What Is Misappropriation?

The act of misappropriation is a punishable crime and involves the intentional or illegal use of something for the thief's gain. Usually, people misappropriate funds or property in a criminal breach of trust. In this case, someone will trust another with his/her money or property, and the latter will commit a criminal breach of trust by misusing the money or property.

A breach of trust can also occur when someone is placed with the power or authority to protect an idea, property, or fund but instead abuses this power. Examples of people who conduct misappropriation include a public official, a trustee of a trust, an estate executor, or any other person with a fiduciary duty of another's assets, including a company's employees.

Misappropriation can also refer to plagiarism or illegally using someone's identity, likeness, or name, resulting in harm. Depending on where the crime occurs and the property or money's value, misappropriation can be a felony and result in fines or a prison sentence.

Real-World Example Of Misappropriation

In March 1998, the Federal Bureau of Investigation charged employees of the First National Bank of Chicago for trying to steal almost $70 million. The employees embezzled funds from the bank and three of the bank's customers: the Brown-Forman Corporation, Merrill Lynch & Company, and United Airlines.

The employees were transferring the cash to an Austrian dummy account that was anonymous and untraceable. However, their plans were foiled when Merrill Lynch noticed that over $20 million was missing from its account. It was Merrill Lynch that contacted the FBI to make the arrests.

Two of the arrested men, Otis Wilson and Gabriel Taylor, were low-level employees at First National Bank in Chicago. One was a clerk in the bank's cash disbursement department, and the other a wire transfer clerk.

Additional Examples Of Misappropriation

A Ponzi scheme or pyramid scheme is another form of misappropriation. It is a fraudulent investment scam that promises investors high return rates with few risks even though no real investments occur. These companies will focus energy on attracting new investors and use the cash from new investors for themselves and to pay off previous investors. It will usually unravel when there are no new investors, and all investors involved will lose their initial investment money.

Misappropriation can also occur within the field of scientific research through fraud or plagiarism. For example, a scholar can obtain an idea during an exchange of ideas or manuscript review and steal the information for his/her gain.

Creatives can also bring up idea misappropriation in court. It refers to the concept that an author may claim relief for an idea or story appropriated or used without permission. An example would be when an entertainment company produces a movie based on a book without the author's permission.

History Of Misappropriation

The U.S. federal government developed the misappropriation doctrine following the 1918 decision of the United States Supreme Court in "International News Service v. Associated Press." The case covered whether or not a company can misappropriate another company's assets as its own. Although the misappropriation doctrine started as federal common law, it has been based on state law since 1938.

The term "Ponzi Scheme" was named after Charles Ponzi, who created a scheme on the U.S. Postal Service in 1919. However, the first records of investment scams that can be considered misappropriation date back to the mid-1800s.

Types Of Misappropriation

The three common types of misappropriation criminal activities involve funds, assets, or trade secrets. Misappropriation of funds is when someone illegally uses another person's money deliberately. For example, a client provides funds to an investor for an investment portfolio, and the investor instead uses that money to purchase personal items.

Misappropriation of assets is when employees abuse their power to steal from their company or clients. For example, an employee may forge checks, overbill customers, or fake vendor payments to steal money from their company and change the books to hide their activities. Sometimes this is called internal theft or employee fraud.

Trade secret misappropriation occurs when trade secrets are acquired or shared. Trade secrets can sometimes be obtained illegally through blackmail or hacking. An employee bringing home confidential information and violates their employment contract is also considered trade secret misappropriation.

Misappropriation vs. Theft

While both will involve stealing and are similar terms, there is a difference between misappropriation and theft. Theft is the direct act of taking something that doesn't belong to you. With misappropriation, a person has access to information, money, or property and chooses to misuse it and abuse the trust they were given. They are making it an indirect act of stealing.

Since in a misappropriation, the activity starts as non-criminal but turns into a criminal breach of trust when the stealing occurs, it differs from theft. Theft is often intentionally criminal from the beginning.

Misappropriation vs. Embezzlement

Embezzlement is a type of misappropriation, and you can sometimes use the terms interchangeably. However, embezzlement specifically refers to a situation where you lawfully entrust funds to someone who eventually embezzles it. For example, a foundation may receive donations to support specific academic programs, but instead, the CEO uses the money to buy a yacht.

Misappropriation can occur whether property or money was entrusted or not, but for some reason, the thief had access to it and chose to misuse their access. Misappropriation can also include other acts, such as stealing ideas or illegally using someone's name or likeness.

Conclusion

Misappropriation is a criminal offense and can occur in many ways, including the intentional misuse of money, property, assets, or someone's identity. Two common types of misappropriation are employee embezzlement and Ponzi schemes, where someone entrusted with funds abuses trust for personal gain.