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Fraud
The term “fraud” refers to an unlawful or criminal act of deception carried out with the intention to secure a financial or personal gain, such as money. Fraud is considered both a civil tort and a criminal wrongdoing. This means that a person who commits fraud can be sued for damages in a civil court as well as tried and sentenced by a criminal court.
Whether a fraud case ends up in civil or criminal court will depend on the party filing the action and the type of act committed.
When a private party sues an individual for damages in civil court, it is usually because the fraudulent actor either intentionally or negligently misrepresented a fact that caused the private party harm. For example, a person may sue a real estate broker for fraud if they have a fake real estate license, breach their broker agreement contract, or intentionally make a misrepresentation about their credentials, in a listing, or about a specific parcel of property.
In this scenario, if the private party can prove that the broker committed fraud, then they may recover a certain amount of monetary damages to make up for any losses that resulted from the broker's fraudulent actions.
On the other hand, when fraud is charged as a criminal wrongdoing, it usually applies to a very specific form of fraud like credit card fraud, forgery, mail fraud, and/or identity theft. States may also enact their own criminal law statutes that instruct when an illegal act should be classified as the crime of fraud. Thus, the elements of proof and requirements for criminal fraud matters may vary based on the crime committed and by the jurisdiction hearing the case.
Unlike a civil lawsuit, a local prosecutor will be the person filing charges against the fraudulent actor. The prosecution will need to prove the relevant elements of criminal fraud beyond a reasonable doubt. If convicted, a defendant may have to pay hefty criminal fines, be put on probation, or may need to serve time in prison.
In addition, one other primary difference between civil and criminal fraud cases is that in a civil fraud lawsuit, the person who was defrauded will need to demonstrate that they suffered actual damages. In contrast, it is not necessary that a prosecutor prove actual damages resulted from a fraudulent criminal act; only that the defendant intended to and attempted to commit fraud.
Different Types of Fraud
There are many types of fraud, although the basic elements of fraud remain the same. Examples of fraud may include:
- Mail fraud;
- Romance scam fraud;
- Identity theft;
- Gambling fraud;
- Bankruptcy fraud;
- Wire fraud;
- Pharmacy fraud;
- Securities fraud;
- Check fraud;
- Charity fraud;
- Insurance fraud;
- Welfare Fraud;
- Forgery;
- Credit and/or debit card fraud;
- Perjury; and
- Pigeon drop scams.
This is, of course, not an exhaustive list of all types of fraud.
The basic component of all types of fraud is that criminal fraud occurs when:
- An individual lies or conceals a material truth; and
- Another party or entity justifiably relies on that false information; and
- That party suffers an injury based on their reliance.
There are several elements of criminal fraud. In order for an individual to be convicted of criminal fraud, the prosecution must prove:
- There was a misrepresentation of a material fact;
- By an individual who knew the material fact was false;
- And intended to defraud;
- A person or entity who justifiably relied on the misrepresentation of fact; and
- The individual or entity suffered actual injury or damages as a result of their reliance on that false fact.
Difference between Criminal Fraud and Civil Fraud
The basic elements of fraud in both civil fraud cases and criminal fraud cases are the same. A criminal fraud conviction, however, can result in fines and/or jail time. In addition, criminal law has a higher standard of proof, which is beyond a reasonable doubt. Each element of the crime, discussed above, must be proven beyond a reasonable doubt in order for a defendant to be convicted.
In criminal fraud cases, whether or not the fraud was actually successful is not a factor. The mere fact that an individual attempted and intended to commit fraud is enough. Depending on the jurisdiction and the facts of the case, criminal fraud may be charged as a misdemeanor or a felony crime.
In civil fraud cases, the individual who was the victim must prove the fraud elements discussed above and prove they suffered damages as a result of the fraud. The difference between a civil and criminal fraud case is that in a civil case, the individual must show actual damages and in a criminal case the prosecution only needs to show that the defendant attempted fraud.
REQUIREMENTS FOR ALLEGING FRAUD
To plead a claim for fraud In New York, a plaintiff must allege: (1) a material misrepresentation of a fact, (2) knowledge of its falsity, (3) an intent to induce reliance, (4) justifiable reliance by the plaintiff, and (5) damages.
The defendant must have made a statement that was false or untrue and the false statement must have been material, meaning that it was about something essential to the transaction. Fraud requires misconduct. As a result, the defendant must have known the statement was false when it was made and had an intent to deceive, manipulate, or defraud the plaintiff, or have acted so recklessly as to constitute an intent to defraud. The plaintiff must show that he or she justifiably relied on the misrepresentation and exercised ordinary intelligence in ascertaining the truth of the representation made by the defendant. Finally, there must be a direct link between the fraudulent act and the loss that the plaintiff alleges.
SPECIAL CONSIDERATIONS WHEN BRINGING A FRAUD CASE
In filing a civil fraud action in court, New York law requires that the plaintiff plead each element of the fraud claim in detail. Essentially, the plaintiff must provide enough facts to support a reasonable inference that the allegations of fraud are true. For example, the complaint must identify who made the misrepresentation, when it was made and what was communicated. Similarly, there must be specific allegations regarding the falsity of the allegations, the knowledge of the defendant, reliance by the plaintiff, and circumstantial evidence of an intent to defraud. With respect to causation and damages, the plaintiff must provide facts to show that but for the defendant's wrongful acts, the plaintiff would not have entered into the transaction and the defendant's fraud directly caused the harm. The plaintiff also must allege sufficient facts from which the amount of damages can be inferred.
