The Dark Knight: Embezzlement

On Friday we talked about legal ethics in The Dark Knight. Now we’re going to take a look at an issue with consequences beyond the movie’s version of Batman. Specifically: does being the CEO or majority shareholder of a corporation give you the right to use corporate assets for personal projects? In the movie, Bruce Wayne (majority shareholder) goes to Lucius Fox (CEO) whenever he needs another cool toy, and Coleman Reese’s discoveries suggest that he’s not just buying them from the company but is actually using corporate resources to develop and manufacture his stuff. Is this okay?

I. Wayne Enterprises in The Dark Knight

In the Christopher Nolan movies, Wayne Enterprises is portrayed as a publicly traded company. It’s got a board of directors. It’s got institutional and private shareholders. Bruce Wayne has a controlling interest and therefore gets to call a lot of the shots, but the corporation is not, in fact, his personal plaything.

Though you wouldn’t know it from the way he treats it. Turns out that Fox has probably committed what amounts to embezzlement, i.e., the fraudulent conversion of the property of another over which one had lawful possession. It’s also often a felony, particularly when it involves large amounts of money.

Here’s the deal. Fox, as the CEO of Wayne Enterprises, has lawful possession of all of Wayne Enterprises’ assets by dint of the fact that he has lawful control over those assets.  Note that possession is separate from ownership; Fox controls the assets but he does not own them.  Generally speaking, the CEO of any given company is just that: the chief executive officer.  He or she has complete and inherent authority to commit corporate assets to any lawful purpose for the benefit of the corporation, except as limited by the corporate charter. For example, if Lucius decides one day that Wayne Enterprises isn’t going to sell X-type widgets anymore, he can sell off or shut down that division of the company overnight, unless the Wayne Enterprises charter requires a more complex procedure, such as a vote by the board of directors.

But if he’s acting against the orders of the board or without the board’s permission, he exposes himself to a charge of embezzlement. CEOs of major corporations have disputes about business strategy with their respective boards of directors all the time, and while it frequently leads to people getting fired (either the CEO or the board, depending on who does better with the shareholders), it isn’t generally criminal. But using corporate assets for personal purposes is something else entirely. Coleman Reese discovers that the R&D department is “burning through cash” on a project purported to be “cell phones for the Army.” If such a contract had actually existed, Fox could commit the company to it. But it doesn’t. It’s a pretext for fitting out Bruce Wayne with a really cool if ethically and legally problematic surveillance system. Fox doesn’t have the authority to divert corporate assets for those sorts of personal projects. So he is fraudulently converting the property of the company over which he has lawful possession to his own use, namely, giving it to Wayne.

Why? Because the fact that Bruce Wayne is the majority shareholder doesn’t actually give him an ownership interest in any corporate assets in particular. He can’t walk up and say “Hey, I own half of the company, so I get to use the corporate jet half the time.” That’s not how that works. The business owns its assets, and an interest in the company does not transfer to an interest in the company’s assets as such. The distinction gets a bit blurrier in closely-held corporations, particularly when there is only one owner—as is frequently the case in small businesses—but the mingling of corporate and personal assets is a pretty big no-no in the area of corporate law, and one of the things that courts look to when they consider piercing the corporate veil. We actually talked about that here.

Wayne himself wouldn’t be guilty of embezzlement, as he never had lawful possession of the property, but he would be guilty of conspiracy to commit embezzlement—as would Fox—which is almost as bad. Conspiracy is distinct from the underlying crime, and one can be guilty of conspiracy even if one does not or could not commit the underlying crime. Even if Fox turned him down, Wayne would still be guilty of solicitation for even asking. Also, being in possession of the goods probably counts as receiving stolen property. This is just bad all around.

