Theft by Conversion: Charges, Defenses, and Restitution

Theft by conversion is the crime of lawfully receiving someone else’s property or money and then deliberately keeping it, selling it, or using it in a way the owner never authorized. The initial possession is legitimate, which is what separates this offense from shoplifting, burglary, or robbery. The crime begins the moment the holder’s conduct crosses from authorized use into unauthorized taking. Penalties range from under a year in jail for low-value misdemeanors to ten years in federal prison for larger amounts, and the consequences reach well past sentencing into professional licenses, immigration status, and tax liability.¹

What the Offense Is

Traditional larceny required a “trespassory taking” — someone physically removing property without permission. Conversion fills the gap left by that old rule: the situation where you handed the property over voluntarily and the recipient then refused to give it back or used it in ways you never agreed to.

To convict, prosecutors have to prove three things. The accused had lawful possession to start with, usually under a rental, employment, fiduciary, or deposit arrangement. The holder then used the property in a way that violated the terms of that arrangement. And the holder acted with criminal intent rather than by accident. The third element is where most contested cases are decided.

Proving Intent

The prosecution has to show a conscious decision to deprive the owner of their property or its value. This is where conversion diverges from a plain contract dispute. Forgetting a return date, miskeying a bank transfer, or misreading the scope of an agreement does not meet the threshold. Federal conversion law uses the word “knowingly,” meaning the holder must have been aware the conduct crossed the line.¹

Courts look at what the person did after taking possession. Selling a borrowed item, hiding it from the owner, spending entrusted funds on personal expenses, or lying about where the property is all point toward criminal intent. The intent also does not have to be present at the start. Someone who rents equipment fully meaning to return it can still commit conversion if they later decide to keep it indefinitely. The offense crystallizes at the moment the mindset shifts.

Situations That Lead to Charges

Conversion charges come out of ordinary transactions more often than people expect. The common thread is that the holder started with legitimate access.

A customer rents a construction vehicle or power tool and ignores repeated requests to return it after the contract expires.
An employee with access to a corporate card, petty cash, or an expense account redirects those funds toward personal purchases. Access was authorized for business purposes only.
A contractor receives money earmarked for materials on one job and spends it on debts from another. Many states have construction trust fund laws that treat diverted payments as a standalone felony, with fraudulent intent presumed when subcontractors or suppliers go unpaid.
An executor, guardian, or trustee moves estate or trust assets into a personal account. These cases tend to be prosecuted harshly because fiduciaries occupy a position of heightened legal responsibility.
A landlord spends a tenant’s security deposit rather than holding it as required.

Misdemeanor or Felony

Whether a conversion charge is a misdemeanor or a felony almost always comes down to the dollar value of the property. Across U.S. jurisdictions, felony theft thresholds range from as low as $200 to as high as $2,500, with most states drawing the line between $1,000 and $1,500.

Below the threshold, conversion is typically a misdemeanor punishable by up to twelve months in a local jail plus a fine that varies by jurisdiction. Above it, the offense is a felony with much steeper consequences. Federal law shows the gap plainly: converting government property worth more than $1,000 carries up to ten years in prison, while conversion below that cap tops out at one year.¹ State felony sentences commonly run one to ten years, with some jurisdictions authorizing longer terms for high-value offenses.

Dollar amount is not the only factor. Several categories of property trigger automatic felony treatment regardless of value, including firearms, motor vehicles, livestock, and public records. Some states impose lower thresholds or enhanced penalties when the victim is elderly or disabled, or when the defendant has prior theft convictions.

Restitution

Restitution is a court order to pay back the value of what was taken. In federal cases involving property offenses, it is mandatory and the judge has no discretion to skip it.² Most states follow the same approach for theft convictions, with details that vary.

Courts calculate the amount based on the property’s value either at the time of the conversion or at the time of sentencing, whichever is greater.² If part of the property has been recovered, the court subtracts what came back. For unique or hard-to-value items, courts sometimes use replacement cost, which usually runs higher because it ignores depreciation.³

Restitution is separate from any fine. A defendant convicted of felony conversion might face both a $5,000 fine payable to the government and a $50,000 restitution order payable to the victim. Restitution obligations are often non-dischargeable in bankruptcy.

Defenses

Several defenses can defeat a conversion charge, with effectiveness depending heavily on the facts.

