fraud

noun
ˈfrȯd 
1
a
: TRICKERY, DECEIT
especially : the use of dishonest methods to cheat another person of something
valuable
b
: an act of deceiving : TRICK
2
: a person who pretends to be what he or she is not

Legal Definition

fraud
noun
1
a
: any act, expression, omission, or concealment calculated to deceive another to
his or her disadvantage
specifically : a misrepresentation or concealment with reference to some fact
material to a transaction that is made with knowledge of its falsity or in reckless
disregard of its truth or falsity and with the intent to deceive another and that is
reasonably relied on by the other who is injured thereby
b
: the affirmative defense of having acted in response to a fraud
2
: the crime or tort of committing fraud
convicted of securities fraud
 see also MISREPRESENTATION
NOTE: A tort action based on fraud is also referred to as an action of deceit.
— actual fraud
: fraud committed with the actual intent to deceive and thereby injure another
 called also fraud in fact
 compare constructive fraud in this entry
— collateral fraud
: extrinsic fraud in this entry
— constructive fraud
: conduct that is considered fraud under the law despite the absence of an intent
to deceive because it has the same consequences as an actual fraud would have
and it is against public interests (as because of the violation of a public or private
trust or confidence, the breach of a fiduciary duty, or the use of undue influence)
 called also legal fraud
 compare actual fraud in this entry
— equitable fraud
: constructive fraud in this entry —used especially in New Jersey
— extrinsic fraud
: fraud (as that involved in making a false offer of compromise) that induces one
not to present a case in court or deprives one of the opportunity to be heard
also : fraud that is not involved in the actual issues presented to a court and that
prevents a full and fair hearing
 called also collateral fraud
 compare intrinsic fraud in this entry
— fraud in fact
: actual fraud in this entry
— fraud in law
: fraud that is presumed to have occurred in light of the circumstances
irrespective of intent to deceive
— fraud in the factum
: fraud in which the deception causes the other party to misunderstand the nature
of the transaction in which he or she is engaging especially with regard to the
contents of an instrument (as a contract or promissory note)
 called also fraud in the execution
 compare fraud in the inducement in this entry
— fraud in the inducement
: fraud in which the deception leads the other party to engage in a transaction the
nature of which he or she understands compare fraud in the factum in this entry
— fraud on the court
: fraud involving conduct that undermines the integrity of the judicial process (as
by improperly influencing a judge, jury, or other court personnel)
also : extrinsic fraud in this entry
— identity fraud
: the unauthorized use of another's means of identification (as name or social
security number) to commit fraud
— intrinsic fraud
: fraud (as by the use of false or forged documents, false claims, or perjured
testimony) that deceives the trier of fact and results in a judgment in favor of the
party perpetrating the fraud compare extrinsic fraud in this entry
— legal fraud
: constructive fraud in this entry
: actual fraud in this entry —used especially in New Jersey
— mail fraud
: fraud committed by use of the postal service especially as described in title 18
section 1341 of the U.S. Code
— wire fraud
: fraud committed by using a means of electronic communication (as a
telephone) see also WIRE FRAUD ACT
History and Etymology for fraud
Latin fraud-, fraus

More from Merriam-Webster on fraud

Nglish: Translation of  fraud for Spanish Speakers
Britannica English: Translation of  fraud for Arabic Speakers
Britannica.com: Encyclopedia article about  fraud

What are the three types of frauds?

It goes by several different names, including internal fraud, occupational fraud, or employee
dishonesty. There are three basic types of fraud: asset misappropriation, bribery and
corruption, and financial statement fraud.

What Is Fraud?
Investopedia / Sydney Saporito

Fraud is an intentionally deceptive action designed to provide the perpetrator with

an unlawful gain or to deny a right to a victim. Types of fraud include tax fraud,
credit card fraud, wire fraud, securities fraud, and bankruptcy fraud. Fraudulent
activity can be carried out by one individual, multiple individuals or a business firm
as a whole.

KEY TAKEAWAYS

 Fraud involves deceit with the intention to illegally or unethically gain at the
expense of another.
 In finance, fraud can take on many forms including making false insurance
claims, cooking the books, pump & dump schemes, and identity theft leading
to unauthorized purchases.
 Fraud costs the economy billions of dollars each and every year, and those
who are caught are subject to fines and jail time.

Fraud Explained
Fraud involves the false representation of facts, whether by intentionally withholding
important information or providing false statements to another party for the specific
purpose of gaining something that may not have been provided without
the deception.

Often, the perpetrator of fraud is aware of information that the intended victim is not,
allowing the perpetrator to deceive the victim. At heart, the individual or company
committing fraud is taking advantage of information asymmetry; specifically, that the
resource cost of reviewing and verifying that information can be significant enough
to create a disincentive to fully invest in fraud prevention.