While specificity is required in the complaint, New York courts do not require a plaintiff to provide the details of a fraud if those details are uniquely within the knowledge of the defendant.
DEFENDING AGAINST A CLAIM OF FRAUD
There are a variety of defenses to fraud, including the following:
Statement was not false. As noted in the previous section, the plaintiff must demonstrate that the representation was false when it was made. Where there is no evidence that a statement was in fact false, it cannot be inferred.
No intent to deceive. Intent or scienter is typically inferred by the circumstances surrounding the allegedly fraudulent act. For example, in the bankruptcy context, intent to defraud creditors can be shown by certain badges of fraud such as transferring assets for less than fair market value or to insiders (family, friends, etc.). Intent may also be shown by reckless conduct. However, such conduct must be highly unreasonable and represent an extreme departure from the standards of care such as to show an actual intent to defraud.
The misrepresentation required for fraud must be of a present or historical material fact. Generally, statements of opinion, exaggeration, or future expectations do not qualify. They are considered puffery that no reasonable person would take seriously. Examples include claims of being the “best” or having the “lowest” cost. However, it can be difficult to establish when marketing claims cross the line into fraud. Among the considerations are the sophistication of the audience to whom the statements are targeted as well as the nature of the relationship between the parties. Where there are mixed statements of puffery and fact, however, fraud may exist if the misrepresentation of fact meets the requirements of fraud.
Reliance was not justified. As discussed previously, the plaintiff must have justifiably relied on the misrepresentation. Courts look at whether the plaintiff exercised ordinary intelligence in ascertaining the truth of the representation by the defendant. Where the plaintiff is “sophisticated” in the sense of having experience with similar transactions or having access to resources to verify statements by the defendant, this becomes more difficult. Such parties are held to a higher standard and expected to exercise more due diligence in a transaction as compared to someone less accustomed to business dealings. Sophisticated parties must show they took affirmative steps to protect themselves by employing what resources for verification were available at the time.
Fraud claim is duplicative of a breach of contract claim. Where fraud is alleged in the context of a breach of contract claim and arises out of the same facts, the two claims must be separate and not duplicative. The plaintiff must allege (1) that the fraud was collateral or extraneous to the contract, or (2) a breach of duty separate from a breach of the contract, or (3) there are special damages “not recoverable under a contract measure of damages. Essentially, the misrepresentation must involve a promise to undertake some action separate and apart from the party's obligations under the contract to be viable. Otherwise, the fraud claim will be dismissed as duplicative of the contract claim.
Statute of limitations. The statute of limitations for fraud causes of action is the greater of (1) six years from the date of the fraud, or (2) two years from the date it was discovered or reasonably could have been discovered through due diligence. However, there are instances where the court may “toll,” or extend, the limitations period.
Legal Services Fraud Lawyers Provide
The kinds of services that a fraud attorney may provide will depend on the type of case. For example, a plaintiff filing a civil fraud lawsuit will want to consult a civil fraud attorney or personal injury lawyer. On the other hand, if a defendant has been charged with criminal fraud and needs to appear in criminal court, then they should hire a criminal fraud attorney or criminal defense lawyer.
In general, however, both civil and criminal fraud attorneys provide basic litigation services. For instance, both can interpret and explain how the law applies to the facts of a specific client's case, and can discuss the effects that a law may have on the outcome of that case.
They can also inform their clients about their rights under the law and apprise them of remedies they can possibly recover, or alternatively, defenses they may be able to raise against fraud charges.
In addition, fraud lawyers can draft legal documents, prepare and file necessary case documents with the court (e.g., complaint, motions, etc.), and assist clients in navigating various court procedures. They can also help their clients gather evidence, discuss case strategies, and recommend other options for legal recourse.
Both civil and fraud attorneys also have the ability to represent their clients in court, at plea deals, or during negotiations to reach a settlement. Most importantly, fraud attorneys can help their clients to make informed decisions about their cases and can answer any questions a client may have about a case or fraud law in general.
How Can a Fraud Lawyer Help With my Situation?
Fraud claims are very fact-specific and require extensive proof. The parties should compile all documentation regarding a transaction in order to substantiate their case and consult experienced counsel for assistance. Fraud lawyers provide myriad services to assist their clients in receiving a successful resolution to fraud matters. There are many useful benefits that stem from hiring a fraud lawyer to handle a case. For one, a fraud lawyer is already familiar with the law and can conduct in-depth research into complex areas of the law that are hard to understand without the proper training.
In having extensive experience and being able to comprehend this legal research, a fraud lawyer can advise their client on any questions or concerns they have about a case. For example, a civil fraud lawyer may tell their client that it is not worth the cost of pursuing a lawsuit because of how little they may recover in damages.
There are also particular legal requirements and procedures that the average person may not have knowledge of. These can include criminal defenses that can reduce or eliminate legal penalties, types of damages a civil plaintiff can recover, and/or how to draft specific legal documents like a complaint or brief.
