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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
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
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 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
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 banking laws are also subject to federal
prosecution (18 U.S.C.A. §§ 104 et seq.).
The Law Firm of Stewart L. Orden is committed to building strong defenses for
all our clients. We understand that individuals accused of a crime have a lot
at risk, that is why we approach each case we receive with the same proven
successful method. Our aggressive and knowledgeable litigation experience can
greatly benefit your case.
Contact our New York
Criminal Defense Lawyers today at 914.393.9450