Important Elements of Proving Business Fraud

If you operate a business, you may find yourself the victim of fraud by contractors or others with whom you do business. Conversely, you yourself may be accused of fraud for certain actions you undertook or failed to undertake. How do you know when actual fraud has taken place, and what are the legal remedies – or consequences – if it has?

If you’re in or around the San Francisco area, including San Jose, Santa Clara, San Mateo, Oakland, and Alameda County, rely on the business litigation experience of the Law Offices of David H. Schwartz, INC, to evaluate your situation, assess whether fraud has been committed, and present your legal options. You may need to aggressively pursue a lawsuit, or aggressively defend yourself in one against you.

What Constitutes Fraud in California?

Fraud and deceit are covered under various sections of the California Civil and Penal codes. In one example, Civil Code Section 1709 defines fraudulent deceit as: “One who willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers.”

Penal Code Section 484 defines fraud as to “knowingly and designedly, by any false or fraudulent representation or pretense, defraud any other person of money, labor or real or personal property….”

Essentially, misrepresentation and deceit are the two main characteristics of fraud. Fraud is a crime in California when:

  • Someone commits an act that results in unfair or undeserved benefit for themselves, or
  • Someone causes harm or loss to another person.

Fraud is usually committed for one of two purposes: financial gain, or escape from criminal culpability. Business fraud is largely of the financial gain variety, though in some cases fraud may be employed to evade criminal justice when securities or other laws have been broken.

The most obvious popular example of business fraud is the huckster who fast-talks a customer into purchasing a product by making wild claims about it, none of which are true. The customer is then left with a defective, useless, or overpriced product.

Other forms of business fraud involve:

  • Advertising fraud – deceptive advertising that is misleading “in material respect” is considered fraud under the Federal Trade Commission Act
  • Making a false contractual promise “without any intention of performing it” (California Civil Code Section 1572)
  • Insurance fraud – making claims for losses or damages that never occurred, or occurred as a deliberate act
  • Securities fraud – presenting misleading information when selling securities
  • Identity theft – you or your business is victimized by someone who uses your identity for their personal gain
  • Payroll fraud – this can cut both ways: employees can lie about hours worked, and employers can deliberately underpay employees
  • Return fraud – customers may use the products they purchase from you and then return them even though nothing is wrong with them, or they may steal the products and then bring them back for a return
  • False invoicing – an employee who handles payments to providers could create false invoices that are used to siphon off company funds for personal gain

Proving Fraud in California

Fraud can be categorized into four types:

  1. Intentional Fraud/Deceit is just what the name implies – intending to defraud and/or deceive.
  2. Promissory Fraud involves Making a promise that is never meant to be honored to induce another to agree to a contract.
  3. Concealment Fraud involves important facts that are concealed in order to “seal the deal,” often used in fiduciary relationships.
  4. Constructive Fraud or Negligent Misrepresentation occurs when the defrauder claims a false fact is true. The defrauder may not know if the fact is true or false but uses it as true anyway.

While each type of fraud may require different levels of evidence, proving fraud generally requires three components under common law:

  • The making of a false statement with intent to deceive
  • The reliance of the victim on the false statement
  • Damages resulting from the reliance on the false statement

Damages Recoverable & Possible Punishments

On the most basic level, in a fraud lawsuit, you can be compensated for damages—in other words, for the money you lost due to the fraud. Punitive damages are often also available for fraud claims. Conversely, if you’re the one who committed the fraud, you can be on the hook for making things right and paying punitive damages on top of that. Depending on the type of fraud committed, the defrauder may also be subject to criminal prosecution. Securities fraud, mail fraud, forgery, and theft all carry the potential for jail or prison time, along with hefty fines. 

Experience You Can Trust: Law Offices of David H. Schwartz, INC

As you can see, there is no “one size fits all” definition for fraud. If you’re involved on either side of a suspected fraud, you’re going to need the guidance of an experienced fraud attorney to help you navigate the path forward.

If you’re in the greater San Francisco Bay area, turn to the Law Offices of David H. Schwartz, INC, with all your concerns and questions about fraud. The details of any given situation can be intricate and require close examination. Reach out to a lawyer who will listen to your story, investigate your situation, and advise you of your options. Whether you’re being accused or you’ve been victimized, you deserve skilled advocacy.


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