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Trust Accountings | Discovery of Fraud and Embezzlement

Trust Accountings Fraud Embezzlement.jpgTrust accountings can be routine or the genesis for shocking discoveries of embezzlement and trustee fraud. Embezzlement is the fraudulent appropriation of property belonging to someone else by a person to whom it has been entrusted. The theft of property with a value of more than $950 can be prosecuted by law enforcement agencies as a felony. Civil wrongs stemming from the same acts may be litigated in the civil courts.

Before exploring some recent criminal prosecutions against trustees who embezzled funds and defrauded beneficiaries it will help to have a little background on the law regarding trustee accountings. I am a California lawyer so my references will be to California law.

The duty of a trustee to account is fundamental to the fiduciary relationship between the trustee and the trust's beneficiaries. The duty to account can be enforced by a beneficiary's petition to the California Superior Court having "exclusive jurisdiction of proceedings concerning the internal affairs of trusts." Court accounting required schedules are listed in California Probate Code § 1061. This statute provides:

(a) All accounts shall state the period covered by the account and contain a summary showing all of the following, to the extent applicable:

(1) The property on hand at the beginning of the period covered by the account, which shall be the value of the property initially received by the fiduciary if this is the first account, and shall be the property on hand at the end of the prior account if this is a subsequent account.

(2) The value of any assets received during the period of the accounting which are not assets on hand as of the commencement of the administration of an estate.

(3) The amount of any receipts of income or principal, excluding items listed under paragraphs (1) and (2) or receipts from a trade or business.

(4) Net income from a trade or business.

(5) Gains on sales.

(6) The amount of disbursements, excluding disbursements for a trade or business or distributions.

(7) Loss on sales.

(8) Net loss from trade or business.

(9) Distributions to beneficiaries, the ward or conservatee.

(10) Property on hand at the end of the accounting period, stated at its carry value.

California Probate Code § 1063 lists additional requirements for a court accounting. Among other requirements there a mandate that there be a "schedule of the estimated market value of the assets as of the beginning of the accounting period for all accounts subsequent to the initial account." This requirement is often the Achilles Heel - the vulnerable spot - for the errant trustee. Trustees who fail to account are vulnerable because in California the three-year statute of limitations for trustee breach of duty does not begin to run until the beneficiary receives and accounting from the trustee that "adequately disclose the existence of a claim against the trustee for breach of trust" or facts become known to the beneficiary of the wrongful act. Trustee liability for wrongdoing can reach back decades.

Trust and Estate litigation counsel are often retained to sue Trustees who choose to violate the duty to account. We have laws that require trustee accountings to keep trustees from needlessly endangering trust beneficiaries. Trustees, whether banks, trust companies or individuals, must follow these laws.

When a trustee does not provide an accounting, the odds skyrocket that there has been a breach of fiduciary duty. Forensic accountants are called in to determine if this conclusion is right. Violating the rule exposes beneficiaries to partial or complete loss of assets that a deceased parent or relative wanted them to have. These are some unfortunate examples that involve individual trustees (a CPA, two attorneys, a financial advisor, a son, a nephew and two caregivers):

Illinois certified public accountant, Sultan Issa, was charged with criminal fraud for allegedly embezzling at least $55 million from a Chicago family and its related business entities, including trusts established for charitable giving and to provide for his large family. The case is currently pending in federal court in Illinois.

Longtime Connecticut trusts and estates attorney, Robert J. Barry, pleaded guilty to one count of wire fraud relating to his theft from elderly client trust accounts. Barry would often designate himself as successor trustee in trusts that he prepared for clients. He also had himself named as executor of his client's estate upon death.

The Department of Justice press release describe his scheme:

"Beginning as least as early as 2008 and continuing until approximately December 2015, BARRY engaged in a scheme to defraud an elderly victim by stealing money from the victim's client trust accounts while the victim was alive, and then stealing money from the victim's estate after the victim died... Through this scheme, BARRY stole more than $2.4 million from the victim and the victim's estate."

Michigan financial advisor, David Homan, was charged with felony embezzlement charges for allegedly stealing more than $500,000 for a trust fund where he was the appointed trustee for two elderly clients. An independent audit of the trust fund showed significant electronic transfers of money from the fund to Mr. Homen's personal bank accounts. Homan pleaded guilty in November 2018 to one felony count of embezzlement between $50,000 and $100,000. He was sentenced to two to 15 years in prison and ordered to pay restitution in the amount he stole - $513,211.56.

Tennessee attorney, Jackie Lynn Garton, was charged with wire fraud, aggravated identity theft, and tax fraud related to a years-long scheme where Garton, acting as a trustee, stole over $350,000 from the trust of a minor whose father, a Tennessee State Trooper, was killed in the line of duty. The beneficiary, Carina Larkins, was told by Garton that her money was growing. When she learned it was a lie she said "Shock is an understatement, I was absolutely devastated, I couldn't breathe." Garton pleaded guilty to stealing over $1.36 million from trust funds of clients, including Carina Larkins. He was sentenced to 92 months in jail.

Ohio caregiver, Teresita Sidoti, pleaded guilty to bank fraud and filing false tax returns related to her embezzlement of $156,949.75 between 2009 and 2015 from a trust established by the victim's parents to pay the medical expenses for an Ohio resident, Noel Zugay, totally disabled with multiple sclerosis. The U.S. Attorney's office handling the case said that Sidoti worked as Zugay's caregiver and controlled bank accounts for Zugay and the trust. She took the money by writing checks to herself, transferring money online and by making withdrawals in person. Sidoti was sentenced to 2 ½ years in federal prison for defrauding the trust.

California caregiver, Donna Crick, pleaded guilty to a single charge of theft or embezzlement from a 92-year-old-man suffering from dementia. "Once Crick had drained the life savings from the victim's bank accounts (about $172,000), Crick convinced the victim to make Crick the trustee and beneficiary of the victim's living trust, his home, his annuity and his life insurance," according to a (Kern County) District Attorney's office release.

A 58-year-old Michigan man was sentenced to 23 months to five years in prison for embezzling over $20,000 from his 93-year-old mother. Family members contacted law enforcement when they became concerned that the man was siphoning money from his mother. This initiated a Michigan State Police criminal investigation and charges were brought against the son.

Ricky Bradford Willson, holder of a durable power of attorney for his 90-year-old great aunt, "transferred $120,000 in cash from his aunt's bank account into his, signed a quit claim deed transferring her house in ...(Michigan) to himself, and transferred the title of her classic 1967 Ford Mustang convertible to himself." Attorney General Dana Nessel called this "a classic example of financial elder abuse: a trusted relative who took advantage of his aunt."

So, it's likely that all of the families and beneficiaries defrauded by these schemes would share the same emotions as Carina Larkins, the Tennessee beneficiary: "Shock is an understatement, I was absolutely devastated, I couldn't breathe."

There is a very good reason that California and other states impose a duty on trustees to keep clear and accurate accounts. Courts will resolve all doubts against a trustee who fails to keep proper accounts.

Hackard Law represents aggrieved beneficiaries in estate, trust, probate and elder financial abuse civil matters. We take significant cases where we think that we can make a substantial difference and there is a wrongdoer who can be made financially accountable for their wrongdoing or breach of duty. We represent foreign, out-of-state and California clients in California trust and estate litigation. We focus our geographic reach to California's largest urban areas, including Los Angeles, Orange, Santa Clara, San Mateo, Alameda, Contra Costa and Sacramento Counties.

If you would like to speak with us about your case, call us at 916 313-3030. We'll be happy to listen to your story.

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