Financial fraud has economically and socially affected society for years. According to the latest Nasdaq report, in 2023, scams and banking fraud schemes would lead to $485.6 billion in projected global losses. But are financial frauds criminal or civil cases?
If you are a victim of financial fraud or accused of committing this type of fraud, it is important to know whether it is considered a criminal or civil matter to understand how to proceed. In this post, we will explain when financial fraud is considered criminal or civil, provide real case examples, and guide you through the steps you should take if you are unjustly accused of fraud.
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Civil Fraud vs. Criminal Fraud: What Are the Differences
What is Criminal Fraud?
Criminal fraud is committed when a person or group tricks others while breaking the law to gain something valuable or cause harm. In such cases, local, state, or federal prosecutors must prove that the accused intended to commit fraud and expected to benefit from their dishonest actions. If convicted, the consequences can include fines, compensation payments, and jail time.
Here are frequently reported forms of criminal fraud:
- Credit Card Fraud: This occurs when someone uses another person’s credit card information without permission to make purchases or withdraw money.
- Identity Theft:This occurs when someone else’s details, like their Social Security number or date of birth, to commit fraud or other illegal activities.
- Mail Fraud: This type of fraud uses the mail system to trick people with scam emails into sending money or giving away their property.
- Healthcare Fraud: This occurs when someone presents false healthcare claims to an insurance company such as a fake medical bill to receive benefits or payments they are not entitled to.
- Bank Fraud: This involves using deceptive methods to illegally obtain money from a bank. Common tactics include fake bank alerts and writing bad checks.
What is Civil Fraud?
Civil fraud is committed when there are legal disputes between private parties; these cases focus on compensating the victim for their losses, essentially restoring the victim to the position they were in before the fraud occurred. This generally includes financial compensation for the harm suffered.
In civil fraud cases, the responsibility of evidence mostly rests on the claimant, the person, or entity that has been defrauded. They must demonstrate that the defendant intentionally falsified the facts to deceive them. Key elements that the claimant needs to establish include:
- False Representation: In this case, the defendant knowingly presents incorrect information as if it were true. For example, a seller might falsely state that a car has never been in an accident, even though it has.
- Knowledge of Falsehood: This means that the defendant was fully aware that the information they were sharing was not true at the time they shared it. This is key because it shows that the fraud was not accidental.
- Intent to Deceive: This is demonstrated when the defendant’s purpose was offering the false information. For example, a business might lie about the success of its products to attract investors.
- Reasonable Belief: This refers to the claimant’s perspective, specifically that it was reasonable for them to accept the false information as true based on the situation. This is often judged by considering what a typical person might have believed under the same circumstances.
- Expected Harm: This focuses on the actual loss suffered by the claimant due to relying on the false information. The harm must be directly linked to the deception, such as financial loss from investing based on the fraudulent claims.
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Are Financial Frauds Criminal or Civil Cases?
Financial frauds can be classified as either criminal or civil cases, depending on the context and objectives of the fraudulent actions. For example:
- If the fraud involves breaking laws with the intent to defraud and benefit financially, it is considered a criminal case, with consequences such as fines or jail time.
- However, if the fraud results in a dispute between private parties, where the focus is on compensating the victim for their losses, it falls under civil law. In these cases, the emphasis is on restoring the victim’s position rather than criminal punishment.
Real-life Examples of Criminal and Civil Fraud
1. Criminal Fraud: Stericycle’s $10.5 Million Bribery Scandal
In the U.S. District Court for the Southern District of Florida, a case was opened implicating Mauricio Gomez Baez and Stericycle Inc. The corporation faced allegations under the Foreign Corrupt Practices Act for its operations across Mexico, Brazil, and Argentina.
From 2011 to 2016, Stericycle employees were accused of paying approximately $10.5 million in suborn to secure government contracts in these regions. These suborns were to influence officials and obtain favorable treatment in medical waste direction contracts.
2. Civil Fraud: University Employee’s Overtime Scam Exposed
According to UC San Francisco, an employee at a university was found to have claimed and received payment for hundreds of hours of overtime that they had not worked. This incident exposed a lapse in the oversight of overtime claims within the department, revealing that management had failed to properly monitor the necessity and legitimacy of overtime submissions.
An investigation revealed that the employee exploited system flaws for financial gain. Consequently, the university planned to terminate the employee, but they resigned first. The university is now pursuing legal action to address the fraud and recover the unjust payments.
What Steps Should You Take if Accused of Financial Fraud?
