Anaya Nolan
Fraud is a crime that is often associated with theft but differs in that it involves the purposeful misrepresentation of facts to deprive a victim of a legal right or to gain from them unlawfully or unfairly. Fraud can be classified as a civil wrong or a criminal act, and it can fall under common law. Common law fraud requires the misrepresentation of a material fact, the speaker's knowledge of the falsity of the fact, justifiable reliance on the misrepresentation, and damages resulting from that reliance. The injured party must also have the right to rely on the representation, and the representer's state of mind or intent can demonstrate the falsity of the representation.
| Characteristics | Values |
|---|---|
| Common law fraud elements | The injured party's right to rely on the representation |
| The plaintiff must prove that the accused acted with the intent to deceive and manipulate | |
| The plaintiff must prove that the accused had superior knowledge of the facts | |
| The plaintiff must prove that they suffered damage as a result of the misrepresentation | |
| The plaintiff must prove that the accused intended to gain from the misrepresentation | |
| The plaintiff must prove that the accused made a false statement | |
| The plaintiff must prove that the accused did not act in good faith | |
| The plaintiff must prove that the accused breached a fiduciary duty | |
| The plaintiff must prove that the accused made a negligent misrepresentation | |
| The plaintiff must prove that the accused's opinion was a misrepresentation of fact | |
| The plaintiff must prove that the accused made a promise with no intention of keeping it | |
| Types of fraud | Criminal fraud, civil fraud |
| Fraud in specific industries | Insurance fraud, banking fraud |
| Fraud in specific contexts | Mortgage fraud, credit card fraud, bankruptcy fraud, healthcare fraud, check fraud, access card fraud, insurance fraud, making false financial statements |
| Penalties for fraud | Imprisonment, fines, additional years in prison for high-value fraud, restitution orders, prohibition orders |
| Damages in fraud cases | Out-of-pocket damages, benefit-of-the-bargain damages, punitive damages |
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What You'll Learn
Common law fraud elements
Fraud is a broad term encompassing many specific types of legal claims. It is considered both a civil tort and a criminal wrong. In civil litigation, fraud allegations may be based on a misrepresentation of fact that was either intentional or negligent. Intentional misrepresentation occurs when the person making the statement knows it is false or is reckless as to its truth. The speaker must have intended for the statement to be relied on, and the recipient must have reasonably relied on it and been harmed as a result.
Negligent misrepresentation, on the other hand, occurs when the speaker of the false statement may have believed it to be true but lacked reasonable grounds for that belief. A promise that goes unfulfilled may give rise to a fraud claim only under specific circumstances.
In criminal law, fraud takes more specific forms, such as bankruptcy fraud, credit card fraud, or healthcare fraud. California law, for instance, recognises distinct crimes like check fraud, access card fraud, and insurance fraud.
The elements of common law fraud include the materiality of the representation and the injured party's right to rely on the representation. The injured party does not have a right to rely on a representation if they are aware it is false, not enforceable, or not directed at them. Additionally, a representer's "state of mind or intent" can demonstrate the falsity of the representation.
Opinions are generally not considered fraud unless under specific circumstances defined by common law or statutes in each state. For instance, in California, an opinion may be deemed a representation of fact if the speaker claims to have special knowledge of the subject or if the representation is made in a way that declares the matter to be true.
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Fraudulent intent
Fraud is a criminal wrong as well as a civil tort. In criminal law, fraud usually takes specific forms, such as bankruptcy fraud, credit card fraud, or healthcare fraud. Fraudulent intent is a critical element of fraud. It can be inferred from the modus operandi of the scheme, and the purpose of the scheme must be to injure. Fraudulent intent may be inferred when the scheme has such an effect as a necessary result of carrying it out.
In civil litigation, allegations of fraud might be based on a misrepresentation of fact that was either intentional or negligent. For a statement to be an intentional misrepresentation, the person making it must have either known the statement was false or been reckless as to its truth. The speaker must have intended that the person to whom the statement was made would rely on it. The hearer must then have reasonably relied on the promise and also been harmed because of that reliance.
A claim for fraud based on a negligent misrepresentation differs in that the speaker of the false statement may have actually believed it to be true, but the speaker lacked reasonable grounds for that belief. A promise that goes unfulfilled may give rise to a claim for fraud only under particular circumstances. For example, a representation consisting of a promise or a statement about a future event will not serve as a basis for fraud, even though it was made under circumstances as to knowledge and belief which would give rise to an action for fraud if it related to an existing or past fact.
A representer's state of mind or intent can demonstrate the falsity of the representation. For instance, if a bank employee claims they will modify an individual's mortgage payment schedule and not report any late payments, but then fails to do so, the representation was false.
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Fiduciary duty
Fraud is both a civil wrong and a criminal offence. In civil litigation, fraud allegations may be based on a misrepresentation of fact that was either intentional or negligent. A statement is an intentional misrepresentation when the person making it knows it is false or is reckless as to its truth. The speaker must intend for the statement to be relied on, and the hearer must reasonably rely on it and be harmed as a result.
Fraud in criminal law usually takes more specific forms, such as bankruptcy fraud, credit card fraud, or healthcare fraud.
