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Important Elements of Proving Business Fraud

William B. Hanley, Attorney At Law May 9, 2022

Business fraud can be tremendously damaging to your business, whether you are the perpetrator or the victim. Fraud by its nature is often hard to detect because the perpetrator goes to great lengths to hide their activities. To matters worse, the victim often doesn’t realize that they have been defrauded until late in the process when recovery becomes all the more difficult.

In California, there is not one single fraud law. Instead, different sections of the penal code cover different types of fraud. Still, fraud can be both a civil and criminal offense, and the defrauder can face serious consequences. For the victim, the question you might be asking is: How can I prove that business fraud occurred?

If you or your business has been charged with fraud—or you have been the victim of fraud—in or around Irvine, California, including Los Angeles and San Diego, contact William B. Hanley, Attorney at Law. With more than four decades as a business litigation attorney, Attorney Hanley will review your situation and advise you of your legal options going forward.

Fraud Defined Under California Law

California has more than one statute defining fraud. However, misrepresentation and deceit are generally the hallmarks of fraud. California law 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….”

Furthermore, a person who commits fraudulent deceit is defined as “One who willfully deceives another with intent to induce him to alter his position to his injury or risk, [and] is liable for any damage which he thereby suffers.”

Fraud is usually committed for one of two purposes: either financial gain or escape from criminal culpability. The first purpose—financial gain—may eventually morph into the second purpose, as the perpetrator commits further acts of fraud to protect themselves from criminal and financial liability.

Examples of Fraud

In California, common types of fraud include, but are not limited to:

Misrepresentation: Making a false claim for a product or service to the harm of the consumer; also, misrepresenting revenues or assets before investors

Embezzlement: Using company funds for one’s own benefit and hiding the action

Falsifying financial records: Making a company seem more profitable than it is to increase share or investment value

Falsely diverting loans: Obtaining business loans for personal gain, diverting the funds to personal use

Insurance fraud: Making false claims to insurance companies

Advertising fraud: Making false claims in advertising and violating the Federal Trade Commission Act

False invoicing: Overbilling customers or others and diverting the excess payments for personal gain

Payroll fraud: Employees can lie about hours worked, and employers can underpay by ignoring overtime or hours worked

Proving Fraud in Court

There are four types of fraud under the legal system, and each may require a different set of elements to prove the act:

  • Intentional Fraud: Using deceit or misrepresentation to induce someone to take a certain action, which results in harm to that person

  • Promissory Fraud: Making a promise that is not kept and results in harm to another

  • Concealment Fraud: Important information is deliberately withheld despite a duty of full disclosure, as in giving investment advice

  • Constructive or Negligent Fraud: The defrauder makes a false representation believing it to be true, but the victim is harmed and the defrauder failed to carry out due diligence

Though the elements of proof may vary for each type of fraud, three elements generally need to be shown to prove the act of fraud:

  • A false statement or misrepresentation was made with the goal to deceive

  • Another person or entity relied on the false statement to make a decision or take action

  • That decision or action resulted in harm to the victim

Possible Penalties

Penalties will vary if the act of fraud results in criminal prosecution, depending on the type of consequences of the fraudulent act. For example, a perpetrator might end up with years behind bars. On the civil front, victims may be able to recover for losses or damages.

Skilled Legal Representation

Whether you’re the victim or the one being accused of fraud, you’re going to need the counsel and guidance of a skilled business litigation attorney. In the Southern California counties of Orange, San Diego, and Los Angeles, rely on the four decades-plus experience of William B. Hanley, Attorney at Law. You will receive personalized, one-on-one service, with the goal of achieving the best result possible. Set up an initial consultation today to get started.