Fraud – A Nasty Introduction


Fraud has been around since Adam and Eve.  It pokes its nasty head into almost everything we do including marriage, probate, and other family matters.  Fraud is evil, based upon greed, and will destroy marriages and lives.  Don’t be fooled, fraud touches all of us, everyday, in one form or another.

A common definition of Fraud is:   An intential misrepresentation of a material existing fact made by one party to another with knowledge of its falsity and for the purpose of inducing the other party to rely and act upon it with resulting loss, injury or damage. Fraud may also be a result of omission – purposefully failing to disclose material facts, which nondisclosure makes other statements misleading or false.

Divorce and Fraud

Marital Fraud usually involves one spouse using false statements or failing to disclose material facts to the other spouse.  Often the one spouse who controls the assets will conceal property from the other, just in case they divorce.  Like most crooks, they don’t believe they will ever be caught.  In marriage fraud, most individuals believe they can talk their way out of it, or simply relinquish half of the concealed property.  The courts are frowning on this and may apply exemplary damages or disproportionate division of marital assets to the the innocent spouse.   Whatever the logic, marital fraud is very common and with the divorce rate around 70% in Texas, everyone should be aware of it.

Probate and theft of funds from family members often include fraud.  Take for example a situation with an elderly and blind mother of four children, grown with children of their own.  One offspring, the sole daughter, moved in with her mother to”take care of her” supposedly.  She was appointed a convenience signer on her bank accounts and given her mother’s power of attorney to handle any and all transactions necessary.  Unfortunately, she was untrustworthy and after her mother died, all of the estate’s funds were gone.

The other brother siblings were at a loss to account for the $2 million of oil and gas revenues/royalities received by their mother during the last five years of her life.  The IRS filed tax liens on the estate and with the petroleum producers themselves.  The daughter had kept no books or records and supposedly no check registers.  For almost two years the brothers struggled with the estate, tax liabilities, and lack of any accounting records.  Finally, after two years of litigation, the legal counsel for the brothers hired a Forensic Accountant.

By reviewing copies of all the bank statements, canceled checks, oil and gas royalty statements and tax forms, the CPA was able to ascertain the total revenues and disposition of the funds.  The daughter would commonly deposit half of royalty checks and keep the rest in cash.  The deposit slips were never reviewed by the mother, because she was blind and anyone else would not see anything abnormal simply reviewing the bank statements.  Cash redrawals and ATM withdrawals were small, consistent, but massive when accumulated.

Since the daughter failed to pay her mother’s income taxes, the IRS siezed several of the bank accounts.  So the daughter would open and close bank accounts regularly to seemingly avoid discovery by the IRS.  Her mother ended up with approximately 15 different bank accounts (opened and/or closed) for the five years before she died.  Over two million dollars had been transferred among these bank accounts with over 4500 transactions.  Tracing the funds was extremely complex.  At the end of the case, it was  ascertained that over $180,000 were withdrawn by the daughter in cash and another $70,000 of undisclosed expenditures were probably spent by her.

No cash was discovered at the mother’s home, or declared as part of her estate, so the funds were probably embezzeled by the daughter, the sole fiduciary for her mother.  Once the facts were disclosed to the court about the missing funds and mediation was required, the case settled quickly.  The facts could not be disputed and the daughter was facing criminal charges.  The brothers and their sister agreed to have the stolen funds repaid from future oil and gas royalties.  Again, forensic accounting was vital in this lawsuit and helped reach a fair and equitable solution.

There are a mulitude of other fraud situations which we will explore in future articles.