Both states and the federal government have laws that criminalize fraud, though
fraudulent actions may not always result in a criminal trial. Government prosecutors
often have substantial discretion in determining whether a case should go to trial
and may pursue a settlement instead if this will result in a speedier and less costly
resolution. If a fraud case goes to trial, the perpetrator may be convicted and sent to
jail.

Legal Considerations
While the government may decide that a case of fraud can be settled outside of
criminal proceedings, non-governmental parties that claim injury may pursue a civil
case. The victims of fraud may sue the perpetrator to have funds recovered, or, in a
case where no monetary loss occurred, may sue to reestablish the victim’s rights.

Proving that fraud has taken place requires the perpetrator to have committed
specific acts. First, the perpetrator has to provide a false statement as a material
fact. Second, the perpetrator had to have known that the statement was untrue.
Third, the perpetrator had to have intended to deceive the victim. Fourth, the victim
has to demonstrate that it relied on the false statement. And fifth, the victim had to
have suffered damages as a result of acting on the intentionally false statement.

Types of Financial Fraud

Common individual mortgage fraud schemes include identity theft and income/asset
falsification, while industry professionals may use appraisal frauds and air loans to
dupe the system. The most common investor mortgage fraud schemes are different
types of property flipping, occupancy fraud, and the straw buyer scam.

Fraud also occurs in the insurance industry. Thoroughly reviewing an insurance

claim may take so many hours that an insurer may determine that a more cursory
review is warranted considering the size of the claim. Knowing this, an individual
may file a small claim for a loss that didn’t really occur. The insurer may decide to
pay the claim without thoroughly investigating since the claim is small. In this
case, insurance fraud has been conducted. 

The Federal Bureau of Investigation (FBI) describes securities fraud as criminal

activity that can include high yield investment fraud, Ponzi schemes, pyramid
schemes, advanced fee schemes, foreign currency fraud, broker
embezzlement, pump-and-dumps, hedge fund related fraud, and late-day
trading.1 In many cases, the fraudster seeks to dupe investors
through misrepresentation and to manipulate financial markets in some way. These
crimes are characterized by providing false or misleading information, withholding
key information, purposefully offering bad advice, and offering or acting on inside
information.

Consequences of Financial Fraud

Fraud can have a devastating impact on a business. In 2001, a massive corporate
fraud was uncovered at Enron, a U.S.-based energy company. Executives used a
variety of techniques to disguise the company’s financial health, including the
deliberate obfuscation of revenue and misrepresentation of earnings.2 After the
fraud was uncovered, shareholders saw share prices plummet from around $90 to
less than $1 in a little over a year. Company employees had their equity wiped out
and lost their jobs after Enron declared bankruptcy. The Enron scandal was a major
driver behind the regulations found in the Sarbanes-Oxley Act passed in 2002.3

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The elements of a fraud claim are 1) the making of a statement, 2) the falsity of the statement,
3) an intent to deceive, called "scienter", 4) reasonable reliance on the statement by the
injured party and 5) injury sustained as the result of the reliance. Often a fraud or a scam will
be both a civil wrong and a crime.

What are the elements of fraud?

Many people believe they have been defrauded in a business or consumer transaction.
Fraud, however, has a very specific and narrow meaning under the law. To bring an action for
fraud in Florida, a victim must be able to prove the following elements.
First, the victim must prove that the defendant intentionally made a misrepresentation of
material fact to the victim. A misrepresentation is a false statement, in other words, a lie. Note
that the misrepresentation must be material. This means that the misrepresentation must affect
something important to the transaction, not a trivial or minor point.
Mere statements of opinion do not normally qualify as misrepresentations. Likewise, a mere
promise to do something in the future does not qualify as a misrepresentation, unless the victim
can prove that, at the time the defendant made the promise, he or she had no intention to follow
through on that promise.
Also, the law recognizes that telling half the truth can be the same as a telling a lie. This is
called an omission. If a defendant conceals important information from the victim, for example,
this can be the same as making a material misrepresentation to the victim.
Second, the victim must prove that the defendant intended that the victim would rely upon the
false statement of material fact or omission.
Third, the victim must show that he or she reasonably relied on the misrepresentation. Note that
the victim’s reliance must be reasonable. A victim cannot may not rely on a false statement if he
or she knew the statement was false or if its falsity was obvious to the victim.
Finally, the victim must show that, as a result of his or her reliance on the misrepresentation or
omission, the victim was actually damaged and suffered a harm.  As a general rule, fraud that
does not result in damage is not actionable.