The Crime of ‘Misappropriation of Funds’ – What You Need to Know

If a person is entrusted with someone else’s money, property or assets but uses them for their own benefit, they might be guilty of misappropriation. 

Misappropriation refers to the intentional, unlawful use of another party’s property for purposes not authorized by the property’s owner. This includes the misuse of a company’s funds, trade secrets, data or other assets by an individual who has access to those things but does not have ownership of them. 

Common types of misappropriation

1. Misappropriation of funds

Misappropriation of funds refers to the illegal use of another person’s money. While the person committing the offense was given lawful access to the money, it is the use for their own purposes or another unauthorized use that makes it a crime. 

“Misappropriation” describes conduct; the criminal charge must identify an actual statute. Misuse of entrusted private funds in California is commonly analyzed as embezzlement under Penal Code 503. Public funds, federal property and trade secrets involve different provisions.

For example, a CEO who fraudulently diverts company funds to personal credit card bills may face embezzlement or related fraud charges. Embezzlement does not require personal enjoyment of the property; fraudulent appropriation for another unauthorized use can qualify. A genuine authorization dispute or good-faith claim of right requires its own evidentiary analysis.

2. Trade secret misappropriation

When a person acquires a trade secret through unlawful means, such as theft, bribery or fraud, or publishes a trade secret that was acquired unlawfully, they could be guilty of trade secret misappropriation. 

A breach of a confidentiality agreement may support a civil dispute, but does not automatically establish criminal trade-secret theft. Criminal charges require the additional statutory elements, including a qualifying trade secret and the required knowledge and intent.

Businesses are legally allowed to file civil claims in trade secret appropriation cases, and they may also sue in federal court if they believe that trade secrets related to a product or service involved in interstate or foreign commerce have been misappropriated.

3. Misappropriation of assets

Other assets also can be illegally used by an entrusted person. Common business assets involved in misappropriation of assets cases include inventory and company equipment.

Other Theft-Related Offenses

Misappropriation is a theft crime that is defined by the specific circumstances of unlawfully stealing or misusing funds or other assets with which a person has been entrusted by the owner. In order to better understand misappropriation, it may be helpful to compare it to some other related theft crimes. Below are three of the most common:

Larceny

When you mention theft, larceny may very well be the first crime that comes to mind. Simply put, larceny takes place when a person steals property that they didn’t already have any type of lawful possession over that belongs to someone else. Shoplifting a DVD from a retail store is an example of larceny. 

Robbery

Many people mistake robbery to mean the same thing as larceny. However, there is a very important distinction between the two crimes. A person commits robbery if they steal another person’s property by force, fear, attack, or restraint. 

For example, a person who pins another person to the ground in order to steal their wallet or threatens another person with a knife and demands that they give them their jewelry could be guilty of robbery.

Embezzlement

Embezzlement concerns fraudulent appropriation of property entrusted to the accused. Misappropriation is a descriptive label that may overlap that conduct; it is not necessarily a separately charged offense. An employee who transfers entrusted company funds to a personal account without authority may face embezzlement if the required fraudulent intent and other elements are proved.

Embezzlement frequently involves money but may pertain to other property as well. An employee who is given access to a company bank account in order to purchase inventory but transfers company funds to their own personal bank account could be guilty of embezzlement.

Penalties for misappropriation

The legal classification depends on the statute and property involved. Federal jurisdiction may arise from theft of federal property under 18 U.S.C. 641, bank-related embezzlement under 656, trade-secret theft under 1832 or a properly proved mail/wire fraud theory. An internet connection or interstate movement alone does not establish every element of a federal offense.

• Federal funds have been misappropriated, 
• The internet was used to carry out the crime, or 
• State lines were crossed in the commission of the crime. 

