Embezzlement: Sometimes It’s Just Too Easy

Posted On Monday, April 5, 2021
By: John A. Schwab, Christin M. Roberts

Takeaway:

Financial crimes are not exclusively available to senior management, but rather anyone with access to company information could misuse confidential data.


Financial crimes are no longer strategic and singular, they are common and crude. Financial crimes, like fraud in general, is on the rise. While COVID-19 has created a remote work environment over the past year, it does not fully account for the steady progression of fraud in recent years. Financial crimes are no longer exclusively available to senior management. In fact, PwC’s 2020 survey, “Fraud and Economic Crime” indicates (click here for full PwC survey):

  • 24% of fraudsters are operations staff,
  • 42% are middle management, and
  • 26% are senior management.

Embezzlement, a common financial crime, is often committed by employees with access to company information. These embezzlers, with a penchant to misuse company information, may skim cash for years before being detected.

One such example is the case of Danielle Strother-Rush, an accounting manager from a non-profit in Pittsburgh, PA who plead guilty in the U.S. District Court on March 11, 2021, to one count of bank fraud. Ms. Strother-Rush embezzled over $321 million in the most conspicuous way: she wrote herself checks. Ms. Strother-Rush worked as an accounting coordinator for Eastern Minority Supplier Development Council (EMSDC). EMSDC is a non-profit organization focused on supporting minority-owned businesses in the northeast. As an accounting manager, Ms. Strother-Rush had access to bank accounts, but did not have signature authority herself. From August 2014 through August 2016, Ms. Strother-Rush wrote checks to herself and forged her supervisor’s signature. Ms. Strother-Rush faces sentencing on July 15, 2021.

Despite the prevalence and damage fraudulent acts have on companies, PwC reports:

  • only 7 in 10 organizations use corporate controls to detect fraud;
  • 10% of companies don’t have a formal fraud program at all;
  • only 50% of companies conducted an investigation after the last major fraud; and
  • only 1/3 reported fraud to the board.

These statistics pave the way for fraudsters to exploit their position, whether they are staff operations, middle management, or senior management. If you are in the 10% of companies who don’t have an internal fraud prevention program, or in the 50% of companies who didn’t conduct an internal investigation, or if you want to detect and deter fraud, we can help. Pietragallo’s team of experienced lawyers will work with you to create appropriate corporate policies and controls to detect fraud.

To read the press release issued by the U.S. Attorney’s Office of the Western District of Pennsylvania on Ms. Strother-Rush’s case, please click here.

Cooperating Witnesses Said More Than Enough: D.C. Court of Appeals Upholds Theft of Trade Secrets Conspiracy Conviction

Posted On Tuesday, March 23, 2021
By: James W. Kraus

Last week, the D.C. Court of Appeals affirmed the theft of trade secrets conspiracy conviction of Shan Shi for his role in the theft of data from manufacturers of offshore drilling technology.  The Court rejected Shi’s argument that the trial evidence, which relied heavily on cooperating witnesses, was insufficient to support the jury’s verdict. 

The facts underlying Shi’s conviction relate to his company’s attempt to enter into the market for manufacturing drill riser buoyancy modules (DRBMs), used to provide buoyancy to the miles of steep pipe that carry oil from tens of thousands of feet below the ocean’s surface to drill ships.  In 2012, only four major companies in the world produced DRBMs, and none of those companies were Chinese companies.  The Chinese government sponsored a Chinese company to develop the technology, which in turn partnered with Shi, a Ph.D. with 25 years of engineering experience in offshore structural design.  One critical problem with that plan was that Shi did not know how to manufacture the syntactic foam critical to the modules.  In an effort to collect information, Shi visited factories of two competitors, Trelleborg Offshore U.S., Inc. and Cuming Corporation, both of whom he found to be quite deliberate in protecting their technology.   

Shi then interviewed a former member of Trelleborg’s innovation and technology team, Sam Ogoe, for a job.  During the interview, Ogoe told Shi that he had “some friends at Trelleborg” he could contact to obtain the necessary data.  At trial, Ogoe testified that Shi expected him to provide this non-public information.

Ogoe obtained numerous trade secrets from Trelleborg through friends, including a chart of density and pressure specifications for macrospheres graded to withstand listed depths.  Ogoe also produced a “recipe” containing specific variances of raw materials, a contribution that Shi noted had saved them valuable time.  In all, Shi obtained seven non-public trade secrets relating to the project. 

It all came to an end for Shi in 2017 when, at a pitch meeting with representatives of a company he believed to be Lockheed Martin, FBI agents arrested him.  Shi, the two Chinese companies he worked with, and five individual co-conspirators were charged.  Three of the co-conspirators entered pleas of guilty to conspiracy to commit theft of trade secrets and two others left the country before trial, leaving Shi as the lone individual defendant for trial.  The 10-day jury trial, during which three co-conspirators testified against him, ended with Shi’s conviction on the charge of conspiracy to commit theft of trade secrets. 

Shi’s primary argument for reversal of his conviction was that the D.C. Court of Appeals had previously reversed conspiracy convictions in cases where none of the government’s cooperating co-conspirator witnesses testified that the appellant joined in an agreement to commit a crime.  Relying primarily on United States v. Gaskins, 690 F.3d 569 (DC Cir. 2012), Shi argued that there is “reason to doubt” his involvement in the conspiracy when cooperating witnesses were unable to point to “conclusive evidence” of his guilt.

The Court of Appeals was unconvinced, stating that Shi “overreads Gaskins.” It found that the key distinction between Gaskins and Shi’s case was that the Gaskins’ panel stressed the overwhelming lack of evidence in its totality and did not weigh the absence of co-conspirator testimony against countervailing evidence of guilt.  Unfortunately for Shi, such was not the case for him. 

The Court refused to adopt a bright-line rule requiring reversal where none of the government’s cooperating witnesses testified that the defendant joined an agreement to commit a crime.  The Court stated that even if it did adopt such a rule, Shi would not satisfy his own test.  It explained that two co-conspirators testified to Shi’s criminal agreement through his hiring of both individuals after each had told him that they could obtain trade secrets from their former employers. 

The Court also rejected Shi’s claim that there was insufficient evidence to show that he and at least one co-conspirator believed the appropriate information contained trade secrets.  It found strong evidence that at least one of the co-conspirators, Sam Ogoe, reasonably believed that Trelleborg took reasonable measures to protect its trade secrets.  He testified that he understood he “did wrong” by asking his friends for “confidential information” that Trelleborg “wouldn’t put … outside.” 

A complete copy of the Court’s March 16, 2021 opinion can be found here.

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