In October 2012 Paul Ceglia of New York was arrested on charges he forged documents in a multibillion-dollar scheme to defraud Facebook and its chief executive Mark Zuckerberg. Mr. Ceglia had brought a much publicized lawsuit claiming Zuckerberg signed a 2003 contract giving him a stake in the social media network. Zuckerberg had done programming work for Ceglia's company while a student at Harvard University.
Mr. Ceglia was charged with mail and wire fraud over what federal prosecutors and the U.S. Postal Inspection Service said was fabricated evidence including fake emails to support his claim. Ceglia sought "a quick pay day based on a blatant forgery," U.S. Attorney Preet Bharara in Manhattan said in a statement announcing the criminal charges. "Dressing up a fraud as a lawsuit does not immunize you from prosecution."
Business fraud can result in a criminal prosecution or be the basis for a civil action to recover money damages. Fraud can also be the basis for a defense in a civil or criminal case. It is important to know what the elements of a fraud claim are as it relates to business transactions.
The elements of a fraud claim are
The making of a representation
Which is false
And known to be false by the person making the representation
And reasonable reliance on the representation by the injured party
Resulting in a detriment or loss to be sustained as the result of the reliance.
A fraud claim must be based on a material statement representing a fact rather than just stating an opinion. For example a misrepresentation by a seller of a business as to the actual dollar amount of the businesses’ previous year earnings.
Another example is a shopping mall developer misrepresenting to a potential tenant that he already has leases signed with several big retailers, such as Target or Macy's.
In both cases a business fraud case would be made upon a showing that the buyer or tenant would not have entered into the transaction if they had not been misled. There would also need to be a showing that they suffered actual losses as a result, and it is not just speculation.
Further, the reliance must be reasonable under the circumstances. If the misrepresentation was so outrageous that no reasonable person would believe it, a fraud claim will usually not succeed.
In today’s digital world, litigation involving business fraud has become even more complicated. Proving an affirmative claim or defense based upon business fraud requires a deep understanding of the law as well as the relevant industry and technology. Further, a business fraud claim or defense will often be dependent on a detailed and thorough review of numerous documents and computer data. We often have to unravel years of business transactions to find the evidence of fraud.
Posted in Criminal Defense