Fraud is the act of purposely deceiving others to their detriment. It most often is committed for material gain -- for example, to take money, property or services from another under false pretenses. Sometimes, though, as in the case of academic fraud, the gain may take the form of ego satisfaction or career advancement.
Fraud can result in criminal charges, civil damages, or both. To rise to the legal definition of a fraud, someone must be damaged by the perpetrator’s activities, and one or more material facts must be deliberately misrepresented in the process of inflicting the damage.
To successfully press a fraud claim, it must be shown not just that the victims were deceived, but that they relied on the expertise and representations of the perpetrator in order to engage in the activity that damaged them. It must also generally be shown that the victims employed their best efforts to investigate the perpetrator’s claims.
Because it involves elements of deliberate intent on the perpetrator’s part, and justifiable reliance on the perpetrator’s honesty on the victim’s part, fraud can be difficult to prove in court.
Common Scams
According to the FBI, these are some of the most common scams perpetrated against randomly selected victims:
- Identity fraud: Scam artists steal checking account or credit card numbers and make purchases in the victim’s name. Prospecting for account numbers through unsolicited emails, known as phishing, is a common gateway to identity theft. Aside from the original victims, stolen credit card information costs U.S. businesses billions of dollars a year.
Mortgage Fraud
Mortgage fraud involves any material lie, misrepresentation or omission of fact that is intended to mislead a lender into granting an inflated or unjustifiable loan. It comes in several forms, including:
- Falsifying income. Buyers inflate their incomes to obtain a larger loan than they can afford. This is most common with so-called “stated income” loans in which the lender does not require solid documentation to back up claims of income.
- Undisclosed second mortgage: The seller supplies the buyer with downpayment money in exchange for a second mortgage, which is not disclosed to the original lender or is filed after the first lender’s loan closes.
- Foreclosure schemes: Scammers convince financially stressed homeowners to sign over their deeds and pay a fee in exchange for help to avoid foreclosure. The scammers pocket the fees, take out new fraudulent loans on the property or sell it and keep the proceeds for themselves.
Health Insurance Frauds
- Medical equipment fraud: Equipment dealers offer free products that are not needed. Once the victim accepts their “gift,” their health insurance is billed.
- Rolling lab schemes: Medical tests that aren’t needed or, in some cases, are phony are given to people in public places like gyms and shopping malls. Their insurance carriers are billed.
- Phantom services: Doctors or other medical providers bill Medicare or another health insurer for services they did not provide.
Common Investment Frauds
- Ponzi scheme fraud: Investors are enticed with promises of above-market returns, sometimes touted as “guaranteed.” Early investors are paid off with cash invested by later investors, creating the illusion that the “returns” are real in order to attract more investors. The scheme eventually collapses when the supply of new investors grows too thin.
- Pyramid scheme fraud: Investors are convinced to buy a business franchise with the promise of large profits, but their profits come from selling new franchises to others, not from the underlying business. As with a Ponzi scheme, the system collapses when the supply of new “franchisees” diminishes.
Reporting Fraud
Aside from law enforcement, a number of agencies and non-profits collect complaints of fraudulent activity, including the National Consumer League Fraud Center and the Better Business Bureau. The FBI maintains a special complaint center to handle complaints of Internet-based crime.
Related Fraud Resources
About.com Anti Virus: Email Scams, Phishing and Fraud [1] About.com Credit: 7 Ways To Stop A Credit Repair Scam [2] About.com Days of Our Lives: Social Networking Fraud [3] About.com Home Buying: How To Avoid Mortgage Fraud [4] About.com Money over 55: Avoid Investment Fraud [5] About.com Identity Theft: Credit Fraud Alerts [6] About.com Personal Insurance: Are You Being Roped Into an Auto Insurance Fraud Scam? [7] About.com Personal Insurance: Filing A Complaint With Your State Insurance Commissioner [8] About.com Personal Insurance: How To Avoid Cashier’s Check Fraud [9] About.com Personal Insurance: Life Insurance Fraud – Can You Be a Victim? [10] About.com Retail: Recognizing Return Fraud [11] About.com Small Business Information Canada: Be Alert For Credit Card Fraud Tip-Offs [12] About.com Small Business Information Canada: Credit Card Fraud Protection Checklist for Businesses [13] About.com Small Business Information Canada: The 5 Most Common Business Scams and How To Avoid Them [14] About.com Small Business Information: Fraud No Small Matter for Small Businesses [15] About.com Small Business Information: How To Manage the Risk of Business Card Fraud [16] About.com Small Business Information: Reducing the Risk of Credit Card Fraud [17] About.com U.S. Politics: Election Fraud [18] About.com Urban Legends: Confidential Business Proposal (aka 'Nigerian Scam' or '419 Advance Fee Fraud') [19] ANZ Internet Banking Protecting Against Fraud [20] Association of Certified Fraud Examiners [21] Better Business Bureau [22] BlueCross BlueShield of Tennessee Common Types of Health Fraud [23] CNET Demystifying ID Fraud [24] Dictionary.com Fraud Definitions [25] FBI Common Fraud Schemes [26] FBI Internet Crime Complaint Center [27] FBI Operation Quick Flip [28] FBI Telemarketing Victim Call Center [29] Fraudbureau.com News About Common Frauds [30] LooksTooGoodToBeTrue fraud prevention website [31] National Consumer League Fraud Center [32] National Council Against Health Fraud [33] Securities and Exchange Commission How To Avoid Internet Investment Fraud [34] Social Security Administration Fraud Hotline [35] The Digerati Life 6 Ways to Protect Against Mortgage Fraud [36] U.S. Dept. of Justice Identity Theft and Fraud [37] U.S. Dept. of Justice Internet and Telemarketing Fraud [38] Wisegeek.com What Is Fraud? [39]