Misappropriation Meaning in Law


The term “misappropriation” refers to the stealing of something, usually money, that was not meant for the thief, but which he used for his own personal gain. For example, misappropriation occurs when the CEO of a nonprofit organization uses monies meant for charity to pay for a luxurious vacation for himself. Another word for misappropriation is “embezzlement.” To explore this concept, consider the following misappropriation definition.

Definition of Misappropriation


  1. The act of stealing something and using it for one’s own personal gain, typically money.



Types of Criminal Misappropriation

There are three common types of criminal misappropriation, which include the pilfering of funds, assets, or trade secrets. All of these involve theft of some kind, be it funds or property, and all of them are punishable crimes.

Misappropriation of Funds

A misappropriation of funds refers to a person’s deliberate and illegal use of another person’s money. This may be for the individual’s own personal use, or for some other unauthorized purpose. In a nutshell, a person who is responsible for managing another person’s money, and then uses that money for himself or for something the other person would not approve of, may be guilty of this type of theft.

For example, misappropriation of funds occurs when a lawyer intentionally uses a client’s money or property that he is holding in trust for the client on his own personal expenses. If a lawyer is guilty of this type of theft then, depending on the laws of that jurisdiction, the Bar Association will likely disbar him and strip him of his license to practice.

Misappropriation of Assets

A misappropriation of assets refers to the stealing of another person’s assets. Typically, employees are responsible for this crime, taking small amounts of a company’s assets because they believe the company will not be able to see such small amounts go missing. However, while it may be difficult to catch employees, it is even harder to catch management who engage in the misappropriation of assets. This is because managers have more options available to them insofar as hiding what they steal and how they steal it.

Misappropriation of Trade Secrets

A person is guilty of misappropriation of trade secrets if he discovers a trade secret through some sort of illicit activity, such as through fraud or bribery. Something as simple as bringing home confidential information from one’s job can be a misappropriation of trade secrets if it is in violation of his employment contract.

Acquiring information through some nefarious means is enough to make someone guilty of this crime. He does not need to publish or share the information to be guilty but, of course, sharing the information is another form of misappropriation.

Difference Between Theft and Misappropriation

While theft and misappropriation may sound like they are one and the same, there is actually a difference between theft and misappropriation. Mainly, theft involves actively taking something that belongs to someone else. With misappropriation, there is no direct stealing of property per se. Instead, the information, money, or property tends to fall into the person’s lap, and rather than remaining trustworthy with it, he abuses it for his own personal purposes.

Another difference between theft and misappropriation is that, with theft, the crime starts from the very beginning. A person wants to steal something, and then he steals it – crime committed. However, with misappropriation, the situation typically starts out innocently enough, until the offender gets the idea to take the funds or property for which he is responsible.

Criminal Breach of Trust

A criminal breach of trust follows the same principles as someone breaking another person’s trust, only they do so in such a severe manner as for it to be a crime. Typically, in situations involving misappropriation, one person trusts another person with property or money, then that person commits a criminal breach of trust by essentially stealing that money or property.

Had the first person known the other person could do such a thing, he never would have trusted him in the first place. This is why misappropriation is a rather different kind of crime, as it starts out not being a crime at all and evolving into something very different.

Misappropriation Example Involving a Labor Union

For an example of misappropriation, consider the case of James v. United States (1961). Eugene James belonged to a labor union, and from that union he embezzled nearly $740,000. Upon the IRS becoming aware of this, they charged him with tax evasion.

In James’ defense, he offered that embezzled funds were not taxable as income because he was legally obligated to return the funds he stole to their rightful owner. He did not come up with this argument out of the blue.

He was referencing a decision the U.S. Supreme Court had made in the past, and argued that it could apply to his case as well. However, the trial court was not buying it and instead convicted James and sentenced him to three years in prison.

U.S. Supreme Court Ruling

James appealed his conviction, however the appellate court upheld the decision of the trial court, so he took his case to the U.S. Supreme Court. The Court then had to decide whether those embezzled funds constituted income taxable to James, despite his obligation to repay the money.

Ultimately, the Court held that they had been incorrect in their prior ruling, and that such funds were taxable. So, on top of having to pay the funds back, James would also have to pay taxes on that money. However, the Court vacated his conviction and dismissed his indictment.

Said the Court, in their own words:

“We believe that Wilcox was wrongly decided, and we find nothing in congressional history since then to persuade us that Congress intended to legislate the rule. Thus, we believe that we should now correct the error and the confusion resulting from it, certainly if we do so in a manner that will not prejudice those who might have relied on it.

We should not continue to confound confusion, particularly when the result would be to perpetuate the injustice of relieving embezzlers of the duty of paying income taxes on the money they enrich themselves with through theft while honest people pay their taxes on every conceivable type of income.

But we are dealing here with a felony conviction under statutes which apply to any person who ‘willfully’ fails to account for his tax or who ‘willfully’ attempts to evade his obligation. In Spies v. United States, the Court said that §145(b) of the 1939 Code embodied ‘the gravest of offenses against the revenues,’ and stated that willfulness must therefore include an evil motive and want of justification in view of all the circumstances. Willfulness ‘involves a specific intent which must be proven by independent evidence, and which cannot be inferred from the mere understatement of income.’

We believe that the element of willfulness could not be proven in a criminal prosecution for failing to include embezzled funds in gross income in the year of misappropriation so long as the statute contained the gloss placed upon it by Wilcox at the time the alleged crime was committed. Therefore, we feel that petitioner’s conviction may not stand, and that the indictment against him must be dismissed.” (Citations omitted)

Related Legal Terms and Issues

  • Appellate Court – A court having jurisdiction to review decisions of a trial-level or other lower court.
  • Bar Association – A professional organization of lawyers. Some bar associations are responsible for regulating the profession in their jurisdiction.
  • Bribery – A promise of money or some other such favor offered in order to influence another person to perform a certain act.
  • Embezzlement – The theft of funds belonging to an individual’s employer.
  • Fraud – A false representation of fact, whether by words, conduct, or concealment, intended to deceive another.
  • Trade Secrets – Designs, practices, processes, commercial methods, techniques, or information that is not generally known by others, which gives a business an advantage over competitors.