II. Billionaire industrialists generally

Note that things would be different if Bruce Wayne were using his own assets to fund his projects. Wayne is independently wealthy, and much of this income is presumably in the form of dividends on his Wayne Enterprises stock. This is money he can use for absolutely anything he wants (within the ordinary bounds of the law, of course). Compare this to the way Tony Stark is portrayed in Iron Man. Stark, too, is the CEO of a company he mostly owns, in this case Stark Industries. But Stark develops the Iron Man technology entirely on his own and doesn’t use corporate assets to develop or manufacture it. He has a lab and fabrication equipment in his mansion. He may then have Stark Industries use some of this technology for other purposes, e.g., developing the Arc reactor for commercial and industrial power generation, but as far as the movie goes, no corporate assets are devoted to his activities as Iron Man.

This is entirely okay, at least as far as corporate law is concerned. Stark is free to use his own fortune in any way he wants. So is Bruce Wayne. So in a sense, the way the comic books portray Batman is actually a bit more realistic than the way the movies do. In the comic books, Wayne has a situation far closer to Stark’s position in the movies, i.e., the billionaire industrialist who has a superhero alter ego but who mostly uses his own inventions, manufactured by himself, financed by his personal fortune. Ironically, in the comic books, Stark is generally portrayed as mixing his corporate and Iron Man activities in much the same way as Bruce Wayne does in the movies. Quite the reversal.

III. Alternatives

Still, Wayne is a very rich man. Why couldn’t Wayne simply buy anything he needed from Wayne Enterprises? Fox is certainly capable of authorizing such a transaction. Wayne could even enter into a contract with Wayne Enterprises wherein the latter could be paid by Wayne personally to develop and manufacture Batman gear for Wayne’s use. That would be okay. If done right it could even result in a profit for the company. The problem is that for such a setup to be legally okay, some bits would need to be public, or at least known to the board of directors and its accountants and auditors.  It would be very hard to keep something like that secret.

Similarly, why couldn’t Fox arrange things such that Wayne simply received his Batman gear as part of some kind of compensation package? Two reasons. For one thing, Wayne isn’t portrayed as an employee of the company in The Dark Knight. He’s a shareholder, but not an employee or officer. So there isn’t really any obvious way he could get any compensation apart from regular dividends. And setting up some kind of cushy straw position wouldn’t necessarily work either. The Batman gear is presumably ludicrously expensive. Receiving that as compensation would almost certainly make Wayne one of the most highly-compensated people in the company. Not only would the board of directors need to approve that, but it would probably need to be filed with the SEC. So the choice would either be completely blowing the secrecy angle or violating a lot of laws about corporate filings, executive compensation, and taxes. Again, no good.

And obfuscating things to try to disguise Wayne’s Batman activities is also no good, as it would involve falsifying all sorts of official corporate documents. Part of the Sarbanes-Oxley Act, a corporate reform law passed in 2002, imposes personal, individual responsibility for corporate filings upon both executives and directors, so as soon as anyone figures out that there’s funny business going on—and if there’s one thing about the movie that is accurate, it’s that a halfway-decent auditor will figure things out eventually—Fox and Wayne are going to be in huge trouble.

IV. Conclusion

So really, as far as corporate law goes, the version of Batman/Bruce Wayne depicted in The Dark Knight trilogy is actually quite problematic. Fox is likely guilty of embezzlement, and Wayne would be guilty of conspiracy and receiving stolen property. Further, the most obvious ways of “fixing” the problem are themselves problematic, mostly because they’d make Wayne’s identity as Batman that much closer to public knowledge. Tony Stark has a much better way of going about this: use one’s personal fortune, founded upon but distinct from the corporation, to finance his toys (though he also has the benefit of not worrying about a secret identity). Considering that this is generally how it’s depicted in the comic books, and that in those stories Batman frequently invents most of his own gear, the way things are written in The Dark Night trilogy is surprisingly bad, if unintentional, or puts Wayne in a very grey area, if it’s intentional.

34 Responses to The Dark Knight: Embezzlement

  1. While see where you’re going there, the implication is that Wayne himself authorized the project for “Army cell phones” and Lucius Fox is kind of playing dumb until he figures it out. Also, I get the implication that Wayne is a Wayne Enterprises employee, at least as of Batman Begins its strongly implied that he’s in charge of Fox’s old department and likely the Chairman of the Board. I’d assume as much given how he redirects an entire department’s resources. You’d think somebody would question that, even if his name is on the building.

