Fraud takes place when a person deliberately practices deception in order to gain something unlawfully or unfairly. In most states, the act of fraud can be classified as either a civil or a criminal wrong. While fraud is most commonly committed to obtain benefits of value, it sometimes occurs solely for the purpose of deceiving another person or entity. For instance, if a person makes false statements, it may be considered fraud, depending on the circumstances. To explore this concept, consider the following fraud definition.
Definition of Fraud
- Wrongful deception with the intent to gain personally or financially
- Intentional deception in order to persuade another person to part with something of value
- A person who pretends to be something or someone he is not
Middle English fraude
What is Fraud
There are a number of ways to commit fraud, as criminals use their imagination in finding new ways to gain. Some of the most commonly committed types of fraud include:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
Fraud Protection and Warning Signs
In order to people to avoid becoming victims of fraud, they need to protect themselves by learning the warning signs of fraud, which may include:
- Telephone calls in which the caller asks for money to be send in exchange for an offer.
- Telephone calls in which the caller asks for a social security number (even if they only request the last four digits).
- Telephone calls in which the caller asks for personal information, including a bank account or credit card number.
- Receiving unsolicited mail or email requesting the person send money with the threat that he may lose their credit cards or driver’s license if they do not comply.
- Receiving a response to something listed for sale in which the potential buyer offers to pay for the item via a wiring service or money order. Perpetrators of this scam often request that the seller ship the item.
- Receiving a notice that a person can obtain a large loan or consolidate his debt if he pays a set amount of money up front.
- Solicitation from a business that has no information readily available, or that is not registered in the city or state in which they claim to do business.
Perhaps the most important personal policy to protect against fraud is to never give out personal information over the phone, or by mail or email. A reputable bill collector, bank, or loan company will never request money up front. If a person receives an offer or a demand for payment, he should look up the company’s contact information on his own, contact the company directly, and check with the Better Business Bureau in the state to ensure the company is legitimate. When selling an item of large value, the person should also request cash payment in order to avoid check or wire fraud.
Consumers may request that any of the three primary credit reporting agencies, Experian, TransUnion, and Equifax, put a fraud alert on their credit report. Whichever agency receives a fraud alert request must alert the other two companies, making the addition of fraud alert much easier. Once a fraud alert has been added to a consumer’s credit report, it may be more difficult for an identity thief or credit card scammer to open more accounts in the consumer’s name. This type of fraud alert is free, and available to all consumers. The credit reporting agency will require that the consumer provide proof of identity.
Another fraud alert option is to sign up with a credit monitoring and protection company. The three credit reporting agencies offer real-time fraud alert for a monthly fee, as do a number of private companies, such as Identity Force, LifeLock, and Privacy Guard.
What to Do if Fraud is Suspected
If a person believes he is a victim of fraud, he should immediately contact his local law enforcement authority and give a full account of what happened, as well as any information he has on the person or company in question. A victim of fraud can also contact the Internet Crime Complaint Center if the act took place via the Internet. After filing a complaint with the authorities, the victim should contact the appropriate institutions, including their bank, lenders, and credit card companies, in addition to the major credit reporting agencies, in order to protect their money and their credit rating.
Often times, if a police report is filed and the victim contacts the various credit agencies, his account can be flagged by the agencies in order to prevent or detect future suspicious activities. These steps can also help a person recover his losses and repair his credit rating that has been damaged by fraudulent activities. If large losses have occurred, the victim should also weigh the costs and benefits of hiring an attorney in order to recoup his losses.
The penalties for fraud vary greatly depending on the state in which the crime took place and the type of fraud that occurred. The amount of loss that the victim suffered also plays a part in the punishment. Some of the most common penalties for criminals who commit fraud include:
- Incarceration ranging from 1 to 10 years depending on the severity of the crime. Federal fraud charges may result in even longer prison terms.
- Probation is common for first time offenders, or for fraud that resulted in little or no loss for the victim. Probation may also be ordered after the perpetrator is released from jail or prison.
- Fines are a very common penalty for fraud, the amount differing depending on the circumstances. On average, such fines may range from $1,000 to $10,000.
- Restitution is another common penalty for fraud. This is a requirement for the person convicted of the crime to pay back the amount taken from the victim in full. The judge may allow payments to be made, or provide the criminal with a set amount of time in which they have to pay the full amount of restitution.
If a person is suspected of fraud, he should contact an attorney experienced in this type of law as soon as possible. Since fraud is considered a serious crime, an attorney can help walk the suspect through the investigation and legal proceedings, giving advice on when and how to cooperate in the investigation. Hiring an experienced attorney is an expense well worth making, as the attorney helps protect the suspect’s rights.
Related Legal Terms and Issues
- False pretenses – acts or behaviors by a person with the intent to deceive another person.
- Perpetrator – a person or entity who commits crime.
- Pyramid Schemes – an illegal investment scam created by a person or entity that is based on a hierarchical setup. The scheme requires new recruits to make up the base of the “pyramid,” by paying money up front, and promising to not only sell the product or service, but to recruit new people under them. The scam generally promises the person that they will earn or make money based on the sales of each person they sign up under them.
- Solicitation / Soliciting – the act of asking for something, usually money or personal property, from another person or entity; advertisements inducing people to buy or invest.
- Tort – an infringement of a right leading to civil legal liability.