One who assumes a false pose; an impostor.This entry contains information applicable to United States law only.
A
false representation of a matter of fact — whether by words or by
conduct, by false or misleading allegations, or by concealment of what
should have been disclosed — that deceives and is intended to deceive
another so that the individual will act upon it to her or his legal
injury.
Fraud is commonly understood as dishonesty calculated
for advantage. A person who is dishonest may be called a fraud. In the
U.S. legal system, fraud is a specific offense with certain features.
Fraud
is most common in the buying or selling of property, including real
estate, personal property, and intangible property, such as stocks,
bonds, and copyrights. State and federal statutes criminalize fraud,
but not all cases rise to the level of criminality. Prosecutors have
discretion in determining which cases to pursue. Victims may also seek
redress in civil court.
Fraud must be proved by showing that the defendant’s actions involved five separate elements: (1) a false statement of a material
fact, (2) knowledge on the part of the defendant that the statement is
untrue, (3) intent on the part of the defendant to deceive the alleged
victim, (4) justifiable reliance by the alleged victim on the
statement, and (5) injury to the alleged victim as a result.
These
elements contain nuances that are not all easily proved. First, not all
false statements are fraudulent. To be fraudulent, a false statement
must relate to a material fact. It should also substantially affect a
person’s decision to enter into a contract or pursue a certain course
of action. A false statement of fact that does not bear on the disputed
transaction will not be considered fraudulent.
Second, the
defendant must know that the statement is untrue. A statement of fact
that is simply mistaken is not fraudulent. To be fraudulent, a false
statement must be made with an intent to deceive the victim. This is
perhaps the easiest element to prove, once falsity and materiality are
proved, because most material false statements are designed to mislead.
Third, the false statement must be made with the intent to deprive the victim of some legal right.
Fourth, the victim’s reliance on the false statement must be reasonable.
Reliance on a patently absurd false statement generally will not give
rise to fraud; however, people who are especially gullible,
superstitious, or ignorant or who are illiterate may recover damages
for fraud if the defendant knew and took advantage of their condition.
Finally,
the false statement must cause the victim some injury that leaves her
or him in a worse position than she or he was in before the fraud.
A statement of belief is not a statement of fact and thus is not fraudulent. Puffing,
or the expression of a glowing opinion by a seller, is likewise not
fraudulent. For example, a car dealer may represent that a particular
vehicle is "the finest in the lot." Although the statement may not be
true, it is not a statement of fact, and a reasonable buyer would not
be justified in relying on it.
The relationship between parties
can make a difference in determining whether a statement is fraudulent.
A misleading statement is more likely to be fraudulent when one party
has superior knowledge in a transaction, and knows that the other is
relying on that knowledge, than when the two parties possess equal
knowledge. For example, if the seller of a car with a bad engine tells
the buyer the car is in excellent running condition, a court is more
likely to find fraud if the seller is an auto mechanic as opposed to a
sales trainee. Misleading statements are most likely to be fraudulent
where one party exploits a position of trust and confidence, or a fiduciary
relationship. Fiduciary relationships include those between attorneys
and clients, physicians and patients, stockbrokers and clients, and the
officers and partners of a corporation and its stockholders.
A
statement need not be affirmative to be fraudulent. When a person has a
duty to speak, silence may be treated as a false statement. This can
arise if a party who has knowledge of a fact fails to disclose it to
another party who is justified in assuming its nonexistence. For
example, if a real estate agent fails to disclose that a home is built
on a toxic waste dump, the omission may be regarded as a fraudulent
statement. Even if the agent does not know of the dump, the omission
may be considered fraudulent. This is constructive fraud, and it is
usually inferred when a party is a fiduciary and has a duty to know of,
and disclose, particular facts.
Fraud is an independent criminal
offense, but it also appears in different contexts as the means used to
gain a legal advantage or accomplish a specific crime. For example, it
is fraud for a person to make a false statement on a license
application in order to engage in the regulated activity. A person who
did so would not be convicted of fraud. Rather, fraud would simply
describe the method used to break the law or regulation requiring the
license.
