Greed or economic stress?

Employees working the floor of Schiek's, the self-described gentleman's club in downtown Minneapolis, believed free-spending Nathan John Mueller was a lottery winner, to the tune of $93 million. But the only score won by Mueller was a four-year deceit that allowed him to divert a whopping $8.5 million from his employer into his own pockets.

Mueller's may be the highest-profile insider embezzlement case charged this summer by the U.S. attorney's office in Minneapolis, but it is not the only one. And that raises questions of whether the sagging economy has led to a rise in financial crimes.

On the surface, the answer is a qualified yes. Hard economic times can lead some people to take otherwise unwarranted risks.

Financial crime prosecutions by the U.S. attorney's office in Minnesota were up 12 percent last year to 94 cases, up from 82 in 2006. So far this year, financial crimes account for about 35 cases and 47 defendants, according to Jeff Paulsen, the office's chief criminal prosecutor.

But greed doesn't always track with the Dow Jones industrial average.

"There's greed in good times, there's greed in bad times. It'll never go away," said former U.S. Attorney David Lillehaug, who now practices law at Fredrikson & Byron.

Financial stress often underlies embezzlements. There could be a job loss in the family, or an addiction to be fed. Often, the pilfering starts small but grows as the perpetrator gains confidence with the con.

In June, a federal grand jury in Minneapolis handed down four embezzling-related indictments. The thefts ranged from $149,000 to $259,000, an average of nearly $204,000 per theft.

That may or may not represent the total losses. Prosecutors generally charge only the crimes they can prove. And even when they can prove more, they usually charge a subset, knowing that more convictions won't necessarily result in longer prison terms.

The victims in the June cases were two banks, an insurance company and a marketing company. The crimes were committed by an operations officer, an assistant manager of sales, an insurance agent and a director of finance. All have pleaded guilty.

According to a report by the Association of Certified Fraud Examiners, organizations victimized by employee fraud lost a median of $175,000, nearly one-third of that committed in the accounting department. Fraud by top executives, who are in a position to circumvent financial controls, resulted in a median loss of $853,000.

The report also found that most employees involved in the theft of company funds had no previous criminal convictions.

Most cases start small

"People don't start off saying, 'I'm going to rob my employer.' They start off saying, 'I just need a bridge loan,'" said B. Todd Jones, U.S. attorney for Minnesota from 1998 to 2001. "It's not uncommon for it to be a longtime, trusted employee," said Jones, who now works as a white-collar defense attorney at Robins, Kaplan, Miller and Ciresi.

Craig Siiro, a forensic accountant in the Minneapolis office of Virchow, Krause & Co., said most employee frauds occur in a "triangle."

"First, there's financial pressure. Then there's opportunity. And third, there's rationalization: 'I'm just borrowing the money,' or, 'They owe it to me,'" Siiro said.

Siiro said most cases of employee fraud start small and then grow as the perpetrator gets bolder and more confident with his scheme. On average, according to Siiro, embezzlement and fraud schemes last 18 months to two years before they are detected.

But there are no precise profiles of would-be embezzlers. Co-workers often remain fooled until the scheme comes crashing down.

"There are warning flags," Siiro said. "The house they bought, the vacation they took, the cars they drove. The people you least expect can be committing the fraud."

Mueller, 34, pleaded guilty to mail fraud Aug. 15 in U.S. District Court in St. Paul. He faces as much as 20 years in prison, plus fines and restitution.

According to Mueller's indictment, the Eden Prairie resident used his position as accounting manager for ING Reinsurance Corp., a division of ING Group, to intermittently channel company funds into personal accounts through an elaborate check-routing scheme.

Mueller then used his ill-gotten gains to pay bills, live lavishly, drive fancy cars, gamble ferociously in Las Vegas and provide employees at Schiek's with eye-popping tips and expensive gifts until he slipped and got caught last year.

A woman from Centerville, Minn., said in a court document that Mueller gave her $70,000 over two years. Another, from Brooklyn Park, said he gave her $304,000 to buy her home, as well as tens of thousands of dollars in jewelry and cash. A certified public accountant, he even did her taxes for two years.

One of his gambling buddies was Richard Haenisch, whom Mueller met at the Palms Casino in Las Vegas.

"Whenever Nathan Mueller was planning on coming to Vegas, he would ask me [to] join him and his friends so that we may [sic] party and gamble together," Haenisch wrote in a letter to District Court Judge Patrick Schlitz listing some loans Mueller provided. "I always enjoyed his free spirit and kindness, he would always pay for everyone, whether for dinner, tables at clubs, shows, fights or even at the blackjack tables."

Siiro knows the type.

"People want to keep their lifestyle. But they don't do it [embezzle] just once. They do it once, wait awhile, and do it again," Siiro said. "Once you cross the line, you cross the line."

David Phelps • 612-673-7269