A federal jury found the CEO of a Denver telecommunications firm guilty beyond a reasonable doubt of embezzling funds from employees' 401(k) and health insurance plans, as well as of defrauding the IRS by failing to remit payroll taxes.
According to the evidence, the CEO conspired with another individual to steal more than $60,000 of the money that employees had withheld from their paychecks for 401(k) contributions, using the funds for other business purposes. The CEO also defrauded employees of the funds intended to pay for their health insurance premiums, resulting in a debt to the health insurer of $100,000, lapsed policies, and denial of employees' insurance claims. In addition, the CEO failed to remit payroll taxes for nearly six years, during which time he closed the business and re-opened it under a different name to try to avoid paying the taxes.
Two Assistant U.S. Attorneys along with the IRS and the U.S. Department of Labor, investigated and prosecuted the case. The CEO faces prison time and significant fines, and his co-conspirator awaits trial. "Centennial Telecom CEO Guilty Of Stealing Employees' 401K Cash" patch.com (May 18, 2019).
A primary duty of any board is to oversee the executives of a corporation. Members of the board of directors can be held liable if they knew, or should have known, about the CEO's conduct, and could face civil litigation from both employees and shareholders for breach of fiduciary duties.
Individual board members should never hesitate to communicate to the entire board any concern they may have about the conduct of any corporate leader or any other person whose actions can negatively affect the organization or its shareholders. The board should review every transaction that benefits an executive personally. If CEO stops communication with the board; deflects questions about financial discrepancies; or becomes defensive when asked about performance or other organizational changes, these are red flags.
In addition, it is important to arrange for outside audits. Audits should include a review of finances, as well as risk management programs and practices to make certain they are effective.