Criminal defense often rests on fine distinctions—what is fraud?

Jun 27, 2008

Fraud, broadly defined, is simply a crime in which someone is deceived by a material misrepresentation, resulting in some type of injury (usually financial). There are, however, some important legal distinctions separating fraud (which is illegal) from simply lying (which, although reprehensible, is not a criminal act).

First, the deception must be deliberate and intentional; a defendant cannot be held responsible for fraud unless it can be proven that they were aware of the deceit and intended to benefit from it, or at least cause harm to the victim. Second, the intentional misrepresentation must be material to the transaction

The deception must also legitimately impact the complainant’s decision-making process.A fast-food employee offering a stock tip he knows to be false probably isn’t committing fraud; someone posing as an investment banker to sell futures that don’t exist probably is.

Further complicating prosecution of fraud is the simple fact that the government must prove that the misrepresentation was material when making a financial commitment. Because of this obligation, a hyperbolic sales pitch at a local car lot isn’t legally considered “fraud,” since the court assumes that they buyer should be aware of the salesman’s motivation for highlighting his vehicle’s selling points, perhaps even stretching the truth. Many fraud cases hinge on the defense’s attempt to prove that the complainant’s reliance was not based upon a fraudulent misrepresentation.

In many fraud cases, the actual crime that occurred was the crime of abuse. The distinction between fraud and abuse rests on a very thin (but specific) line: the intent of the accused. More specifically, the provable intent of the accused. Without a written instrument or recorded conversation, many fraud cases ultimately wind up being prosecuted under the lesser charge of abuse.