Prosecutors Are Rarely Interested in Business “Theft” Cases
Many business divorce cases start because one partner is improperly taking money from the business. Such behavior can come in many different forms, including a majority shareholder wildly overcompensating himself, running personal expenses through the business, or having family members on the payroll with a no-show job. Often this is done surreptitiously, so the minority shareholder knows absolutely nothing about it; or the minority owner knows but simply feels powerless to stop it.
Often a minority shareholder in such a situation will come in and say they want to go to the police or the prosecutor’s office. After all, when someone takes money that does not belong to them, without the other person’s permission, isn't that theft? If you hide from your business partner the fact that the company paid for your family’s trip to Hawaii last year, isn’t that the same as stealing? One client was absolutely adamant that his business partner taking a corporate opportunity (starting an undisclosed competing business and “stealing” work from his own company) absolutely must be seen as criminal theft and actually wanted to sue the police for their refusal to do anything about it. (I talked him out of that one.)
Unfortunately, it is not quite that simple. If you go to the prosecutor and say your business partner took money from the company without authorization, and they ask your business partner about it, all he has to do is lie and say he had authorization. Prosecutors believe it is next to impossible for them to prove such a case beyond a reasonable doubt in such an instance, so they almost never even try.
Of course, the type of “theft” I am discussing is vastly different from someone taking money from a bank account and disguising where it is going with false invoices and the like. Such blatant theft will be prosecuted if the facts are clear and enough evidence exists. But when a business partner refuses a minority shareholder access to the books and records and takes bonuses for himself that he never discloses, what one business partner sees as theft, the prosecutor will almost certainly see as a business dispute to be resolved in civil court. They will almost never touch a case like this, much to the frustration of the person who is essentially the victim.
While this may come as a surprise to many reading this, and to some, a bitter disappointment, all is not lost. This is because, as the prosecutor rightly believes, this IS a business dispute that can be resolved in civil court. Under New Jersey law, the aggrieved minority shareholder in such a case, may receive from a civil judge not only a buyout of her shares, but damages to even things out for all the money that was improperly taken over the years. This is because of the different standards under different legal systems. In a minority oppression case, oppression (improper conduct by the majority shareholders that warrants relief) need only be proven by a preponderance of the evidence, meaning it only has to be more likely that not that the majority engaged in improper conduct. In other words, a 51% likelihood is enough for the oppressed minority shareholder to prevail.
In some cases, of course, the facts are so egregious that a prosecutor may have some interest. In one such case, a forensic accountant I was working closely with was able to meet the prosecutor with me, and together we convinced him that an indictment was, in that particular case, warranted. Not only did the majority shareholder face indictment, but he was also sued for shareholder oppression in civil court. This happened despite our warning to the client that he might not even want the majority owner to face indictment, because spending money to keep himself out of jail would be his first priority, not settling with our client.
If you have suspicions about improper conduct by a majority shareholder, an experienced shareholder rights attorney will be able to advise you as to whether your matter may be one of the very few that may interest a prosecutor, and whether it is even in your best interest to go down that path if it is available. But even if criminal prosecution is not warranted or advisable, a business divorce action may be available to you.
If you have any questions about this post or any other related matters, please contact me at email@example.com.