Three Common Types of Fraud

Three Common Types of Fraud

We use the word fraud all the time, but the law generally recognizes three common types of fraud:

  1. Deceit or Affirmative Misrepresentation occurs when one party knowingly misrepresents a material fact (or asserts it with reckless disregard for whether it’s true) with the intent to induce reliance, and the alleged victim actually and justifiably relies on it, causing harm.
  2. Concealment or Nondisclosure occurs when one party who has a duty to disclose knowingly suppresses a material fact intending to induce reliance that, if disclosed, would have caused the alleged victim to act differently, causing harm.
  3. False Promise or Promissory Fraud occurs when one party knowingly promises to do something without intending to do it, and the alleged victim actually and justifiably relies on it, causing harm.

To illustrate, suppose that a seller of a business represents to the buying business that the seller is debt-free, presents “cooked books” to the buyer, and promises to indemnify the buyer for claims involving pre-existing debts. If the buyer (after exercising due diligence) never discovers the hidden debts and pays a pre-existing creditor after getting rebuffed by the seller, the law could find that the seller committed all three common types of fraud—(1) Deceit (misrepresenting that the business was debt-free); (2) Concealment (hiding the debts by presenting cooked books); and (3) False Promise (promising but never intending to indemnify).  

Some facts may support more than one type of fraud. If you find yourself in a situation where an alleged fraud has occurred, analyze your situation strategically in light of these three common types of fraud.

Topics: Business Fraud, Consumer Fraud

About Business Litigation and Consumer Class Action Litigation at CDF

We represent companies in business litigation and consumer class actions, including matters involving business fraud and other tort and contract claims, consumer claims, failed business claims, investment/securities claims, government investigations and related claims, and real estate claims. We help clients limit risk, and we also add value by litigating strategically to reduce total legal spend.

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About David Hagopian

For more than 30 years, David G. Hagopian has successfully litigated for, as well as counseled and advised, employers and businesses throughout California. Hagopian defends employers in putative class, collective and representative (PAGA) actions alleging wage and hour violations, as well as in single and multiple plaintiff matters alleging wage and hour violations, wrongful termination, discrimination, harassment, retaliation, failure to accommodate, failure to engage in the interactive process, breach, defamation, and related employment torts. He also advises employers to comply with employment laws, regulations, and ordinances, audits wage and hour practices, prepares and revises employment handbooks, and recommends best employment practices.

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About Jeffrey L. Sikkema

Jeffrey L. Sikkema has been handling general business litigation for over 35 years, representing clients in trials and litigation in federal and state courts throughout the country. He has represented major corporations and companies in virtually every sector of the economy, including financial services, technology and retail, in a wide variety of high stakes business lawsuits and disputes.

His broad range of business litigation experience includes privacy law, Bus. & Prof. Code §17200, PAGA, business torts and fraud, breach of contract, unfair competition, trade secrets, investment litigation, failed business deals, and other areas, as well as defending against consumer class actions.

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