Malcolm Rivera
Fraud is a deliberate act or failure to act, with the intention of obtaining an unauthorized benefit, either for oneself or for an institution, by using deception or false suggestions. It is a crime that involves deceit with the intention to illegally or unethically gain at the expense of another. The most common types of fraud include mortgage fraud, insurance fraud, securities fraud, and identity theft. Proving fraud can be challenging, as it requires clear, cogent, and convincing evidence of each element of the crime, including demonstrating that the perpetrator had knowledge of the false statement and intended to cause harm.
| Characteristics | Values |
|---|---|
| Definition | Fraud is a criminal offence that involves intentional deception to gain something of value, usually money. |
| Types | Criminal fraud includes bankruptcy fraud, credit card fraud, healthcare fraud, check fraud, access card fraud, insurance fraud, and making false financial statements. Civil fraud includes misrepresentation of fact, negligent misrepresentation, and false promises. |
| Proof | To prove fraud, one must demonstrate that the perpetrator provided a false statement as a material fact, knew that the statement was untrue, intended to deceive the victim, and caused the victim to suffer damages due to acting on the false statement. |
| Jurisdiction | The proof requirements for fraud vary across jurisdictions. In the US, most states require fraud to be proved by a preponderance of the evidence, while some states impose a higher evidentiary standard, such as clear and convincing evidence. |
| Penalties | Fraud can result in criminal charges, civil lawsuits, or both. Criminal penalties include prison time, while civil penalties involve restitution and monetary damages. |
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What You'll Learn
Criminal vs civil fraud
Fraud is a crime often associated with theft and involves a purposeful misrepresentation of fact. Criminal fraud and civil fraud are distinguished primarily by who is seeking legal action in the case. In a criminal fraud case, local, state, or federal prosecutors bring the case to court, whereas in a civil fraud case, the person who was defrauded brings the case to court.
Criminal fraud is a "white-collar crime" that involves a scheme to cheat or deceive another individual or entity to obtain financial gain or a similar advantage. Common examples of criminal fraud include bankruptcy fraud, credit card fraud, and healthcare fraud. In a criminal fraud case, the accused may face incarceration, probation, fines, and restitution to any victims.
Civil fraud, on the other hand, is not considered a crime in some jurisdictions, such as California. It involves intentional misrepresentation or omission of information to deceive someone for financial gain. Examples of civil fraud include contract fraud, securities fraud, real estate and mortgage fraud, and consumer fraud. In a civil fraud case, the punishment sought is typically compensation for the damage suffered by the victim.
To prove civil fraud, the plaintiff must demonstrate that the defendant materially misrepresented the facts, knowing that they were false, with the intention of getting the victim to act on the misrepresentation. It must be shown that the victim acted reasonably in believing the misrepresentation and suffered damage as a result. In contrast, in a criminal fraud case, prosecutors must prove that the defendant intended to commit the misrepresentation and gain from it, even if no one was actually harmed.
In both criminal and civil fraud cases, the goal is to seek justice and punish the wrongdoer. However, the punishments that result from a guilty verdict differ significantly between the two types of cases.
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Types of fraud
Fraud is a deception deliberately practised to secure unfair or unlawful gain. It is a broad term that can be categorized in countless ways. However, every type of fraud is either organizational or individual.
Individual fraud
Individual fraud involves a single person being targeted by a fraudster. This includes identity theft, phishing scams, and "advance-fee" schemes. One of the most devastating individual frauds is the Ponzi scheme, where existing investors are paid with funds collected from new investors, with the fraudster often pocketing the money instead. Other examples include pyramid schemes, Nigerian letter or 419 schemes, telemarketing fraud, and more.
Organizational fraud
Organizational fraud, also called "occupational fraud", is when an employee, manager, or executive of an organization deceives the organization. This includes embezzlement, tax evasion, and lying to investors and shareholders.
External fraud
External fraud is committed against an organization from the outside. Vendors may lie about the work they did, demand bribes from employees, or rig costs. Customers may also defraud organizations, such as by submitting bad checks or trying to return knock-off or stolen products.
Financial fraud
Financial fraud is a broad category that includes mortgage fraud, insurance fraud, and securities fraud. Mortgage fraud can involve identity theft, income or asset falsification by applicants, appraisal fraud, and air loans (mortgages on non-existent properties). Securities fraud involves conning investors into buying stock based on false information.
Other types of fraud
Other types of fraud include credit card fraud, check fraud, cryptocurrency investment fraud, charity fraud, and more. Credit card fraud can be card-not-present (CNP) fraud or card-present fraud. CNP fraud involves stolen credit card details being used to make online transactions or submitted via email or phone. Check fraud involves the unauthorized use of a person's checks. Cryptocurrency investment fraud is a growing area of concern, with the FBI's Operation Level Up aiming to identify and notify victims of such scams. Charity fraud often occurs after high-profile disasters, with scammers using emails, social media posts, crowdfunding platforms, and cold calls to target victims.
