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A statement of belief is not a statement of fact and thus is not fraudulent. Puffing, or the expression of a glowing opinion by a seller, is likewise not fraudulent. For example, a car dealer may represent that a particular vehicle is "the finest in the lot." Although the statement may not be true, it is not a statement of fact, and a reasonable buyer would not be justified in relying on it.

The relationship between parties can make a difference in determining whether a statement is fraudulent. A misleading statement is more likely to be fraudulent when one party has superior knowledge in a transaction, and knows that the other is relying on that knowledge, than when the two parties possess equal knowledge. For example, if the seller of a car with a bad engine tells the buyer the car is in excellent running condition, a court is more likely to find fraud if the seller is an auto mechanic as opposed to a sales trainee. Misleading statements are most likely to be fraudulent where one party exploits a position of trust and confidence, or a fiduciary relationship. Fiduciary relationships include those between attorneys and clients, physicians and patients, stockbrokers and clients, and the officers and partners of a corporation and its stockholders.


Fraud is an independent criminal offense, but it also appears in different contexts as the means used to gain a legal advantage or accomplish a specific crime. For example, it is fraud for a person to make a false statement on a license application in order to engage in the regulated activity. A person who did so would not be convicted of fraud. Rather, fraud would simply describe the method used to break the law or regulation requiring the license.

Fraud resembles theft in that both involve some form of illegal taking, but the two should not be confused. Fraud requires an additional element of False Pretenses created to induce a victim to turn over property, services, or money. Theft, by contrast, requires only the unauthorized taking of another's property with the intent to permanently deprive the other of the property. Because fraud involves more planning than does theft, it is punished more severely.


Tax fraud against the federal government consists of the willful attempt to evade or defeat the payment of taxes due and owing (I.R.C. §7201). Depending on the defendant's intent, tax fraud results in either civil penalties or criminal punishment. Civil penalties can reach an amount equal to 75 percent of the underpayment. Criminal punishment includes fines and imprisonment. The degree of intent necessary to maintain criminal charges for tax fraud is determined on a case-by-case basis by the Internal Revenue Service and federal prosecutors.

There are other federal fraud laws. For example, the fraudulent registration of Aliens is punishable as a misdemeanor under federal law (8 U.S.C.A. § 1306). The "victim" in such a fraud is the U.S. government. Fraud violations of banking laws are also subject to federal prosecution (18 U.S.C.A. §§ 104 et seq.).

The Federal Sentencing Guidelines recommend consideration of the intended victims of fraud in the sentencing of fraud defendants. The guidelines urge an upward departure from standard sentences if the intended victims are especially vulnerable. For example, if a defendant markets an ineffective cancer cure, that scheme, if found to be fraudulent, would warrant more punishment than a scheme that targets persons generally, and coincidentally happens to injure a vulnerable person. Federal courts may require persons convicted of fraud to give notice and an explanation of the conviction to the victims of the fraud (18 U.S.C.A. § 3555).

All states maintain a general criminal statute designed to punish fraud. In Arizona, the statute is called the fraudulent scheme and artifice statute. It reads, in pertinent part, that "[a]ny person who, pursuant to a scheme or artifice to defraud, knowingly obtains any benefit by means of false or fraudulent pretenses, representations, promises or material omissions" is guilty of a felony (Ariz. Rev. Stat. Ann. § 13-2310(A)).

States further criminalize fraud in a variety of settings, including trade and commerce, Securities, taxes, real estate, gambling, insurance, government benefits, and credit. In Hawaii, for example, fraud on a state tax return is a felony warranting a fine of up to $100,000 or three years of imprisonment, or both, and a fraudulent corporate tax return is punished with a fine of $500,000 (Haw. Rev. Stat. § 231-36). Other fraud felonies include fraud in the manufacture or distribution of a controlled substance (§ 329-42) and fraud in government elections (§ 19-4). Fraud in the application for and receipt of public assistance benefits is punished according to the illegal gain: fraud in obtaining over $20,000 in food coupons is a class B felony; fraud in obtaining over $300 in food coupons is a class C felony; and all other public assistance fraud is a misdemeanor (§ 346-34). Alteration of a measurement device is fraud and is punished as a misdemeanor (§ 486-136).

In civil court, the remedy for fraud can vary. In most states, a plaintiff may recover "the benefit of the bargain." This is a measure of the difference between the represented value and the actual value of the transaction. In some states, a plaintiff may recover as actual damages only the value of the property lost in the fraudulent transaction. All states allow a plaintiff to seek Punitive Damages in addition to actual damages. This right is exercised most commonly in cases where the fraud is extremely dangerous or costly. Where the fraud is contractual, a plaintiff may choose to cancel, or rescind, the contract. A court order of Rescission returns all property and restores the parties to their precontract status.


One particularly well publicized area of fraud is Corporate Fraud. Corporate fraud cases are largely governed by the Securities Exchange Act of 1934 (15 USCA §§ 78a et seq.), along with other rules and regulations propagated by the Securities and Exchange Commission. These laws were a response to the market turmoil during the 1930s and well-publicized corporate fraud cases.

