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Activity Constituting Fraud

13. What type of activity constitutes 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.

Related charges, 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?

•    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 business’s 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?

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