Fraud resembles theft in that both involve some form of illegal taking, but the two should not be confused. Fraud requires an additional element of false pretenses
created to induce a victim to turn over property, services, or money.
Theft, by contrast, requires only the unauthorized taking of another’s
property with the intent to permanently deprive the other of the
property. Because fraud involves more planning than does theft, it is
punished more severely.
Federal and state criminal statutes
provide for the punishment of persons convicted of fraudulent activity.
Interstate fraud and fraud on the federal government are singled out
for federal prosecution. The most common federal fraud charges are for
mail and wire fraud. Mail and wire fraud statutes criminalize the use
of the mails or interstate wires to create or further a scheme to
defraud (18 U.S.C.A. §§ 1341, 1342).
Tax fraud against the
federal government consists of the willful attempt to evade or defeat
the payment of taxes due and owing (I.R.C. § 7201). Depending on the
defendant’s intent, tax fraud results in either civil penalties or
criminal punishment. Civil penalties can reach an amount equal to 75
percent of the underpayment. Criminal punishment includes fines and
imprisonment. The degree of intent necessary to maintain criminal
charges for tax fraud is determined on a case-by-case basis by the
Internal Revenue Service and federal prosecutors.
There are other federal fraud laws. For example, the fraudulent registration of aliens is punishable as a misdemeanor
under federal law (8 U.S.C.A. § 1306). The "victim" in such a fraud is
the U.S. government. Fraud violations of securities laws are also
subject to federal prosecution (15 U.S.C.A. § 78(u)), as are fraudulent
bank transactions (18 U.S.C.A. §§ 104 et seq.).
The Federal
Sentencing Guidelines recommend consideration of the intended victims
of fraud in the sentencing of fraud defendants. The guidelines urge an
upward departure from standard sentences if the intended victims are
especially vulnerable. For example, if a defendant markets an
ineffective cancer cure, that scheme, if found to be fraudulent, would
warrant more punishment than a scheme that targets persons generally
and coincidentally happens to injure a vulnerable person. Federal
courts may require persons convicted of fraud to give notice and an
explanation of the conviction to the victims of the fraud (18 U.S.C.A.
§ 3555).
All states maintain a general criminal statute designed
to punish fraud. In Arizona, the statute is called the fraudulent
scheme and artifice statute. It reads, in pertinent part, that "[a]ny
person who, pursuant to a scheme or artifice to defraud, knowingly
obtains any benefit by means of false or fraudulent pretenses,
representations, promises or material omissions" is guilty of a felony
(Ariz. Rev. Stat. Ann. § 13-2310(A)).
States further criminalize
fraud in a variety of settings, including trade and commerce,
securities, taxes, real estate, gambling, insurance, government
benefits, and credit. In Hawaii, for example, fraud on a state tax
return is a felony
warranting a fine of up to $100,000 or three years of imprisonment, or
both, and a fraudulent corporate tax return is punished with a fine of
$500,000 (Haw. Rev. Stat. § 231-36). Other fraud felonies include fraud
in the manufacture or distribution of a controlled substance (§ 329-42)
and fraud in government elections
(§ 19-4). Fraud in the application for and receipt of public assistance
benefits is punished according to the illegal gain: fraud in obtaining
over $20,000 in food coupons is a class B felony; fraud in obtaining
over $300 in food coupons is a class C felony; and all other public
assistance fraud is a misdemeanor (§ 346-34). Alteration of a
measurement device is fraud and is punished as a misdemeanor (§
486-136).
In civil court, the remedy for fraud can vary. In most
states, a plaintiff may recover "the benefit of the bargain." This is a
measure of the difference between the represented value and the actual
value of the transaction. In some states, a plaintiff may recover as
actual damages only the value of the property lost in the fraudulent transaction. All states allow a plaintiff to seek punitive damages
in addition to actual damages. This right is exercised most commonly in
cases where the fraud is extremely dangerous or costly. Where the fraud
is contractual, a plaintiff may choose to cancel, or rescind, the
contract. A court order of rescission returns all property and restores the parties to their precontract status.
Fraud
is also penalized by administrative agencies and professional
organizations that seek to regulate certain activities. Under state
statutes, a professional may lose a license to work if the license was
obtained with a false statement.