    I can only assume that as the majority shareholder (51% or higher given how Batman Begins seems to go) of the company Wayne can basically elect himself to the board, and depending on their charter might be able to do so without input from the board itself.

    • Let’s assume the facts are as you’ve presented them. The movie is a bit murky, so that’s not unreasonable. The problem is that in addition to embezzlement–which Wayne instead of Fox is now guilty of–we’ve now got massive securities reporting problems. Not only are SEC 10-Q and 10-K forms pretty exhaustive, but they’re all online and searchable on EDGAR. So the information is out there. And falsifying an SEC filing is called securities fraud, and it’s what’s keeping Bernie Madoff in jail for the next 127 years. So if Wayne authorized those things, he’s either made that information public or committed a really serious white-collar crime.

    • I’m reasonably certain that majority shareholders owe some form of fiduciary duty to minority shareholders. Particularly in situations where the majority shareholder (i.e. Bruce Wayne) is committing company resources (“burning through cash”) to fund what is essentially a private project for the benefit of solely the majority shareholder, there must be some breach of that duty. Moreover, if Wayne is a company employee and also on the board of directors, he’s breaching his duty of loyalty as well, which would mean he can be personally liable for losses the company experiences. Although I do think there is a good faith argument that Batman’s vigilante activities have made Gotham a safer city, and the spillover effect of this is to allow Wayne Enterprise to conduct business in a much safer, sans-criminal environment that likely has a positive effect on earnings and profits.

  2. Thank you for the post, it makes a lot of things clearer. I do have to question this part though:

    “And obfuscating things to try to disguise Wayne’s Batman activities is also no good, as it would involve falsifying all sorts of official corporate documents. ”

    It seems to me, as a non-expert, that there would be ways to obfuscate it without falsifying official corporate documents, or at least without falsifying any of WayneTechs documents. If Wayne had an associate that he could trust he could have the associate contract with WaynTech for all that was needed and then Bruce would give the associate the money and the associate would give Bruce the gear.

    This still leaves a trail that a serious criminal investigator going after Batman could follow, of course. But not a trail that would create a red flag for a normal auditor for WayneTech, or leave flagrant public records with Bruce’s name on it, or cause problems with the SEC.

    In Batman Begins they even hinted at this technique with Alfred contracting part of the suit through a middle man from a manufacturer in China and making a ridiculously large bulk order to both satisfy the manufacturer and obfuscate the purpose.

    • Again, there’s the “What the heck is this?” question that would come up. I don’t think there’s any way of making this transaction look anything but sketchy. Even trying to hide it as a rounding error would be hard, because the way they talk about it, Batman’s gear costs well into eight if not nine figures. Expenditures on that level show up on corporate accounting reports, and it’s probably someone’s job to figure out why the department is losing money.

  3. What Bruce Wayne is in charge of the R&D division; his use is classed as “destructive testing”; his “testing” facilitates developing improvements which have spin-off applications in other products; and those in turn render the division as a whole profitable? Could the detail of “test-by-Batman” as a R&D method be hidden as a trade secret?

    While such a rationale might help for most of the high end toys like the Batmobiles or the Batsuit, I admit this doesn’t cover for the “cell phone” thing. It would be one thing to throw R&D money at the project with only the speculation that it might have applications to some military cellular, rather than an existing contract; but Bruce clearly realized from the outset that the end-product was too unethical to market.

    For that bit of embezzlement, the only response I can see is from Frank Miller’s “The Dark Knight Returns”:

    “Sure we’re criminals. We’ve always been criminals. We have to be criminals.”

    • James Pollock

      Aw, you beat me to this one.
      Obviously, Batman gear is tested by Wayne (his billionaire playboy cover explains why needs a handheld-grappling-hook launcher (he rock climbs), super-duper on-and-off-road vehicle (rally!), and so on. The company pays Wayne to “test” products, and receives value in return, as Wayne develops practical, salable uses for the tech, AND does wonderful marketing. Of course, in the continuit(ies) where Wayne openly sponsors Batman, it’s all marketing expense… Wayne’s hand-picked board approves every dime.

