Criminal Fraud - Fraudulent Acts
What Constitutes Criminal Fraud
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What is Criminal Fraud?
The elements of the crime of fraud vary between jurisdictions. Consistent with the federal fraud statute, fraud is the unlawful taking of another's property through the following types of knowing and willful conduct:
- falsifying, concealing, or covering up any trick, scheme, or device;
- making any material false fictitious, or fraudulent statement or representation about a material fact; or
- making or using any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry.
Next Article: Good Faith Defense to Fraud Back to: CRIMINAL LAW
What False Pretenses of Theft by Taking?
Charges related to fraud, commonly known as false pretenses and theft by deception, generally constitute the following types of conduct:
- intentionally creating or reinforcing an impression that is false;
- failing to correct an impression that is false and that the person does not believe to be true if there is a confidential or fiduciary relationship between the parties;
- preventing another from acquiring information that is relevant to a transaction; and
- failing to disclose a known lien or other legal impediment to property being transferred.
Note: The elements of the above charges are generally common among most jurisdictions, with slight variations in the language or wording.
Discussion: Fraud generally entails wrongfully obtaining resources or benefits from another person by deceptive means. In your opinion, does the fact that the individual voluntarily provides the resources or benefits to the fraudster in any way mitigate or lessen the reprehensible nature of the actions?
- Some might argue that a person who is deceived by an obvious ruse is partly to blame for their loss. This originates from our tendency to believe that a person has an obligation to protect themselves. Others place sole responsibility on the fraudster. Others may vary their opinion based on who is subject to the fraudulent activity. For example, the elderly person who voluntarily provides their account information to an internet fraud scheme is less culpable than a millionaire money fund manager who losses assets by placing them into a nefarious deal in hopes of making extravagant returns.
Practice Question: Doreen is seeking to borrow funds to run her business. She approaches several wealthy individuals in town and pitches the virtues of her business. She goes further than over representing the strength of her business. She lies about the incomes generated over the past several months. Convinced by her presentation and the businesss strong performance, several individuals make loans to the business of $10,000 or more. Doreen continues operations and uses the funds to pay herself a substantial salary. Ultimately, the business fails and shuts down. Has Doreen committed a crime? If so, what?
- Fraud refers to dishonest acts that intentionally use deception to illegally deprive another person or entity of money, property, or legal rights. The necessary elements of fraud include:
- A misrepresentation of a material fact - A false statement involving a material and pertinent fact must be made. The gravity of the false statement should be adequate to substantially affect the victims decisions and actions.
- Knowledge of falsehood - The party making the false statement must know or believe that it is untrue or incorrect.
- Intent to deceive - The false statement must have been made expressly with the intent of deceiving and influencing the victim.
- Reasonable reliance by the victim - The level to which the victim relies on the false statement must be reasonable in the eyes of the court.
- Actual loss or injury suffered - The victim suffered some actual loss as a direct result his or her dependence on the false statement.
- In the example from the practice question, Doreen may have committed the crime of fraud if she deceived the investors that the company was worth more than it actually was, had them invest in it, and eventually lost their money due to reliance on her information. https://www.thoughtco.com/fraud-definition-and-examples-417537
Academic Research on Fraud
- Buell, Samuel W., Fraud (January 28, 2019). The Palgrave Handbook of Applied Ethics and Criminal Law (K. Ferzan & L. Alexander eds. 2019); Duke Law School Public Law & Legal Theory Series No. 2019-17. Available at SSRN: https://ssrn.com/abstract=3324185
- Elsayed, Ashraf, Fraud Theories: Explanation of Financial Statement Fraud (November 28, 2017). Available at SSRN: https://ssrn.com/abstract=3078962 or http://dx.doi.org/10.2139/ssrn.3078962
- Vousinas, Georgios, Elaborating on the Theory of Fraud. New Theoretical Extensions (April 16, 2018). Available at SSRN: https://ssrn.com/abstract=3163337 or http://dx.doi.org/10.2139/ssrn.3163337
- Kingsly, Mau, Fraud and Corruption Practices in Public Sector: The Cameroon Experience (April 14, 2015). Research Journal of Finance and Accounting, Vol. 6, No. 4, 2015. Available at SSRN: https://ssrn.com/abstract=2594546
- Povel, Paul and Singh, Rajdeep and Winton, Andrew, Booms, Busts, and Fraud (2007). The Review of Financial Studies, Vol. 20, Issue 4, pp. 1219-1254, 2007. Available at SSRN: https://ssrn.com/abstract=1151162 or http://dx.doi.org/10.1093/rfs/hhm012