Most often, a check kiting scheme involves an individual opening up several checking accounts at different banks using minimal deposits. The individual then writes a check from one account for an amount that is much higher than what is available on deposit and then deposits that check into another account. The person then withdraws the funds from the second account before the check is returned from the first bank as having insufficient funds.
Check kiting schemes takes advantage of the “float” in the bank system, which is the short period of time between when a deposit is made at one bank and the same funds are withdrawn from another bank. During the “float” the funds appear in both bank accounts. Most banks immediately credit money that is deposited by check into an account, even before the money is actually withdrawn from the payor’s account.
A recent example of a check kiting scheme is the guilty verdict against George Leslie Wintz, Jr. in the United States District Court for the District of Minnesota. In that case, Wintz was found guilty of depositing increasingly larger-dollar bad checks between two banks. Wintz was found to have maintained a falsely-inflated balance in a bank account he owned at Pinehurst Bank of St. Paul, Minnesota, by depositing checks into that account that he knew were not backed by sufficient funds. Wintz would then use the funds to pay personal and business expenses. In order to cover up the bad deposits, Wintz would continuously write bad checks from one bank to the other in increasing amounts, eventually resulting in a total loss to the bank of approximately $1.8 million.
When charged in federal court, check kiting is a type of bank fraud and carries a sentence of up to 30 years in federal prison. In addition, most states have state laws criminalizing check kiting and other types of check fraud. For example, under New Jersey Statute 2C:21-5, a person commits a crime if he “issues or passes a check or similar sight order for the payment of money, knowing that it will not be honored by the drawee.” The grading of the offense depends on the amount of the check. If the check is for an amount of $75,000 or more, passing a bad check is a crime of the second degree and carries a potential prison sentence of between five and ten years.
This article is written by New Jersey white collar criminal defense lawyer Nace Naumoski.