The Securities Exchange Act and the SEC regulate anything having to do with the trading or selling of securities and stocks. They govern fraudulent behavior ranging from stock manipulation to insider trading. They also provide for civil and criminal penalties for corporate fraud.

Despite the act and the SEC, in the early part of the twenty-first century, corporate fraud began to seem endemic. Such well-known companies as energy trader Enron, Telecommunications company WorldCom, cable provider Adelphia, and other lesser-known firms went into Bankruptcy as a result of corporate fraud. In light of these events, Congress decided to tighten up corporate fraud requirements with the passages of the Sarbanes-Oxley Act of 2002 (U.S. PL 107-204).

Among other features, Sarbanes-Oxley required expanded and more frequent disclosure by public companies of their finances to prevent fraud. It created a Public Company Accounting Oversight Board to register and regulate accounting firms and accounting practices. It also enhanced the SEC's power to monitor and investigate compliance with securities laws, adding stiff penalties for fraudulent behavior by corporations, their officers, and their accountants.

Further readings

Clemency, John. 2002. "Corporate Fraud: Where Should the Buck Really Stop?" American Bankruptcy Institute Journal 21 (November).

Ribstein, Larry. 2002. "Market vs. Regulatory Responses to Corporate Fraud: A Critique of the Sarbanes-Oxley Act of 2002." Journal of Corporation Law 28 (fall).


Internet Fraud.




noun artfulness, artifice, beguilement, charlatanry, cheating, chicane, chicanery, collusion, covin, cozenage, craftiness, crookedness, cunning, deceit, deceitful practice, deceitfulness, deception, deceptiveness, delusiveness, dishonesty, dissembling, dissimulation, double-dealing, dupery, duplicity, fabrication, fallacia, fallaciousness, false conduct, false representation, falseness, falsification, falsity, fraudulence, fraus, furtiveness, guile, improbity, insidiousness, intentional deception, lack of probity, mendacity, misrepresentation, perfidy, pretense, prevarication, quackery, ruse, sham, sneakiness, subreption, surreptitiousness, swindling, treachery, trickery, trickiness, underhandedness, untruthfulness, wiliness
Associated concepts: action for fraud, actionable fraud, bad faith, collateral fraud, collusion, constructive fraud, debt created by fraud, deceit, discovery of fraud, extrinsic fraud, false representation, fraudulent misrepresentation, fraudulent representation, implied fraud, intrinsic fraud, mail fraud, material fraud, misrepresentation, positive fraud, presumptive fraud, public fraud, statute of frauds
Foreign phrases: Qui per fraudem agit frustra agit.What a man does fraudulently he does vainly. Vendens eandem rem duobus falsarius est. He is fraudulent who sells the same thing to two persons. Dolus auctoris non nocet successori. The fraud of a predecessor does not prejudice the successor. Fraus latet in generalibus. Fraud lies hidden in general expressions. Fraus est odiosa et non praesumenda. Fraud is odious and will not be presumed. Fraus et jus nunnuam cohabitant. Fraud and justice never dwell together. Nulla pactione effici potest ut dolus praestetur. It cannot be provided in any contract that fraud can be practiced. Nemo ex dolo suo proprio relevetur, aut auxilium capiat. No one is relieved or gains an advantage by his own fraud. Nemo videtur fraudare eos qui sciunt et consentiunt. No one is considered as deceiving those who know and consent to his acts. Lata culpa dolo aequiparatur. Gross fault or neggigence is equivalent to fraud. Ex dolo malo non oritur actio. No right of action can arise out of fraud. Non decipitur qui scit se decipi. A person is not deceived who knows he is being deceived. Fraus et dolus nemini patrocinari debent. Fraud and deceit should not excuse anyone. Dolus et fraus nemini patrocinentur; patrocinari debent. Deceit and fraud shall excuse or benefit no man; they themselves need to be excused. Dolum ex indiciis perspicuis probari convenit. Fraud should be established by clear showings of proof. Aliud est celare, aliud tacere. To conceal is one thing, to be silent is another. Dolus circuitu non pergator. Fraud is not purged by circuity. Quod alias bonum et justum est, si per vim vel fraudem petatur, malum et injustum efficitur. What otherwise is good and just, becomes bad and unjust if it is sought by force and fraud. Megna negligentia culpa est; magna culpa dolus est. Gross negligence is fault; gross fault is equivalent to a fraud. Dolo malo pactumse non servatuuum. An agreement induced by fraud is not valid. Fraus est celare fraudem. It is fraud to conceal a fraud.
See also: bad faith, bad repute, betray, bilk, canard, collusion, conversion, deceit, deception, duplicity, embezzlement, fake, false pretense, falsehood, falsification, forgery, hoax, hypocrisy, imposture, improbity, indirection, knavery, lie, maneuver, misappropriation, misrepresentation, pettifoggery, pretense, pretext, racket, ruse, sham, trick


in criminal law, the achievement of a practical result by false pretence. Nondisclosure, where a duty to disclose exists, may be sufficient. There is no need to make pecuniary profit out of the pretence - a definite practical result is sufficient.

In Scotland, the delict of making a false representation of fact without belief in its truth, intending that the person to whom it is made should act in reliance thereon, causing a consequent loss. Essentially very similar to the English tort of DECEIT.

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