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A co-owner of a Wilmington development company, Michael Stortini, has admitted to embezzling from an employee pension plan and committing willful tax evasion.

Michael Stortini, aged 52 and associated with Frank Robino Companies LLC, confessed to misusing over $600,000 from an employee 401(k) plan to cover business expenses. Additionally, he failed to pay over $450,000 in payroll taxes to the Internal Revenue Service over two years. Federal authorities also accuse him of stealing over $900,000 from business accounts for personal use.

The company faced financial troubles in 2008, as revealed by Assistant U.S. Attorney Shawn Weede.

Despite announcing the termination of the 401(k) plan, Stortini diverted the assets intended for employees to cover business costs. Furthermore, he allegedly withdrew funds from other corporate accounts for personal expenses, including nearly $500,000 spent at gambling establishments.

Michael Stortini faces a maximum penalty of $1.2 million in fines and up to five years in jail for each offense, with sentencing scheduled for March 11.

Michael Stortini Sentenced for Embezzling Employee Retirement Funds

Michael Stortini, formerly a managing member and part-owner of the Frank Robino Companies (FRC), a Delaware real estate development firm, received a 24-month prison sentence from United States District Court Judge Richard G.

Andrews for embezzling $606,500 from his employees’ 401(k) plan and failing to pay hundreds of thousands of dollars in payroll taxes to the Internal Revenue Service (IRS).

In addition to the prison term, Judge Andrews ordered Stortini to pay $638,468 to the IRS and provide restitution, with interest, to the participants of the 401(k) plan.

Judge Andrews stressed the necessity of the two-year sentence to deter similar breaches of trust. He referenced a legal proverb he had heard in law school, emphasizing the consequences of combining fiduciary responsibilities with personal interests.

Akeia Conner, special agent in charge of IRS Criminal Investigation, described Stortini’s actions as severe felonies that not only harmed individuals financially but also burdened honest taxpayers. Shawn A. Weede, an assistant US attorney, led the prosecution in the case.

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How does embezzlement work?

Embezzlement occurs when someone entrusted with funds or assets unlawfully takes them for personal gain instead of their intended use.

Despite knowing it’s illegal, they do it secretly to obtain more assets from the organization. Depending on the scale, embezzlement can result in hefty fines and imprisonment.

This financial fraud can cause various negative impacts on a company, including loss of assets, operational disruptions, accounting discrepancies, and a breakdown of trust.

Rebuilding trust, essential for business and customer relationships, becomes challenging once lost. Therefore, it’s crucial to thoroughly understand both your staff and clients.

Distinguishing Money Laundering from Embezzlement

Understanding the difference between money laundering and embezzlement is crucial. While both involve the transfer of large sums of money, the key distinction lies in the source of the funds. In embezzlement, funds obtained legally are misappropriated for unauthorized purposes, whereas in money laundering, illegally obtained funds are concealed to appear legitimate.

Signs of Embezzlement

Detecting potential embezzlement within your company requires vigilance for warning signs such as:

1. Sudden and unexplained financial fluctuations.
2. Employees exhibiting defensive behaviour or reluctance to share financial records.
3. Financial distress indicators indicate a potential risk of theft.
4. Unhappiness among employees could lead to justifying theft.
5. Irregularities in transaction records, such as missing receipts or suspicious file alterations.

These warning signs should prompt further investigation, particularly if there are multiple indicators present or if there is a noticeable change in behaviour rather than a consistent pattern.

Preventing Embezzlement

Preventing embezzlement involves implementing robust security measures and monitoring systems. Here are some steps to stop embezzlement:

1. Know Your Customers (KYC): Implement KYC checks to verify the identity of individuals involved in financial transactions. This helps ensure trust and transparency in business dealings.
2. Anti-Money Laundering (AML) Measures: Adopt AML practices to monitor and track financial activities and transactions, preventing the movement of illicit funds into legal channels.
3. Integration of KYC and AML: Utilize tools like IDnow to merge KYC and AML processes, allowing for secure vetting of customers and employees while monitoring their activities for any suspicious behavior.
4. Regular Audits: Conduct regular audits of financial records and transactions to detect any discrepancies or irregularities that may indicate embezzlement.
5. Segregation of Duties: Implement a system where no single individual has complete control over financial transactions. This helps prevent opportunities for fraudulent activities.

Embezzlement Punishment

Embezzlement can result in both civil and criminal penalties, including imprisonment, monetary fines, and restitution to the victims.

Understanding White-Collar Crime

White-collar crime refers to nonviolent offenses committed by business professionals who breach trust for financial gain. Examples include fraud, theft, forgery, embezzlement, and money laundering. These crimes often involve sophisticated schemes to deceive and manipulate financial systems for personal benefit.