Embezzlement: Check Kiting

Check Kiting is a form of white collar crime and check fraud. Depending on the severity of the case, the amount of money involved and the state or district in which you live, there may be different penalties for check kiting ranging from a misdemeanor with your local district attorney’s office to a federal felony carrying fines of up to $1,000,000 and jail time.

There are a few different forms of check kiting. Circular kiting, retail-based kiting, and corporate kiting. They all involve “taking advantage of the float”, where they take advantage of the time it takes from writing the check to when the check actually clears through the bank.

Circular kiting:

this is where someone writes a check to him or herself from an account that does have the funds to honor the check and depositing it into a second account and withdrawing the money immediately before the check has time to clear. Then the person will write another check from the second account and deposit into the first account to cover the first check written. This allows the person to the use of funds as a form of unauthorized credit and they may do this several times or until actual funds are deposited to cover the charges. This may involve 2 or more bank accounts in a rotating or circular scheme and most of the time unless a check has bounced the banks are none the wiser.

Retail Based kiting:

is similar to circular kiting but it takes advantage of a retail establishment (often a supermarket) that offers cash back in addition to the purchase amount when a check is written. Here is a scenario to illustrate how it is done

1. The person writes a check knowing he or she doesn’t have funds to honor the check.
2. Next, he or she goes somewhere, let’s say a supermarket, make a purchase and write a check (the kite) on a second account (which also doesn’t have sufficient funds) for the purchase plus a cashback amount that will cover the first check
3. They deposit the cash back into the first account to cover the first check
4. Now the second account does not have sufficient funds for the second check and the process is repeated until either the check writer has funds to cover the checks or the checks bounce and the retailer is defrauded of money.

Corporate Kiting:

involves using much more money, even millions of dollars, to embezzle money. The person defrauding will secretly borrow money or earn interest on corporate funds since they are often immediately available whereas individuals will usually have holds placed on large sums of money until it is cleared.

While most check fraud cases are prosecuted as state or local offenses and laws vary state to state, since most banks are federally protected the case may be prosecuted as a federal offense. This is especially true in the case of corporate kiting, which may be considered a Ponzi scheme, and involves much larger sums of money and the penalties, fines, and jail time may be substantial.

If you are the subject of an investigation, do not wait to be indicted. Prosecutors can have a small army of law enforcement officers and investigators examining financial transactions, accounting records, tax documents, computer activity and more. Call (913) 780-6666 or send an e-mail to schedule a free consultation. We are located in Olathe and serve people from the Johnson County area.