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Is A Bank Overdraft A Criminal Offense?

An overdraft is a situation where the bank has continued to extend credit without interest. It occurs when an individual writes a check and has insufficient funds in his account, and the bank honors that check. It occurs in other situations where, in effect, the bank’s customer is allowed to draw on funds that are not actually in his or her account.

As we discussed in earlier posts, misapplication occurs when a bank officer, employee, or other insider makes improper use of bank funds for his or her personal use. Misapplication is a type of fraud, and can be prosecuted quite harshly under federal statute.

Can an overdraft be the basis for a charge of misapplication? The answer tends to be complicated and will depends on the specific facts of the case. An overdraft by someone who is not an insider at the bank is not misapplication. On the other hand, even if the overdrawn customer is also a bank insider, the answer is not cut-and-dried.

Generally, courts will not sustain charges of misapplication based simply on the existence of an overdraft, particularly when there was no concealment of the overdraft. On the other hand, if there are other red flags for fraud present, an overdraft can be substantial evidence that misapplication occurred.

For example, when a bank insider modified the bank’s computer programming to manipulate his withdrawals so that his personal account was never overdrawn, the court found misapplication even though technically there was no overdraft. There was no overdraft because that insider circumvented the bank’s monitoring system, not because there were sufficient funds to back up his checks at all times.

An insider can also be charged with misapplication for making it possible for another bank customer, who is not an insider, to maintain an overdraft. The customer whose account is thus maintained can be charged with aiding and abetting misapplication if he or she knows that his or her account is being maintained this way, even though, not being an insider, he or she cannot be charged with misapplication.

If you are an employee or official at a financial institution in New York City, and you have concerns about whether your personal banking practices make you vulnerable to charges of misapplication, your best option is to consult an experienced bank fraud defense attorney. Our highly skilled and knowledgeable attorneys will review your practices and advise you as to your options. If you are already facing charges of misapplication, our trial attorneys will stand by your side to formulate the most effective strategy for your defense.

Call our experienced bank fraud defense attorneys  at (212) 577-6677 to schedule an immediate consultation.