Nonprofit fraud can be very profitable

Don’t let the word nonprofit fool you; as this case shows, there is plenty of money up for grabs.

Over the course of eleven months, Jeffrey Bernstein allegedly embezzled over $2 million from the Albert Ellis Institute, a nonprofit based in New York. The Institute’s mission is to provide “global access to the benefits of Rational Emotive and Cognitive Behavioral Therapies through the training and education of mental health and allied professionals worldwide.” I’m not sure what that is either, but clearly they have money on hand to fund their efforts. Or at least they did.

Yet again, we have a remarkably simple fraud. Bernstein allegedly transferred funds from the Institute’s bank accounts at J.P. Morgan Chase to personal accounts that he controlled. Here is the twist; the Institute is not pursuing Bernstein. Instead, they have sued J.P. Morgan Chase in civil court. Presumably, they believe that Bernstein has spent the money and that a judgment would be worthless.

In order to prevail in a civil suit, the Institute is going to have to show that J.P. Morgan was at fault. In practical terms, how much responsibility should the courts place on a bank to detect embezzlement? Unless J.P. Morgan Chase made a glaring error that was entirely inconsistent with their own policies and procedures, I don’t see the Albert Ellis Institute prevailing in court. Further, the Institute better be able to show that they had taken the necessary steps to prevent the fraud in the first place.

Each year, J.P. Morgan Chase invests tens of millions of dollars to prevent, detect, and investigate fraud. Speaking from experience, banks will never get it right 100% of the time, with embezzlement being the most difficult fraud for a bank to guard against. By definition, the transactions are initiated by authorized individuals that are granted access to the organization’s bank accounts to conduct routine business transactions. In most circumstances, expecting a bank to detect embezzlement in a sea of routine transactions is just unrealistic. (Each case is different, so I stress “most circumstances.”)

In my opinion, given that the fraud took place over eleven months and was perpetrated by the president of the Institute, the burden that the plaintiff must overcome to prevail in court will be considerable.

Stay tuned…

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About Paul McCormack
I have over 20 years of experience in corporate fraud and intellectual theft prevention, detection and investigation. Unlike many fraud experts, I have both industry and professional services experience. To date, I have conducted over 800 interrogations of fraud suspects including numerous senior corporate executives. As a freelance writer, I have written over 1,000 articles on a broad range of topics. My areas of expertise include: • Asset Misappropriation • Big Data • Bribery, Corruption, and Collusion • Check, Wire, ACH, and Credit Card Fraud • Consumer Fraud • Corporate Security • Cybersecurity • Data privacy (Europe, Brazil, Russia, India, and China) • Drug Trafficking • Embezzlement • Employee Fraud • Executive Protection • Fintech • Financial Statement Fraud • FCPA • Healthcare fraud • Identity Theft • Intellectual Property Theft • Internal Audit • Interrogation Tactics • Loss Prevention • Mobile Fraud • Money Laundering • Operational Excellence • Organized Crime • Payments Fraud • PCI Compliance • Retail Fraud • Risk Management • Terrorism and Counterterrorism • UK Bribery Act • Workplace Violence

4 Responses to Nonprofit fraud can be very profitable

  1. Pingback: Simple fraud. Shocking results. $718,167 walks out the door « Fraud Happens

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