      To me, where it got fuzzy was the fact that it was unclear… did Bruce just take tech that Waynetech had invented and prototyped, but was unable to find a market for, or did he direct that this equipment be developed in the first place? If it’s the first one, he may have an out on the embezzlement rap, as he’s taken equipment with a value of $0 (yes, it cost a lot of money to create… but that’s a sunk cost, and doesn’t necessarily equate to value in the finished device). If the latter, then you have a fairly severe violation of ficuciary duty to the shareholders, and Bruce is a bigger criminal than the hoods Batman pursues.

      • It looks like the first movie was mostly use of prototypes (with some slight further customization) that proved unmarketable; however, it looks like by the second movie some of it is custom new developments.

        I’m not a lawyer, but I’m not as convinced it’s necessarily a problem if he’s having custom gear developed, if the spin-off application profits are high enough. It’s somewhat analogous to “concept cars” in the automotive industry, where the prototype isn’t for commercial use, but the concepts it tests eventually are. The net-profitable bit is a bit of a stretch; if it were that likely to make money, there probably would be a company running a Batman out of their R&D office in the real world. (Of course… how can we be sure there isn’t? Batman was something of an urban legend in some of the comics continuity.)

        I still think the fun question is whether Bruce Wayne’s identity as Batman might not just be a secret, but a trade secret.

      • James Pollock

        On the subject of “if Wayne openly supports Batman and WE supports him (Batman) financially or by providing him with gear”, does that situation compare with the one discussed a while back, of Peter Parker possibly being in trouble for not telling people he actually IS Spider-Man?

        I don’t think that Batman’s secret identity is a Wayne Industries trade secret, because if something’s a trade secret and you tell people the secret who don’t have to know the secret, the trade secret protection can be lost. Batman has told people his secret identity… not frequently, but it happens. There have been others who discovered the secret without using improper means to discover it, which can also destroy trade secret protection.

  4. David Johnston

    Although comic book Stark’s way of mixing business and personal is actually more viable, just because Stark never has tried to hide Iron Man’s connection to Stark Industries. If Stark’s shareholders have a beef with him spending the money on Iron Man they can vote him out, sell their stock or sue, but it isn’t embezzlement and he can easily show that Iron Man has protected corporate assets many times and made the company look good on many occasions with random people and world saving.

  5. Even if Wayne is independently wealthy I wonder how he’d be able to afford things like the Batmobile. The cost of maintenance and repair must be staggering.

    • There’s a couple of animated series episodes that explain how Batman got the Batmobile built, and how it gets repaired when damaged. I prefer this version to the movie version, even Nolan’s. The badmobile is trivial compared to the batplane (American military planes spend about 10 hours undergoing inspection and maintenance for every hour of flight… and multiple specialists do the work.) The batcopter (the man-portable version, at least) seems somewhat reasonable.

      The trick isn’t having enough money. It’s successfully hiding the spending of the money. There’s a REASON the FBI has forensic accountants, and that reason is that finding people who are spending more money than they can explain earning nearly always exposes a criminal of some sort or another.

      • I’d actually forgotten about the batplane. That actually makes it worse. We’ve clearly seen in practically every Batman series that it has air-to-surface missiles. How exactly has he not gotten the air force scrambled by now?

      • James Pollock

        Obviously, the batplane has some VERY GOOD stealth capabilities.

      • The animated universe also hinted at this during the “Justice League Unlimited” series. Project CADMUS figured out Batman’s identity pretty much by following the money. They decided this needed to be done after they discovered the Justice League, and I quote, “has a space-based laser weapon pointing down.”

        This does kind of hit on something that’s not always obvious to regular consumers: for high-tech or superlarge projects, there are usually very few companies capable of doing the work. (Sometimes only one.) This was one of the things elided during the screaming about Cheney-affiliated KBR getting the LOGCAP contracts during the GWOT–them and DynCorp are pretty much the only American players in the game on that level.

