted Shulick of embezzlement, a federal crime.
The crime had federal jurisdiction because the federal government had issued funding to the school district; the school district relied upon those federal funds to pay Shulick’s company. Any time a private company receives funds that have some connection to federal funds, the federal court has jurisdiction. If federal laws are at stake, prosecutors may bring federal charges.
Business leaders should understand that government investigators are cynical. Regardless of intent, if an investigator believes that a business owner misapplied federal funds, a criminal case may follow. If prosecutors choose to bring criminal charges for a white-collar crime, the business owner will face an enormous hurdle. If a case advances from civil charges to criminal charges, a federal judge will rely upon the amount of loss when determining the sanction.
In Shulick’s case, the judge imposed a term of 60-months. Further, besides the loss of liberty, a defendant may face a restitution and forfeiture order that can decimate a person’s stability.
We recommend that business owners learn from stories like David Shulick’s before they engage in contracts that involve federal funds. At any time, investigators can bring an investigation. Those investigations can be costly and time consuming. Investigations can lead to injunctions, fines, and even the loss of liberty.
Business owners that contract with entities that rely upon federal funds should know the importance of documenting any budget deviations from the original contract. Violations of a legally binding budget may expose a person to criminal liability.
Many small and medium-sized businesses sell goods or services to public entities or nonprofits that receive financial assistance from the federal government. They may not know that they’re doing business with federal funds. For example, anyone that deals with funding from government insurers, like Medicare, will be exposed to federal law. Every one of these businesses, and their corporate officers, expose themselves to the potential for criminal liability if government investigators and prosecutors bring charges for violating Title 18 USC §666.
We recommend all business owners and team members learn more about the risks of accepting funds that have any tie to government funds. For business owners that choose to perform contract work for the government, we encourage them to participate in ongoing training. All team members should have a full understanding of the risks that follow noncompliance with government regulations.
Decision makers should obtain a competent legal opinion before they deviate in any way from a proposed budget in a contract. Keeping excellent written records that show the reasons behind every decision, with customer buy in, may limit risk of exposure to government investigations and charges for white-collar crimes
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