Commercial/Fraud

FRAUD

The law is very particular when it comes to proving that a fraud has occurred. Perhaps because it is human nature for some people to cry “fraud” when they are asked to pay what they owe, the proof required to establish that a fraud has been committed is quite stringent. The “five fingers” of fraud must all exist before it can be shown that a fraud was actually perpetrated.

First, a fraudulent misrepresentation must have occurred. “I am offering you an opportunity to purchase a bridge which crosses the East River between Brooklyn and Manhattan. You will be able to erect toll barriers and get rich in short order”.

Next, there must be reliance on the misrepresentation. Every once in a while somebody might actually believe that the Brooklyn Bridge was for sale. That is not enough. He or she is going to have to put some money up in order to take a concrete step towards making the purchase.

Bernstein Philip M Attorney
Address: 595 Stewart Avenue
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Phone: (516) 222-0440
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Before a civil fraud can be proved, the reliance must be justified. It simply is not reasonable to claim that you really expected that you could purchase the bridge and charge tolls. More to the point, wasn’t there an opportunity to check the books and records of the business before it was purchased? An accountant might have reviewed the books and found that the coffee shop was not bringing in two hundred thousand dollars a week before making an investment on blind trust.

The fourth element of fraud is damage. The half million dollars spent for the “deed” to the bridge and for the architect to design the toll booths should be sufficient in the example given above.

The problem comes with the fifth element which is the need to show that there was intent to defraud. To do this it may be necessary to get into the mind of the defrauder. It will be necessary to show by word and deed that he actually knew what he was saying was false and that this misrepresentation was intended to cheat the victim.

Without proving intent to defraud, the victim who has lost money has simply made a bad investment and has suffered the consequences. An investor who sinks a fortune into a stock after an enthusiastic call from his broker is usually unable to claim that a fraud has been perpetrated when the stock tanks. In all likelihood the stockbroker has touted an opportunity which he or she actually believed was genuine. In order to establish a fraud, it must be shown that the broker knew that the stock was a bad investment and was pushing it for personal gain at the expense of the customer.

Always ask yourself just why you have been chosen to participate in the “opportunity of a lifetime”. A consultation with your lawyer and your accountant before you put your money up will likely keep you from being victimized. Keep in mind that things that look too good to be true usually are.