Claim of Right

A person who genuinely believes they have a legal right to the property lacks the criminal intent needed for conviction. If a contractor holds a client’s equipment because the client owes them money and the contractor honestly believes they are entitled to keep it as security, the claim of right defense may negate the required mental state. The belief does not have to be legally correct, only held in good faith. Courts reject the defense when the claimed right is so unreasonable that it is clearly a pretext, or when the defendant took the property through secrecy or deception rather than openly asserting the claim.

Consent or Authorization

If the owner actually gave permission for the specific use the defendant made, there is no conversion. Proving what was authorized is the hard part, especially when the original agreement was verbal. Written contracts, emails, and text messages documenting the scope of permission become critical evidence.

Lack of Intent

Honest mistakes are not crimes. A bookkeeper who transfers funds to the wrong account by accident, or a renter who loses track of a return deadline, has not committed conversion. The defense requires showing the conduct was negligent rather than deliberate. Trying to correct the error quickly and notifying the owner strengthens the argument.

Returning the Property

Giving back what you took is not a complete defense to criminal conversion. The offense was complete the moment you exercised unauthorized control. Returning it afterward may reduce your sentence, influence a prosecutor’s charging decision, or persuade a judge to impose probation instead of prison, but it does not erase the crime.

The Civil Case Runs Alongside

Conversion exists in both civil and criminal law, and the two paths operate independently. A property owner can file a police report and sue in civil court at the same time. Winning or losing one does not decide the other.

The burdens of proof differ. Criminal prosecution requires proof beyond a reasonable doubt. A civil conversion lawsuit requires only a preponderance of the evidence, meaning it was more likely than not that the defendant converted the property. That lower bar is why someone acquitted of criminal conversion can still lose a civil case on the same facts.

Civil remedies focus on making the victim whole, usually through damages set at the fair market value of the property at the time of conversion. Some courts also award punitive damages for especially harmful conduct. Criminal cases focus on punishment through fines and imprisonment, with restitution attached when the judge orders it.

Consequences Beyond the Sentence

The jail term and fine are often not the worst part of a conversion conviction. The collateral damage reshapes lives for years.

Employment and Professional Licenses

Theft convictions appear on background checks. For professions built on financial trust — accounting, law, nursing, financial advising, real estate — a conviction can trigger license revocation or a denial of renewal. Felony convictions almost always have to be reported to the licensing board, and many boards treat theft offenses as automatic disqualifiers. Even misdemeanor theft convictions can block hiring in roles involving money handling or fiduciary responsibility.

Immigration

For non-citizens, the stakes are existential. The State Department classifies larceny and theft involving intent to permanently take property as crimes involving moral turpitude. A single conviction can make someone inadmissible to the United States or trigger deportation. The narrow petty offense exception applies only when the maximum possible sentence did not exceed one year and the actual sentence was six months or less.⁴ A felony theft conviction with a sentence of a year or more can qualify as an aggravated felony under immigration law, which eliminates most forms of relief from removal.

Taxes

This one catches people by surprise. The IRS requires you to report the fair market value of stolen or converted property as income in the year you take it, unless you return it in the same year.⁵ Gross income under federal tax law means “all income from whatever source derived,” and there is no carve-out for income acquired illegally.⁶ Failing to report converted funds creates a second federal problem stacked on top of the underlying theft charge.

How Long Prosecutors Have to File

Statutes of limitations for theft offenses vary widely, running from roughly two years for misdemeanors to seven or more years for certain felonies. Some states extend the deadline for offenses involving a breach of fiduciary duty or fraud, recognizing that these crimes are often concealed and may not come to light for years. In those jurisdictions, the clock may not start until the victim discovers, or reasonably should have discovered, the conversion.

For victims, the practical point is to report suspected conversion promptly. Prosecutors generally will not pursue stale cases even when the statute has not technically run. For defendants, the limitations period is a real defense: if the state waited too long, charges can be dismissed regardless of guilt.

1
Office of the Law Revision Counsel. 18 USC 641 – Public Money, Property or Records
2
Office of the Law Revision Counsel. 18 USC 3663A – Mandatory Restitution to Victims of Certain Crimes
3
United States Sentencing Commission. Restitution Examples and Analysis
4
U.S. Department of State. 9 FAM 302.3 – Ineligibility Based on Criminal Activity
5
Internal Revenue Service. Publication 525 – Taxable and Nontaxable Income
6
Office of the Law Revision Counsel. 26 USC 61 – Gross Income Defined