  6. Ryan, I think your distinction between using corporate and personal funds for projects is interesting. Wayne and Stark aren’t embezzling when they use their private fortunes to invent new products. I was wondering though, does that give rise to a claim for violation of the corporate opportunity doctrine? Wayne and Stark invent the new product, so there’s a business opportunity available in producing and selling the product, but they deny that opportunity to their respective companies by keeping the product to themselves. Alternatively, the bat-masks in the Dark Knight come to mind. My recollection is that Alfred shows that they’re defective, then tells Wayne that they’ll have to place another order from their contractor that doesn’t seem to be Wayne Enterprises. Is Wayne violating some duty as a shareholder, employee, or director in taking business opportunities that are available to Wayne Enterprises and choosing not to make the company aware of them?

    • The short answer is no.
      Wayne, as an investor and shareholder in WE, has no affirmative duty to the company. As majority shareholder, he DOES have a duty not to oppress the minority shareholders… but declining to offer his own work to a company he owns is not a violation of that (in the way that making use of the corporation’s inventions DOES.)
      Partnership is where the rule you are thinking of actually exists… a partner or partners can’t cut out another partner or partners in a business opportunity that falls under the scope of the partnership’s business operations, because partners have fiduciary duties to each other.
      Even if Wayne is an officer of the company, the company is only entitled to the work he does for the company (Stark is in more danger here, because he is actually employed AS AN INVENTOR by Stark Industries, while Wayne does not work as an engineer but only as a business manager (when he has any role at all in the operations of Wayne Enteprises.)) Disputes about whether something belongs to the company or the employee who claims it was invented and developed entirely off the clock are why some (probably most) R&D scientists and engineers employed by industry have employment contracts that specify a right of first refusal for the company in any product or invention developed by the employee, even if it is developed entirely off-the-clock… but neither Stark nor Wayne would have been in a position to have to enter such a contract.

  7. Also, and this is slightly off topic from this post, but does Bruce Wayne actually own any share of Wayne Enterprises when he first goes to Lucius Fox for equipment. The timeline of the movie makes it seem like he would want to get started crafting the Batman persona as soon as he gets back to Gotham after his time away (or at least after enough time for him to go to his tailor and get a new suit made). But since he has been declared legally dead, his estate has passed to Alfred. And while there must be some mechanism to be un-declared dead, it would presumably take some period of time, during which Alfred would still hold legal title to the Wayne fortune.

  8. William Robelen

    I would note that the only items explicitly given to Bruce Wayne are the armor, the cape, and the batmobile. At the beginning of Batman Begins, the company has not yet been taken public, so the company belongs to Alfred in its entirety. Also, my take from the end of Batman begins, was that Bruce Wayne was not the majority shareholder, but rather the sole shareholder.

    • I don’t remember anything in the first movie to suggest that Alfred had control of Wayne enterprises. That seemed to be in the hands of Thomas Wayne’s partners.

      • James Pollock

        Presumably, actual control of the company would have been held in trust while Bruce was a minor, and after he reached majority he could have chosen to leave operational control in the hands of the trustees while retaining the right to resume control at any time thereafter. (Having the authority to control the company and actually controlling the company being two totally separate things.)

      • @William: He holds controlling interest by a large margin, but his own words at the end of Batman Begins would indicate he’s not the sole shareholder:
        ====
        William Earle: What makes you think you can decide who’s running Wayne Enterprises?
        Bruce Wayne: Well, the fact that I’m the owner.
        William Earle: What are you talking about? The company went public a week ago.
        Bruce Wayne: And I bought most of the shares – through various charitable foundations, and trusts, and so forth. Look, it’s all a bit technical, but the important thing is that *my* company’s future is secure.
        ====
        The word “most” would suggest he hasn’t run the table yet.

  9. To clarify some points, at the beginning of Batman Begins, Wayne Enterprise is still a privately held company. They are in the process of going public at which point Bruce uses his wealth to buy up share through shell companies “it’s all very technical” as he tells CEO Earle before firing him and giving Fox the job. If I recall correctly since Bruce was presumed dead the company was held in trust with Earle as the exexutor of the trust. When Bruce was proven to not be deceased I assume control reverted to him, however he told Earle he wouldn’t interfere with the plan to go public. When he went to Fox’s R&D department, Bruce wasn’t there as an employee, he told Earle he wanted to get a handle on his father’s company. Most of the movie takes place while the company is still privately held so how would things be different in regards to the embezzling since it all happened pre-IPO?

