What is fraud?

Ronald Lee Burdge

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Fraud Lawyer - Dayton, OH

Contributor Level 20

Posted over 4 years ago. 14 helpful votes

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1

What is fraud?

There's a long, technical definition of "fraud" in most states but, basically, it's most commonly a lie that costs you money. Different states have slightly different legal definitions of what is required to prove fraud. Fraud is often considered a "civil" law violation (meaning you can file a claim in court against someone for damages caused when the other person committed fraud and you are the victim) as well as a "criminal" law violation (meaning that the person who committed the fraud may be sent to jail in some cases). Since the criminal laws are very different from state to state, let's talk about the "civil" aspects of fraud and how you can get back your money or recover damages if you are a victim of fraud or, to be blunt, ripped off.

2

What are the common things I have to prove to establish fraud in court?

Usually, the definition used by most states requires you to establish five different things in order to be entitled to recover damages from the perpetrator of the fraud, but it can be slightly different from state to state. How strong a case you must have may also change from under each state's own legal definitions or legal requirements but there are some general rules.

3

What is the 1st thing I have to prove to establish fraud in court?

A false representation; actual or implied, or the concealment of a matter of fact, material to the transaction; made falsely. Basically that means a lie. But people can lie in different ways. An outright lie is one. A half-truth can be another. Hiding the truth can be another. Any of those could amount to legal fraud. They are often proven by the victim saying what happened in a very convincing way so that the jury or judge believes it. Also, the lie has to be "material" to the transaction between the lier and the victim. That basically means that it was important and mattered to the victim. If it did not matter, then it might be a lie, but it does not matter in Court because it was not important enough to the victim anyway. Important can be, obviosly, a matter of opinion.

4

What is the 2nd thing I have to prove to establish fraud in court?

Knowledge of the falsity or statements that are made with such utter disregard and recklessness that knowledge can be inferred. You have to show that the lying person either knew it was a lie or should have known it was a lie or simply did not care if it was a lie and said it anyway (that is what disregard and reckless basically means). The more proof you have that they had to have known they were lying to you (or hiding the truth from you), the more likely it will be that you can prove legal fraud. Look for documents that show it or other witnesses who they may have talked to or admitted the truth to. The best proof is when you can show that the liar had to have known that they were lying to you in the first place and that can come from the surrounding circumstances.

5

What is the 3rd thing I have to prove to establish fraud in court?

Intent to mislead another into relying on the misrepresentation. This is the hard part. You have to be able to show that the lieing person intended to mislead you. Obviously they are not likely to admit it in open Court (that's sometimes called "direct evidence" or "direct proof" by lawyers), so you need to show that the only logical result from all the surrounding circumstances is that they intended to mislead you (that's called "circumstantial evidence" or an "inference" by lawyers, and it can still be admissible evidence in a courtroom). Again, it can be a matter of who is the most believable to the jury or judge. Circumstantial evidence can be used to show that the liar intended to mislead you. Circumstantial evidence is evidence that shows what the circumstances are and that they generally, but perhaps not directly, show that you are telling the truth about having been deceived and that the liar intended to deceive you. Direct evidence would be if they admit it openly. Either is ok.

6

What is the 4th thing I have to prove to establish fraud in court?

Reliance, but with a right to rely. You can show reliance by just saying it, but you are better off if other people can say they knew you were relying on it too. But you also have to show that you had the right to rely on what you were told too. That basically means that you can't "close your eyes" to the truth and then later claim that you were lied to. In other words, if you should have known better, then it can end up being your own fault. You have to show that it was reasonable for you to accept what you were told by the lying person as being the truth. If a reasonable person, for instance, would have known that the car with 140,000 miles on it and which wasn't running, was not in "perfect" condition when the seller told them that, then the buyer had no right to "rely" on what they were being told because they should have known they were being lied to. If it is your own fault that you got ripped off by the lying person, then you can't do anything about it.

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What is the last thing, the 5th thing, I need to prove to establish fraud in court?

A "legal injury" as a result of that reliance. In other words, if the lie didn't really hurt you, then the legal rule is "no harm, no foul." It might feel bad but if it didn't cost you anything, then in most states it isn't technically "legal fraud." It might be a lie, but it's not fraud that you can go to Court over. You have to be able to show that it cost you money or legally hurt or damaged or injured you in some way. Some states allow the victim to recover a small amount of money damages for frustration and aggravation even when there is no real money loss. That is legally called "nominal damages" and usually means less than $100 - often far less.

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So what can I recover for fraud in court once I prove it?

Most states say that you have a right to recover your "actual" damages. That means the actual amount that you lost because of the lie. If you buy something that you think is worth, say, $100, and you find out that the seller lied to you about it in order to get you to pay $100 for it and that it was really only worth $30, then your actual damage is the difference between what you paid and what it was actually worth at the time of the sale, only $70 in our example. But many states also say you have the right to recover "punitive" damages too, on top of your actual damages. Some states have special laws that also say you can recover what lawyers call "non-economic damages" for your aggravation or similar "hard to measure" emotional aspects of being a victim of fraud, but don't count on it. A local fraud lawyer can explain what your legal rights your state law gives you.

9

What are punitive damages in a fraud case?

That is any amount of money that a jury (and usually a judge) agree is reasonable to punish the lieing party for what they did to you. It has to be reasonably related to the amount of actual damages (often no more than $10 punitive for each $1 actual loss) but there are exceptions to that rule. Punitive damages are intended to make an example of the lier so that others are discouraged from doing the same act in the future. They punish the lier by making the lier pay more than just the actual damages that occurred because what was done is so offensive to society (and the law) in general. But the money being taken away has to go somewhere so most states allow the victim to get it. A few states, however, say that the money (or a large part of it) goes to the state itself but that is rare.

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Can I get anything else in court?

Yes. Most states say that you have the right to make the lying person pay your attorney fees too (up to a reasonable amount anyway). You may also be able to get "equitable" relief. That means maybe a court order that says they are not allowed to lie to people like that again, but that is pretty rare.

Additional Resources

If you are a victim of fraud you can complain to your state attorney general (see link below to find their contact information), the local Better Business Bureau or your local authorities. Some useful links appear below.

Are you a victim of fraud? Auto Sales Fraud explained.

Association of Certified Fraud Examiners

Stop Auto Sales Fraud Website

To complain to your state Attorney General about fraud, click here

The BBB, Better Business Bureau Online, click here

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