What Is Fraud?

Fraud is a broad legal term referring to dishonest acts that intentionally use deception to illegally deprive another person or entity of money, property, or legal rights.

Unlike the crime of theft, which involves the taking of something of value through force or stealth, fraud relies on the use of intentional misrepresentation of fact to accomplish the taking.

Fraud is an intentionally deceptive action designed to provide the perpetrator with an unlawful gain or to deny a right to a victim. Types of fraud include tax fraud, credit card fraud, wire fraud, securities fraud, and bankruptcy fraud. Fraudulent activity can be carried out by one individual, multiple individuals or a business firm as a whole.

In proven cases of fraud, the perpetrator—a person who carries out a harmful, illegal, or immoral act—may be found to have committed either a criminal offense or a civil wrong.

In committing fraud, perpetrators may be seeking either monetary or non-monetary assets by deliberately making false statements. For example, knowingly lying about one’s age to obtain a driver’s license, criminal history to get a job, or income to get a loan may be fraudulent acts.

Fraud Explained.

Fraud involves the false representation of facts, whether by intentionally withholding important information or providing false statements to another party for the specific purpose of gaining something that may not have been provided without the deception.

Often, the perpetrator of fraud is aware of information that the intended victim is not, allowing the perpetrator to deceive the victim. At heart, the individual or company committing fraud is taking advantage of information asymmetry; specifically, that the resource cost of reviewing and verifying that information can be significant enough to create a disincentive to fully invest in fraud prevention.

Both states and the federal government have laws that criminalize fraud, though fraudulent actions may not always result in a criminal trial. Government prosecutors often have substantial discretion in determining whether a case should go to trial and may pursue a settlement instead if this will result in a speedier and less costly resolution. If a fraud case goes to trial, the perpetrator may be convicted and sent to jail.

Legal Considerations.

While the government may decide that a case of fraud can be settled outside of criminal proceedings, non-governmental parties that claim injury may pursue a civil case. The victims of fraud may sue the perpetrator to have funds recovered, or, in a case where no monetary loss occurred, may sue to reestablish the victim’s rights.

Proving that fraud has taken place requires the perpetrator to have committed specific acts. First, the perpetrator has to provide a false statement as a material fact. Second, the perpetrator had to have known that the statement was untrue. Third, the perpetrator had to have intended to deceive the victim. Fourth, the victim has to demonstrate that it relied on the false statement. And fifth, the victim had to have suffered damages as a result of acting on the intentionally false statement.

Necessary Elements of Fraud.

While the specifics of laws against fraud vary from state to state and at the federal level, there are five essential elements necessary to prove in court that a crime of fraud has been committed:

▪️ 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 victim’s decisions and actions. For example, the false statement contributes to a person’s decision to purchase a product or approve a loan.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. Reliance on rhetorical, outrageous, or clearly impossible statements or claims may not amount to “reasonable” reliance. However, persons known to be illiterate, incompetent, or otherwise mentally diminished may be awarded civil damages if the perpetrator knowingly took advantage of their condition.

▪️Actual loss or injury suffered: The victim suffered some actual loss as a direct result of their dependence on the false statement.

Common Types.

Some of the most commonly committed types of fraud include:

1. Check Fraud.

Check fraud occurs when a person pays for something with a check knowing that there is not enough money in the account to cover the cost, or when an individual forges a check stolen from someone else.

2. Internet sales.

Internet frauds are becoming more prevalent since the world relies heavily on technology. This type of fraud involves selling fake or counterfeit items, or taking payment with no intention to ship or deliver the item.

3. Website misdirection.

This occurs when hackers mimic reputable companies such as Amazon, eBay, or PayPal, redirecting consumers to another website where they enter their credit card information. The criminal then use this information to make personal purchases.

4. Charities fraud.

For many years, criminals have taken advantage of the fact that Americans generously give to worthy causes. Criminals solicit people to make donations to various causes that do not actually exist.

5. Work-from-home scams.

Working from home sounds like a dream to many people, so it is not surprising that a number of Americans fall for this type of fraud each year. Criminals promise income to people who sign up for their fictitious work-from-home job, often requiring that money be paid up front with the promise of a big payoff in a short amount of time.

6. Pyramid schemes.

These work-from-home type schemes promise the consumer large returns on their investment if they are able to recruit others to their network. People often pay money up front to buy into the business, or to buy a sales package of some type, and only make money if they get a large number of people to join beneath them.

7. Identity theft.

One of the most commonly perpetrated types of fraud in this age, identity theft robs victims of their money, credit rating, and personal identity. Fraudsters obtain credit card, bank account, and other personal information, using them for personal gain.

8. Credit card fraud.

In today’s climate of electronic money, credit card fraud has become a prevalent crime. By obtaining people’s credit card information, through a variety of means, the perpetrator can quickly make a large amount of purchases before the consumer even realizes what is happening. Credit card fraud is classified as identity theft, identity assumption, or a fraud spree, depending on the specifics of the crime.

9. Debt elimination.

Many Americas find themselves deeply in debt, making it easy for criminals to offer them an opportunity to climb out from under a mountain of bills. Fake companies produce ads and other solicitations promising to help eliminate every type of debt, from credit card bills to taxes, for a partial payment up front. The victim fronts the payment as well as their credit card information, getting nothing in return, and often having their information sold to other fraudsters.

10. Insurance fraud.

Insurance fraud is committed every day in the U.S., by people who otherwise would not consider themselves to be criminals. False or inflated insurance claims for automobile damages, health care expenses, and homeowners or renters insurance are considered to be insurance fraud, and may be charged as felonies, depending on the circumstances and amount of the fraud.

Fraud as a Civil Wrong.

The court system views fraud as a civil wrong known as a “tort.” Each jurisdiction has a specific definition of fraud, but it is generally considered to be the intentional misrepresentation of important facts. For a civil wrong to be considered, certain elements must be in place, including:

▪️ Proving the state of mind of both the perpetrator and victim at the time of the crime.

▪️ Proving the fraud occurred with clear and convincing evidence.

Fraud as a Criminal Offense.

Certain types of fraud are classified as criminal offenses, mainly if the perpetrator is involved in theft under false pretenses. Like civil wrongs, certain elements must be in place for fraud to fall under the category of a criminal offense.

▪️Intentional deception by false pretense with the intent to convince the victim to part with money or property.

▪️ The belief in the deception by the victim, who actually parts with the money or property under the false pretenses.

▪️ The perpetrator keeping, or intending to keep, the money or property in question.

Recognizing Fraud in Time.

The warning signs of fraud vary according to the type being attempted. For example, telemarketing calls from unknown callers telling you to “send money now” to take advantage of a special offer or claim a prize may be frauds.

Similarly, random requests or demands for a Social Security or bank account number, mother’s maiden name, or a list of known addresses are often signs of identity theft.

In general, most offers from companies or individuals that sound “too good to be true” are signs of fraud.

Reference :



Definition and Examples of Fraud/

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button