Legal Definitions - fraud

Fraud occurs when someone intentionally deceives another person by making a false statement or concealing important information, with the goal of causing that person to act in a way that leads to harm, typically financial. For a claim of fraud to be successful, it generally requires proof that:

• A false statement was made, or crucial information was hidden.
• The person making the statement knew it was false or acted with reckless disregard for the truth.
• The person intended for the other party to believe the falsehood and act upon it.
• The other party reasonably relied on the false statement or hidden information.
• The other party suffered harm as a direct result of that reliance.

Sometimes, fraud can also involve a false promise where the person making the promise never intended to keep it, or a statement made carelessly without reasonable grounds for believing it to be true (known as negligent misrepresentation). While opinions are generally not considered fraud, they can be if the person giving the opinion claims special expertise or is in a position of trust, leading others to reasonably believe it as fact.

Fraud can be pursued in civil court by individuals seeking compensation for their losses, or it can be a criminal offense prosecuted by the government, leading to penalties like fines or imprisonment.

• Example 1: Deceptive Car Sale

  A used car salesperson tells a customer that a vehicle has a "brand new engine" and "runs perfectly," even though they know the engine is old, has known mechanical issues, and was only superficially cleaned. The customer, relying on these statements, purchases the car. Within weeks, the engine fails, requiring expensive repairs.

  This illustrates fraud because: The salesperson made false statements about the car's condition, knowing they were untrue. They intended for the customer to believe these lies and buy the car. The customer reasonably relied on the salesperson's assurances and suffered financial harm due to the engine failure and repair costs.

• Example 2: Misleading Investment Scheme

  An individual promotes an investment opportunity, promising "guaranteed 20% returns" within six months for a new technology startup. They present fabricated financial projections and investor testimonials, knowing the startup is failing and the technology doesn't exist. Several people invest their savings based on these presentations, only to lose all their money when the scheme collapses.

  This illustrates fraud because: The individual made false statements and presented fake documents about the investment's returns and the startup's viability, knowing they were untrue. Their intent was to trick people into investing. The investors reasonably relied on these deceptions and suffered significant financial harm by losing their savings.

• Example 3: Contractor's False Promise

  A homeowner hires a contractor to build an addition to their house, paying a substantial upfront deposit. The contractor promises to start work the following Monday and complete the project within four months. However, the contractor never intended to perform the work, instead using the deposit for personal expenses and becoming unreachable after receiving the payment.

  This illustrates fraud because: The contractor made a false promise to perform the work, accepting the deposit with no intention of fulfilling that promise. They intended for the homeowner to rely on this promise and pay the money. The homeowner reasonably relied on the contractor's commitment and suffered financial harm by losing the deposit and having their project delayed.