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Proving intent
Texts or emails from the perpetrator can be powerful evidence of their intent and knowledge that the statement was false. Such direct evidence can be challenging to obtain, but testimony from third parties may also help establish the perpetrator's awareness and intent. If clear proof of the speaker's knowledge is lacking, it can be difficult to prove intent, and the claim may falter.
In some cases, intent can be assumed if the speaker benefited from the victim's reliance on their false statement. For instance, if they made a false statement to gain money or avoid a financial loss, their intent to deceive can be inferred.
While intent is crucial, it is not the only element that needs to be proven. The burden of proof varies across jurisdictions, with some requiring clear and convincing evidence, while others demand proof beyond a reasonable doubt in criminal cases. The specific acts constituting fraud must also be proven, including the provision of a false statement, knowledge of its untruth, and the victim's reliance on it, resulting in harm.
Overall, proving intent in fraud cases is a complex and challenging endeavour, requiring clear and convincing evidence or proof beyond a reasonable doubt, depending on the jurisdiction and the nature of the case.
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Monetary damages
Fraud is a financial crime that can be committed by individuals or organisations. It involves deceiving the victim(s) with false statements or misinformation, causing harm to the victim(s) who rely on these statements. Monetary damages are a legal remedy available to victims of fraud. The purpose of compensatory damages is to reimburse the victim for their actual economic loss. This could include the recovery of investments or purchase prices paid to the fraudulent party.
In cases of individual fraud, such as identity theft, phishing scams, or advance-fee schemes, victims can claim monetary damages for their financial losses. This may include recovering any money stolen, as well as compensating for any additional costs or losses incurred due to the fraud. For example, if a victim of identity theft had their bank account accessed and money stolen, they could claim monetary damages to recover the stolen funds and any associated costs, such as legal or administrative fees incurred during the resolution process.
Organisational fraud, also known as occupational fraud, occurs when an employee, manager, or executive deceives the organisation. This can include embezzlement, tax fraud, or lying to investors and shareholders. Victims of organisational fraud can also seek monetary damages to compensate for financial losses. For instance, in the Enron scandal, shareholders suffered significant losses when the company's share prices plummeted after the fraud was exposed. In such cases, monetary damages could be claimed to compensate for the loss in share value.
Additionally, fraud can be committed against organisations by external parties, such as vendors, customers, or contractors. Vendors may overcharge for services, demand bribes, or rig costs. Customers may submit false insurance claims or return counterfeit or stolen goods. In these scenarios, monetary damages can be sought to recover financial losses. For example, if a customer submits a fraudulent insurance claim and receives a payout, the insurance company can pursue monetary damages to recover the amount paid out, as well as any associated costs incurred during the investigation and resolution process.
It is important to note that the availability and specifics of monetary damages may vary depending on the legal jurisdiction and the nature of the fraud. Seeking legal advice is essential to understand the options available in a particular situation.
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Opinions as fraud
Opinions are not usually classified as fraud unless specific circumstances are met. These circumstances are defined by common law or statutes in each state. For example, in California, a jury may consider an opinion as a representation of fact if the speaker claimed to have special knowledge of the subject matter that the listener did not have. Another circumstance is if the speaker was in a position of trust and confidence over the listener.
In civil litigation, fraud is based on a misrepresentation of fact that is either intentional or negligent. An intentional misrepresentation occurs when the person making the statement knows it is false or is reckless as to its truth. The speaker must also intend for the statement to be relied upon by the recipient. The recipient must then reasonably rely on the statement and be harmed as a result.
In criminal law, fraud takes on specific forms, such as bankruptcy fraud, credit card fraud, or healthcare fraud. California law also recognizes distinct crimes, including check fraud, access card fraud, and insurance fraud.
To reduce the chances of being sued for fraud, one should clarify when expressing an opinion, using phrases such as "in my opinion" or "I believe." It is also essential to ensure that any factual statements made are correct and can be justified.
Courts generally group "opinions" along with "judgments," "probabilities," and "expectations." Therefore, statements that fall short of positive knowledge should not be considered actionable as an "opinion." However, there are exceptions to this general rule:
- Opinions that the speaker knows to be false;
- Opinions mixed with false statements of fact;
- Opinions based on special knowledge.
The first exception is challenging to prove in court, as the accused must demonstrate that they did not know their opinion was wrong at the time, which is often difficult or impossible. The final exception relates to opinions based on specific knowledge of facts that underlie the false opinion. However, courts often confuse this with special expertise held by professionals such as doctors or lawyers.
In conclusion, while opinions are generally not considered fraud, specific circumstances defined by each state's laws may allow for opinions to be classified as fraudulent. To avoid potential legal issues, individuals should clearly express when they are giving their opinions and ensure any factual statements are accurate.
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