Corporate Fraud Fund

California’s Corporate Fraud Fund and How it Affects Your Company

In California, there is a way for an aggrieved person or group of people to retrieve funds if they are victims of corporate fraud outside typical collection efforts. In 2002, the California legislature and governor came up with a scheme to add teeth to a judgment for damages in a fraud case. They did this by passing a law creating what is now known as the California Victims Corporate Fraud Fund.

The laws creating and regulating this fund, including how it applies to people and companies, can be found in California Corporations Code Sections 2280, et seq. and California Code of Regulations, title 2, division 7, chapter 12, sections 22500 through 22507. When the fund was created, it was for the “sole purpose of providing restitution to the victims of a corporate fraud.” Cal. Corp. Code § 2280.

Process for Obtaining Money from the Fund

There is a well-established process for obtaining the money available to victims of corporate fraud. It is established by statutes, regulations, and from the many court opinions defining the rights and obligations of those trying to receive the money. The process is quite specific, and failure to abide by each of the steps outlined below can result in the denial of money from the fund.

First, to obtain money from the fund, there must be an aggrieved person who has obtained a final judgment from a corporation in a corporate fraud case. This judgment can come from a court case that was decided by a judge or a jury, or it could be a judgment reached by an arbitrator, or it could be from a criminal restitution order. In each of these cases, the judgment must be based on an action against a corporation involving corporate fraud, misrepresentation, or deceit with intent to defraud.

Once a person or group has such a judgment, they must then apply on the Secretary of State of California for payment of the requested money, after diligent efforts to collect have already been made. The application is rather straightforward and must detail the uncollected amounts on the judgment which represent an actual and direct loss.

A Corporation’s Response

Before the Secretary of State approves a petition for someone seeking money from the fund, a corporation has the right to respond to the collection effort. This is sometimes a last-ditch effort by a corporation to prove that an aggrieved group should not be able to collect. It is also an opportunity for companies to show that a judgment was already paid, or that the judgment was not based on fraud, and therefore should not be eligible for the fund.

Understanding Your Company’s Rights

It is important to keep in mind that your company has rights in situations involving the Corporate Fraud Fund and beyond. To defend those rights, your company needs to have the right legal team on your side. At Royse Law, our dedicated corporate lawyers know how these and other laws affect your company’s goals and what steps you need to take to ensure a stable and growth-oriented future. Contact us today.

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