Fraud refers to a false representation of a matter of fact, which is intended to deceive an individual in a way that promotes actions against the victim’s self-interests. Fraud may be direct or indirect, through words or actions, or through concealing information that would have an impact on the victim’s behavior. Fraud is a broad-based offense. Some types of fraud are considered criminal violations, and may even be categorized as felony-level offenses, while other types of fraud do not rise to the level of criminal behavior.
While dishonesty is part of fraud, it is important to realize that fraud requires more than dishonesty. In fact, there are five distinct elements that are traditionally necessary to support an allegation of fraud: a false statement of a material fact; knowledge that the statement was false; an intention to deceive the victim; reliance by the victim on the statement; and a resultant injury. What this means is that not all dishonesty rises to the level of fraud, and even dishonest statements that could rise to the level of fraud may not constitute fraud, depending on the knowledge and intention of the person sharing the dishonest statements.
The first significant question is whether the statement is a material fact. Material facts are facts that would be important to a reasonable person in deciding whether to engage or not to engage in a particular transaction. The second significant question is whether the person stating the fact had knowledge that is was untrue; for example, a salesperson who is given wrong information to supply to customers may misrepresent material facts, but do so unknowingly. In addition, mistakes are also not sufficient to support a fraud allegation.
Perhaps the most difficult element of a fraud case is proving that a victim reasonably relied on the misstatement when making his or her decisions. The reason this is difficult is that it is based, somewhat, upon individual victim characteristics. Generally, the reasonableness of relying on the material misrepresentation is based on whether an average person would have relied upon it, but if the defrauder purposefully targeted a person based on that person’s exceptional gullibility, lack of education, or general intelligence, then reliance can be established even if the average reasonable person would not have relied upon the misrepresentation.