There is no single set of elements for every state and federal “misappropriation” case. For California embezzlement, counsel should examine entrustment, fraudulent appropriation or conversion and intent to deprive the owner of use, even temporarily. The following facts can be relevant, subject to the particular statute:

1. The owner of the property or funds in question had entrusted it to the defendant, therefore affording the defendant some level of possession and control but not ownership.
2.  The defendant knowingly and intentionally misappropriated the funds or property.
3. The defendant fraudulently appropriated or converted the property with the required intent; personal benefit is not always required. In order for this criterion to be met in the eyes of the court, the defendant doesn’t need to have spent the funds. It would be considered sufficient for the defendant to have transferred the funds to their personal bank account or refused to give the owner back the funds or property upon their demand. 

On the state level, misappropriation can be charged as either a misdemeanor or a felony. The value of the funds or property as well as the type of misappropriation may determine the level of the offense and the severity of the penalties. 

For example, a government employee or official who is convicted of misappropriating a large sum of public funds might receive a particularly harsh sentence compared to a private citizen. Below are potential penalties for misappropriation of funds:

• Custody depends on the statute. California embezzlement is punished under theft rules; value, property type and prior-record provisions can affect classification. Federal property theft under 18 U.S.C. 641 has a one-year maximum for the specified $1,000-or-less category and otherwise a ten-year maximum.
• Fines depend on the charged offense and applicable sentencing provisions; there is no universal “misappropriation” fine.
• Restitution paid to the victim
• Probation or supervised release when permitted by the applicable statute and sentencing rules 

Legal defenses for misappropriation charges

If you’ve been charged with misappropriation, you might feel intimidated by the legal process and worried about the potential consequences. While your charges can be serious, especially if charged at the federal level, there are a number of strategies that may be available to you. 

Your defense attorney will examine the details of your case to determine the strategies that will be most likely to find you the best possible outcome. Below are some common defenses against misappropriation that could be useful against your charges:

• Lack of intent, You did not intend to steal or misappropriate the funds or property.
• Permission, The owner of the funds or property gave you consent to keep or use them for your own purposes.
• Ownership, You had a reasonable and good faith belief that you were the rightful owner of the funds or property.
• You were not the perpetrator, You were wrongfully accused or are the victim of mistaken identity.
• Entrapment, You were coerced by law enforcement into misappropriating the funds.
• Duress, You were forced to misappropriate the funds through use of violence, restraint or threat.
• Inadmissible evidence, The evidence against you was obtained through an illegal search or is otherwise inadmissible in court.
• Insufficient evidence, The prosecution doesn’t have enough evidence to prove beyond a reasonable doubt that you misappropriated the funds or property.

Misappropriation defense attorney

Whether you’ve been formally charged with misappropriation or are currently under investigation, a knowledgeable and credible criminal defense attorney can answer your questions, help you navigate the legal process and fight to defend your rights and protect your future. 

As a Los Angeles-based criminal defense attorney who has been representing clients in both California state and federal courts for more than four decades, Robert M. Helfend has the experience and expertise to build the strongest possible defense against even the most serious misappropriation charges. You deserve to have a strong and dedicated defense team working on your behalf. Call today to schedule your free consultation – 800-834-6434.

A funds-use review that goes beyond the account balance

Preserve the authorization documents, account access records, invoices, reimbursement policies, transfer approvals and the ledger used at the time. A bank transfer alone does not show whether the transaction was authorized, a temporary advance or a fraudulent conversion. Compare each disputed transaction with the purpose permitted by the owner and what the accused understood.

Returning funds can be relevant to restitution or mitigation, but does not necessarily erase a completed offense. A claim of right or reliance on approval must be supported by the original records. Keep separate the amount allegedly diverted, the value returned and any civil damages claim; they answer different questions.

Sources and legal standards

• Penal Code 503: embezzlement
• Penal Code 514: embezzlement punishment
• Penal Code 424: public funds
• 18 U.S.C. 641: federal property
• 18 U.S.C. 1832: trade-secret theft

Legal information checked October 10, 2026. The charge, evidence and applicable version of the law control the analysis of an individual case.

References

1. 18 U.S. Code § 641. https://www.law.cornell.edu/uscode/text/18/641
2. 18 U.S. Code § 666. https://www.law.cornell.edu/uscode/text/18/666
3. California Penal Code § 424. https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=424.&lawCode=PEN
4. California Penal Code § 503. https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=503.&lawCode=PEN