A fiduciary duty is the obligation a party has to act in another party's best interest. Fiduciary relationships can exist between legal or financial professionals and their clients, trustees and beneficiaries, corporate boards and shareholders, and agents acting for a principal.
A breach of fiduciary duty occurs when a fiduciary fails to act responsibly in the best interests of a client, for example, through self-dealing, conflicts of interest, misappropriation of funds, or failure to disclose important information. To prove a breach of fiduciary duty, one must demonstrate that the individual acted negligently or maliciously, or prioritised their interests over the client's.
Fraud and fiduciary duty are linked, as frauds related to intangible rights stem from a fiduciary relationship between the defendant and the defrauded party. However, not every breach of fiduciary duty constitutes criminal fraud. Non-fiduciaries can also defraud others of property interests, whether tangible or intangible.
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Civil vs criminal fraud
Fraud is a deceptive act or omission of facts where a person causes harm by seeking an unfair advantage, typically for financial gain. It is both a civil wrong and a criminal offence.
Civil Fraud
Civil fraud cases involve disputes between private parties, aiming to resolve conflicts and provide remedies, such as monetary awards allowing victims to recover losses due to deceit or misrepresentation. The plaintiff generally has to prove that they were harmed by the other party economically. For example, the actions of the other party may have led to the plaintiff losing their job. The standard for civil actions is much less rigorous than criminal proceedings. The burden of proof is lower, defined as a "preponderance of evidence". Instead of a unanimous verdict, a majority of jurors decide the case. Remedies here involve monetary compensation for the victim's losses through damage awards or other equitable relief.
Criminal Fraud
Criminal fraud is an action deemed illegal by state laws or federal statutes. It usually takes very specific forms, such as bankruptcy fraud, credit card fraud, or healthcare fraud. California law, for example, also recognizes distinct crimes for check fraud, access card fraud, insurance fraud, and making false financial statements. In criminal cases, the prosecuting attorney has to prove to the jury that the accused is guilty beyond a reasonable doubt. If that cannot be done, the accused will likely be found not guilty in the eyes of the law. When a person is accused of criminal fraud, the case is brought by either local, state, or federal prosecutors, who have to prove that the accused intended to commit the misrepresentation and to gain from it. If found guilty, the accused may face incarceration or probation, as well as having to pay fines and possibly make restitution to any victims.
Common Law Fraud
Common law fraud has several elements, including the injured party's right to rely on the representation. A party does not have a right to rely on a representation if they are aware the representation is false, not enforceable, or not made to them. A representer's "state of mind or intent" can demonstrate the falsity of the representation. A cause of action for common law fraud will not exist if the plaintiff knows a representation is false.
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Types of fraud
Fraud is both a civil wrong and a criminal offence. In civil litigation, fraud is based on a misrepresentation of fact that is either intentional or negligent. In criminal law, fraud takes more specific forms, such as bankruptcy fraud, credit card fraud, or healthcare fraud.
Consumer Fraud
Consumer fraud impacts millions of Americans every year and often results in financial harm. Common types of consumer fraud include check fraud, credit card and debit card fraud, and retail fraud, which involves the deceptive marketing and sale of goods.
Financial and Investment Fraud
This type of fraud involves deceitful practices to lure individuals into fake investments, often by promising returns that are too good to be true. Examples include advance fee fraud, where individuals are tricked into paying fees upfront for loans or investment opportunities that never materialise, and payment fraud, where perpetrators gain unauthorised access to financial systems to divert funds from legitimate accounts.
Identity Theft
Identity theft occurs when someone illegally obtains and uses another person's sensitive personal or financial information without their knowledge, often leading to financial harm. Credit card fraud is a common form of identity theft, as is the use of deep fake technology to impersonate individuals.
Imposter Scams
Imposter scams involve fraudsters pretending to be someone the victim trusts, such as a government official or company representative, to steal their money or personal information.
Mortgage Fraud
This type of fraud targets homeowners through misleading terms or fraudulent loan applications, involving deceit or misrepresentation in the origination or funding of a mortgage loan.
Online and Digital Scams
Online and digital fraud occurs via the internet, often through deceptive emails, websites, or messages that trick people into providing personal information or money.
Elder Financial Exploitation
This involves the theft or misuse of an older adult's money, assets, or personal information.
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Frequently asked questions
Fraud is defined as intentional deception to deprive a victim of a legal right or to gain from a victim unlawfully or unfairly.
The elements of common law fraud include misrepresentation of a material fact, the speaker's knowledge of the falsity of the fact, the injured party's right to rely on the representation, and damages caused by the reliance.
Opinions are generally not considered misrepresentations of fact. However, there are specific circumstances, such as the speaker claiming to have special knowledge or being in a position of trust, where opinions can be construed as fraud.
Criminal fraud is prosecuted by governmental authorities, while civil fraud is brought to court by the defrauded individual or entity seeking monetary compensation or to stop the fraudulent activity. Criminal fraud may result in fines, incarceration, or both, while civil fraud aims to recover damages caused by the fraud.
Fraud is typically difficult to prove as courts assume that parties involved have expertise in the validity of statements. The plaintiff must demonstrate that the accused intended to deceive and manipulate, resulting in harm to the plaintiff. Evidence of fraudulent intent and resulting damage are crucial for a successful fraud claim.