According to USClaims, since 1989, the justice system has exonerated 3,175 people who were unjustifiably convicted, collectively spending over 27,000 years after bars for crimes they did not commit. This speaks to the importance of being vigilant when surface accusations of any type of crime.
Therefore, we offer below some steps you should follow if you are accused of financial fraud:
1. Obtain Legal Representation Immediately
As soon as you suspect you might be investigated, or immediately after being accused, contact a reputable lawyer who specializes in fraud. A legal expert will help you understand the fraud accusations and protect your rights.
2. Understand the Charges
Ask your lawyer to explain the specific fraud charges against you. This includes understanding what laws you are accused of breaking and the potential consequences. Knowing the details will help you and your lawyer prepare a more effective defense strategy.
3. Respond Proactively
Do not ignore the accusations. Work with your lawyer to interact with investigators or prosecutors actively. Early meetings can often influence the course of the investigation and possibly mitigate the actions against you.
4. Preserve Evidence
Collect and preserve any documents, emails, and other materials related to the case that might support your innocence or clarify errors. Solid evidence can strengthen your defense and challenge the prosecution’s claims.
5. Challenge Unjust Legal Actions
If authorities attempt to freeze your assets or search your property, your lawyer can challenge these actions in court. Protecting your assets and privacy can prevent extreme hardship and strengthen your position legally.
6. Negotiate When Necessary
In some cases, your lawyer might find it beneficial to negotiate with prosecutors, seeking lower charges or a more favorable sentence. Negotiation can often lead to quicker resolutions and less severe penalties.
7. Stay Informed and Prepared
Stay in constant communication with your lawyer, attend all legal appointments, and keep informed about the progress of your case. Being proactive and informed helps you make better decisions and reduce the risk of surprises in your legal journey.
Detect Criminal or Civil Financial Fraud with CDN
Financial fraud can be classified as either criminal or civil cases, depending on the nature of the activity and the legal approach adopted by the authorities or affected parties. Specifically, criminal financial fraud involves fraud to gain unfair or illegal benefits while violating the law, whereas civil financial fraud occurs when one party takes in another, leading to financial loss.
Therefore, the classification depends on the specifics of the violated law and the jurisdiction where the fraud occurred. In many instances, financial fraud cases may involve both criminal and civil legal actions. For more information on protecting against financial fraud, we at Cryptoscam Defense Network offer resources for fraud detection and prevention.
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Frequently Asked Questions (FAQs) about Financial Frauds as Criminal or Civil Cases
Can a Same Act of Fraud Lead to Both Criminal and Civil Cases?
A single act of fraud can lead to both criminal and civil cases. In criminal cases, prosecutors may charge the perpetrator if they find evidence of intentional deception for personal gain. At the same time, the victim can initiate a civil case to seek compensation for what they’ve suffered due to the fraud.
In both types of cases, the elements include the intentional misrepresentation of important facts, the fraudster’s knowledge that these facts were false, and the victim’s reliance on these false claims, leading to some form of harm or loss.
Which Types of Fraud are More Likely to be Treated as Criminal Rather than Civil?
Some types of fraud are more likely to be treated as criminal offenses rather than civil cases, particularly when they include deception with the intent to gain financially or harm others. Examples of fraud that commonly result in criminal charges include:
- Mail and wire fraud: These crimes involve using postal services or electronic communication (such as phone or email) to carry out fraudulent activities.
- Identity theft: This happens when someone illegally obtains another person’s personal information to commit fraud, often resulting in financial harm.
- Securities fraud: Fraud related to falsifying stock or investment values, such as insider trading or “pump and dump” schemes.
- Credit card fraud: Using someone else’s credit card information without permission to make purchases or for financial gain
What Should I Do First if I Think I’ve Been a Victim of Fraud?
If you think you’ve been a victim of any type of fraud, here are the key steps you should take to protect yourself:
- Stop any payments: Don’t send more money, even if they promise returns.
- Collect evidence: Collect any documents, emails, or evidence of transactions related to the fraud.
- Protect your identity: Notify your bank or credit card company and place fraud alerts on your credit.
- Report the fraud: Contact local authorities and file a report with the appropriate agencies, such as the Federal Bureau of Investigation (FBI), Cryptoscam Defense Network (CDN), and Federal Trade Commission (FTC).
- Check insurance: Review your policies for possible fraud coverage.
- Learn from the experience: Stay informed and cautious to avoid future scams.
