028: Timothy Semones Embezzlement Conviction
Purpose
Learn the consequences of embezzlement of employer’s funds and trying to hide it from the employer.
Learning Objectives
Upon completion of this Case Study, participants should:
- Understand the basic concepts of embezzlement and wire fraud;
- Understand the consequences of embezzlement and wire fraud;
- Understand the basic concepts of civil litigation and how it differs from criminal prosecution.
- Describe the penalty embezzlement.
- Describe the penalty for wire fraud
- Understand basic concepts criminal restitution payments.
State of the Industry
Employers frequently provide their team members with authority to access corporate financial resources. They may have authority to access to credit cards, bank accounts, or cash. When people face personal challenges or pressure in their personal lives, they may abuse their access to corporate financial resources. Despite not viewing themselves as “criminals,” abuse of authority may lead to charges for white collar crimes.
Background and Analysis
This case study profiles Timothy Semones, formerly the CFO of ETA Compute (ETA), a small tech company based in Idaho. In 2017, Semones began a scheme to deprive his employer of money. Over two years Semones embezzled $3 million from ETA.
Embezzlement occurs when someone steals or misappropriates money from an owner, employer or business partner. Embezzlement differs from fraud or larceny (theft). The embezzler has permission to handle the property in a certain way but does not have permission to take it for personal use. Instead, the embezzler uses the position of trust granted by the owner, employer, or business partner to convert the property to the embezzler’s possession and control. Federal statutes authorize sentences of up to 20 years in federal prison for embezzlement, in addition to monetary penalties.
In November 2018, the CEO of ETA discovered a discrepancy in the corporate bank account. He grew alarmed when he saw a balance that was far lower than he anticipated. The CEO of ETA asked Semones about the discrepancy. Semones initially attempted to cover up his crimes by altering an ETA bank statement and emailing it to the owner.
Wire fraud is a type of fraud that involves the use of some form of telecommunications or the internet. These can include a phone call, a fax, an email, a text, or social media messaging, among many other forms. Wire fraud is punishable by up to 30 years in federal prison. When Semones used technology to transfer money from the ETA corporate account to his own personal account, he committed the crime of wire fraud.
The CEO quickly ascertained that Semones altered the bank statement was altered and he confronted him a second time about the missing money. Semones admitted that during the past two years, he had transferred a total of $3 million from ETA’s account to his personal bank account without the knowledge or permission of anyone at ETA. Semones further explained that he had attempted to repay some of the stolen money in May 2018, by transferring $1.5 million from another company owned by Semones to ETA’s account.
The parties initially attempted a private settlement without any government involvement. At one point in the negotiations, Semones promised to provide all of his bank account statements to ETA. However, Semones never provided those bank statements to ETA.
Once the CEO had clarity that Semones would not cooperate in returning the funds, ETA contacted the FBI with the allegations of embezzlement of corporate funds. The FBI investigation showed that Semones had stolen more than $3 million from the company.
The US Department of Justice brought an indictment against Semones seeking 30 years in federal prison and $3 million in restitution (or repayment to the victim of the financial crime). Eventually, ETA also filed a civil liability lawsuit against Semones (and others). The company alleged that the crime harmed the company and sought reimbursement for the funds.
Civil litigation differs from criminal prosecution in that some civil cases involve private disputes between persons or organizations. Criminal cases involve an action that is considered to be harmful to society as a whole and criminal cases are filed by an official government agency (like a city, county, state, or US Attorney General’s office). Civil and criminal cases can take place at the same time.
Anyone that attempts to take money from an employer may face felony charges and potentially decades in prison. The statutory penalty for wire fraud is 30 years in prison, and the statutory penalty for embezzlement is 20 years in prison and $50,000 in fines. The defendant may also be required to pay restitution to the victims of his crimes.
Judicial proceedings that followed Semones included a plea hearing. In most cases like Semones, defendants will choose to enter into a plea bargain with hopes of lessening the exposure to punishment. Prosecutors agreed to limit Semones sentence and time spent in prison to three (3) years, provided that he pleads guilty early and works on a mitigation strategy.
When Semones pleads guilty, he will undergo a presentence investigation with a probation officer. The probation officer will complete a report, calculating a “loss amount” that will influence the sentence length. Semones will have to decide whether he wants to accept responsibility and plead guilty. As an alternative, Semones could choose to put the government to the test of proving the case to a jury beyond a reasonable doubt. Due to the fact that Semones admitted his crimes to ETA early on in the process, it would seem that prosecutors have a strong case.
Like most defendants, Semones likely will plead guilty to avoid the downside of being convicted at trial. His best option will be to craft an effective mitigation strategy. That strategy should show the judge that Semones has a full grasp of the crime he committed. His mitigation strategy should show empathy for the victims of his crime, show what he learned from the experience, and help the judge understand what steps he is taking to make things right.
Recommendation
The criminal indictment charged Semones with creating an embezzlement scheme that began in 2017 and ran into 2018 before being discovered. Semones used corporate funds to pay for a new home construction, which was eventually sold to pay criminal restitution back to the victim, ETA Compute.
We recommend more and better training for white collar professionals to profile the personal stories of people that broke the law in the ordinary course of business. When people understand how authorities view crimes like embezzlement, and wire fraud they may be more inclined to make law-abiding decisions. We like to say that people are innocent until proven guilty. Yet our experience shows that once the government identifies a person as a target of a criminal investigation, a guilty verdict will follow—either by plea or as a result of a jury’s verdict.
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