    • Well, if Bruce is taking things of value out of the company for personal use, this would be a distribution, and thus a taxable event (to Bruce). And if the company is held in trust, then tampering with the trust assets without the trustees’ knowledge is a big no-no, even if it’s the trust’s intended beneficiary doing it.

  10. It seems the only person you can trust is Patrick Leahy.

    But seriously, maybe an additional angle (for us non-attorneys) on this topic is to demonstrate how aerospace and telecom companies report classified government contracts. And what do the terms of a top-secret contract look like? Does the government prefer to work with private subsidiaries? Are there terms of the contract that shield or insulate the developer/manufacturer from legal liability or even, in certain cases, forbid disclosure to senior management or the board of directors? Maybe Halliburton/Brown & Root would be an apt parallel: do lawyers clearing deals between the DoD/NSA/etc. also need security clearance?

  11. For Batman Begins, at least, Bruce is clearly an employee of Wayne Enterprises. He specifically asks Earle for a job, which is how he is assigned to R&D and meets Lucius Fox. In this case, it seems to me like he is clearly embezzling assets. He is an employee using company profit for personal use.

  12. Well, presumably all of Batman’s gear has already been paid for by the military. I imagine a lot of this actually goes on. How do you think the military ends up paying millions of dollars for individual screws?

    • Actually, most of those cases aren’t based around lots of surplus items hanging around. The costs are due to overhead. Take a screw. If it’s on a jet fighter, you need to ensure that that screw will not cause the entire plane to crash. This means you need to have an engineering company determine what physical requirements the screw has to withstand, in both normal and abnormal conditions. This could be dozens of pages of specifications. Because this will eventually be used as part of a purchasing contract, these specifications need to be written in a way that is technically exact and legally exact. In many cases, the engineering company will need to perform experiments to determine these specifications. Each experiment needs to be repeated under varying conditions, and each experiment needs to be extensively documented. Once all of the design is completed, they need to go to purchasing. Purchasing needs to buy them in a way that meets many different government regulations. Some of these are based on cost, some of them are based on guidelines specifing purchase from small businesses, or minority-owned businesses. It takes a lot of people just to be able to determine which rules apply to which purchases. When it’s bought, the supplier needs to prove that their product meets all of the dozens of pages of specifications. This might involve samples delivered for qualification or independent tests, all of which needs to be documented. I’ve used the word documentation a lot. All of this documentation needs to be organized. More people contribute to keeping all of this straight. Then there is the actual overhead for all of these people at many various organizations. Lights, buildings, janitorial staff, coffee, human resources, IT, etc.

      Naturally, these products aren’t just about a single screw. They are about complex items of thousands of parts that all need that level of care. These are huge projects. There are different accounting models that are used to distribute all of these costs. Some of them split the costs over all of the parts of the initial delivery. By that measure, you end up with parts that have incredibly high costs.

  13. Just came across the site, so forgive me if this tangental question has been brought up before.

    What are the copyright considerations of Bruce taking, using and/or modifying or developing new tech based on what he has “borrowed” from Wayne Enterprises? Are such actions possible violations of the company’s intellectual property right?

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  15. Hello:

    I thought Wayne was declared dead in the beginning of Begins, as part of a scheme to take WI public. If He isn’t dead then the will couldn’t have executed, or the execution gets reversed. Not clear on that. And then he secretly buys the rest of it (through shell companies, and so forth). Big Continuity problem there. But ether way Assuming they needed Bruce dead to take the company public wouldn’t the fact that he isn’t dead make the taking of the company public invalid, and thus Foxx and wayne can do whatever as long as they’ve approval from the other shareholders, or if Wayne became the sole shareholder at some point after the IPO wouldn’t the entire board be appointed by him and thus it wouldn’t matter what they new, as in either case, the whole point of WI is to benefit Bruce Wyane

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