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Organizational vs. Occupational Frauds (and Bias)

A Brooklyn charity allegedly for the benefit of children is in legal trouble, though the substantive wrongdoing, according to the article, purportedly cannot form the basis for criminal charges as “charities fraud” under New York State law. Nonetheless, criminal charges for occupational fraud (e.g., embezzlement) may be filed against individuals, and fraudulent fundraising is civilly punishable in most states and under federal laws. Also, consider the legal possibility of federal criminal charges such as mail and wire frauds where individuals that committing acts of illicit abuse of their positions, including fraudulent fundraising, within their respective charities may face criminal liability originating from the means and methods (for example, computer-based communications) to perpetrate the frauds.

Occupational fraud is common to all sectors – commercial, not-for-profit, and public. Generally, the illicit conduct forming the substance of the NYT article seems, at a minimum, to comprise deceptive trade practices, though New York State law exempts certain classes of persons from civil fundraising fraud enforcement actions. Use of a charity to perpetrate fraud may also comprise a form of organizational fraud. Corrupt managers may create the facade of noble purpose to obtain donors’ savings and contributions, playing on their heartstrings and inability and/or unwillingness to perform due diligence. Potentially, the entire organization may be a sham and subject to civil action by the New York Attorney General per Executive Law Article 7-A Section 175(4), notwithstanding the exemptions.

The legal inability to criminally charge a fraudulent charity may be significant where responsibility for decision-making is diffuse and opaque, and civil / administrative enforcement is otherwise insufficient for criminal justice purposes (for example, general and specific deterrence). Where illicit action cannot be attached to any one or more individuals due to the shared initiation, authorization, and other operational functions of the entity, holding the entity itself and not specific individuals potentially criminally liable may comprise prosecutorial convenience, notwithstanding the apparent absurdity of the theoretical existence of a criminal legal fiction (compare holding a gun responsible for illegally shooting an individual?) Decision-making within entities, including charities, may be afflicted with the diseases of confirmation bias (for example, where profitability and ethics are expected, documentation facially in support thereof may not be adequately questioned) and publication bias (for example, where whistleblower and other complaints are deflated under the rationalization and neutralization techniques of ‘he / she is merely a disgruntled’ so-and-so with a personal and not professional agenda).


  1. Understood, though the universe of disgruntled individuals with unsound claims may stress an organization’s resources, especially where complaining creates a prophylactic effect (that is, others fear to opine on the the unsoundness lest they appear to be ‘retaliating’).

  2. Interesting dilemma. I would argue that if there is fraud occurring, it needs to be investigated. Even if it may just be a disgruntled employee complaining.

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