Is “Return Fraud” a Crime in California?

Posted on July 5, 2019

Return fraud is activity which can lead to the filing of theft or shoplifting charges in California. The most common return fraud schemes involve the return of stolen or altered merchandise for cash or store credit. These include:

• Receipt fraud—using forged, found, or altered receipts to return stolen items,
• Price switching—switching price tags or labels,
• Price arbitrage—repackaging items in less expensive packages or boxes,
• Bad check or credit card fraud—using stolen credit cards or checks to obtain merchandise to return or resell,
• Employee fraud—working with a store employee to steal and/or return merchandise.

It is estimated by the National Retail Federation that in 2018 more than 8% of all retail returns involved fraud. (See https://nrf.com/research/2018-organized-retail-crime-survey)

Return fraud activity in California could lead to criminal prosecution for one of the following:

• Petty theft
• Shoplifting
• Grand theft

Theft under Penal Code 484 is defined as intentionally and unlawfully taking property with the intent to permanently or substantially deprive the owner of the use, enjoyment or value of that property.

Petty theft under Penal Code 488 is stealing property worth $950 or less.

Shoplifting under Penal Code 459.5 is entering an open business with the intent to steal merchandise worth $950 or less.

Shoplifting and petty theft are both punishable by:

• six months in jail
• $1,000 fine.

Grand theft under Penal Code 487 is theft of property worth more than $950. Grand theft can be filed as either a felony or a misdemeanor, and is punishable:

• as a felony—up to 3 years in jail and a $10,000 fine,
• as a misdemeanor—up to one year in jail and a $1,000 fine.

Please note, if the value of the merchandise stolen is under $950 it can only be charged as a misdemeanor UNLESS the person has certain disqualifying prior convictions.

Defenses to return fraud may include:

• mistake,
• lack of intent,
• mistaken identity or falsely accused.

How is Return Fraud Committed in California?

There are two basic steps present in most return fraud scenarios:

1. Acquiring the merchandise:
   • by theft,
   • by trick (switching price tags, repackaging),
   • buying stolen property.
2. Returning the stolen or altered merchandise:
   • for cash or store credit with no receipt,
   • with a forged or found receipt,
   • after fraudulent repackaging.

Engaging in any of these activities could lead to criminal charges.

Here’s an EXAMPLE of theft by trick in a return fraud situation:

Store security watched (via camera) as a man entered a clothing store and picked up a shirt. He then walked across the store to a sales counter, told a clerk he had received the shirt as a gift, and asked for a refund. Because he had no receipt he was given a store credit. As he left the store he was arrested. The man was found guilty of theft even though he never left the store with the shirt. People v. Davis (1998) 19 Cal. 4th 301.

What Kind of Charges Can Result from Engaging in Return Fraud?

Depending on the activity engaged in and the value of the merchandise involved, return fraud can lead to criminal charges for:

• shoplifting,
• petty theft,
• grand theft.

Shoplifting under Penal Code 459.5 is entering an open business with the intent to steal merchandise worth $950 or less.

Petty theft under Penal Code 488 is stealing property worth $950 or less.

Please note, if the value is under $950 it can only be charged as a misdemeanor UNLESS the person has certain disqualifying prior convictions.

Also note, if the value of the stolen merchandise is less than $50 it could be charged as an infraction per Penal Code 490.1.

Grand theft under Penal Code 487 is theft of property worth more than $950. Grand theft can be filed as either a felony or a misdemeanor. (For exceptions see https://www.shouselaw.com/grand-theft.html)

What is the Punishment for Return Fraud in California?

The punishment for return fraud related theft charges is as follows:

Shoplifting as a misdemeanor punishable by:

• six months in jail; and/or,
• $1,000 fine

Petty theft of property valued at less than $950 filed as a misdemeanor and punishable by:

• Six months in jail; and/or
• $1,000 fine.

Grand theft of property worth more than $950 filed as either a felony or a misdemeanor:

• For a felony, up to 3 years in jail and a $10,000 fine,
• For a misdemeanor, up to one year in jail and a $1,000 fine.

What are Some Defenses to Return Fraud Accusations?

Defenses to return fraud may include:

• mistake,
• lack of intent,
• claim of right,
• mistaken identity.

Please note, retailers are using increasingly sophisticated methods in an effort to prevent the multi-billion-dollar losses they incur each year due to return fraud. These methods include:

• Facial recognition software monitoring customer activity,
• Computer software tracking and analyzing of customer return activity,
• Video camera monitoring and surveillance.