Fraud is defined as an intentional, dishonest act that may encompass a variety of crimes. Fraud is generally classified as criminal or civil, and state laws account for both types of fraud. A civil fraud case is brought to court by the individual who was defrauded. In a civil case, the individual must establish that the wrongdoer materially misrepresented a fact and that the fact was actually false. Further, the wrongdoer must have known the fact was false and intended to make the victim act on that fact. In order to pursue a civil fraud case, actual damage must have occurred as a result of the material misrepresentation. It is not sufficient that the victim simply believed the misrepresented fact.
Criminal fraud may refer to numerous wrongful acts, such as securities fraud, identity theft, tax evasion, embezzlement, counterfeiting, racketeering, or bank fraud. Ultimately, criminal fraud involves the intentional deception of a person or entity in pursuit of monetary or personal gains. The main distinction between criminal and civil fraud is the person bringing the action to court. In a criminal fraud case, the state brings the claim, rather than the individual directly harmed. In order to prove fraud, the state or individual must establish the following five elements:
- A false statement of a material fact,
- Knowledge on the part of the defendant that the statement is untrue,
- Intent on the part of the defendant to deceive the alleged victim,
- Justifiable reliance by the alleged victim on the statement, and
- Injury to the alleged victim as a result
The burden of proof differs depending on whether the alleged victim brings the action in a civil case, or if the state pursues the cause as a criminal claim. The first element requires a party to show the fact was material, and not just false. The fact that a statement is false does not necessarily mean it is fraudulent. In addition, the material fact must have some influence on a person’s decision to pursue a certain course of action. For example, if the fact influences a person’s decision to enter into a contract, it is more likely to be seen as material.
The second element is typically the easiest to prove in a civil or criminal fraud case. Once it is established that the statement is a material fact, it is natural to connect that statement to the defendant’s intent to deceive. Aside from the knowledge that the statement is untrue, there must also be an intent to deceive the victim. The fourth element requires the victim to have actually relied on the false statement. Reliance in itself is not sufficient to show fraud. Rather, reliance must be reasonable and justified. This means a victim who relies on an obviously false statement will generally not succeed in establishing fraud.
To establish injury, it must be shown that the victim is in a worse position than before the fraud. The relationship between the parties can sometimes help establish whether a fraudulent statement was actually made. Generally, a statement is more likely to be fraudulent if one person has greater bargaining power or knowledge in a transaction. Where a fiduciary relationship exists, a court may also be more likely to find fraud. A fiduciary relationship refers to a relationship of confidence and trust, typically between an attorney and client or physician and patient.
Criminal fraud is similar to theft in that it involves an illegal taking, but is punished more severely. Every state has a general criminal statute that punishes fraudulent activity. In addition, there are several federal fraud laws. While fraud can be prosecuted at the federal or state level, certain types of fraud are singled out for federal prosecution. For example, mail and wire fraud are the most common federal fraud claims. Penalties vary depending on the kind of fraud and the injury to the victim. The Federal Sentencing Guidelines recommend a harsher sentence if the victim involved is considered especially vulnerable.
Overall, there are several types of fraud that can be brought as a civil or criminal action. Regardless of the kind of fraud involved, the victim must establish the five requisite elements to succeed on a claim.