Spiritualism is unique as a religious community. In no other religious group have substantive charges of fraud played such a large part, and within no other group has the need to confront fraud had such an effect upon its development. Soon after the founding of the movement charges of deliberate fraud were leveled against a growing number of mediums, and the movement itself was charged with complicity in the fraud and a refusal to rid itself of obviously fraudulent leaders.
The frequency with which mediums were exposed in acts of trickery and even convicted of fraud induced many people— concluding the bulk of the phenomena to be fraudulently produced—to abandon both the movement and psychical re-search. The era of systematic research on Spiritualist phenomena came to a close in the 1930s when psychical researchers concluded that there was little, if anything, real in physical phenomena. Psychical research was gradually superseded by laboratory-oriented parapsychology. In most countries Spiritualism was pushed to the fringes of the community of people interested in paranormal phenomena and has never regained its credibility. It is conspicuously absent from the New Age movement.
The question of fraud is an interesting and complicated one, however, worthy of the student's attention. Simple deception practiced for money was founded, but there were also many instances of apparently deliberate trickery in which there was no reward to be obtained, and even some cases in which the medium seemed entirely innocent and ignorant of the fraud.
The great majority of fraud was related to the production of physical phenomena, especially materialization, apports, and the levitation of trumpets and other objects. A significant portion of the mental phenomena remains that provides an interesting arena for research and explains the continuing fascination with the paranormal.
Conscious and Unconscious Fraud
It is helpful to distinguish between conscious and unconscious fraud, although at times one seemed to shade imperceptibly into the other. During the century (1850-1950) when researchers turned their attention to Spiritualism, conscious fraud most often appeared in connection with physical phenomena. Almost at the outset of the spiritualistic movement (i.e., in 1851) three doctors demonstrated that the rappings that attended the Fox sisters were produced by manipulation of the knee and toe joints, a fact that was soon afterward corroborated by a relative of the Fox family. In the wake of the sisters' contradictory claims, confessions, and recantations the evidence was declared inconclusive, but the possibility of fraud had been shown.
After that many mediums have at one time or another been detected in fraud, and every phase of physical mediumship was eventually discredited. Slate writing, spirit photography, and materialization were all in turn exposed, and now exist only in the fringes of Spiritualism, primarily at Camps Chesterfield in Indiana and Silver Belle in Pennsylvania and in the several churches associated with them. A major exposure of materialization fraud was published as late as 1960 in the Psychic Observer by Andrija Puharich. The result of the exposure was the bankruptcy of the periodical. In the 1970s Lamar Keene, a Spiritualist medium heavily involved in the production of fraudulent phenomena, left the profession and published his memoirs. In the 1980s magician James Randi discovered several faith healers operating on the fringe of the Pentecostal community using some old conjuring tricks to convince their audiences that miracles were occurring.
Time and again, sitters beheld the form and features of the medium in the materialized spirit; shadowy figures in filmy draperies were shown to be dummies wrapped in muslin. False beards and white draperies were found on the medium's person. Apports —jewels, flowers, perfumes, objects d'art —were smuggled into the séance room in order to be showered upon the sitters by generous "spirits." Threads and human hairs were used to move furniture and other objects. More elaborate and complicated machinery was sometimes provided, but more often the fake medium depended upon sleight of hand and skillful suggestion to accomplish his ends. Some of the mediums were so skilled that professional magicians admitted to séances failed to discover the modus operandi of the phenomena, which would only be revealed at a later date.
Fraud can also be illustrated by many instances of self-styled clairvoyance where the medium acquired information by muscle-reading, or by judicious inquiry before the séance. Fraud of this kind may have been either conscious or unconscious.
A large group of automatic phenomena occuring when the medium was in a trance state must be classed under the heading of unconscious fraud. In many of the more pronounced cases of automatism, the agent was not consciously responsible for his or her acts. There was a slighter degree of automatism where the agent may have been partly conscious of, and responsible for, the phenomena. The latter state, if frequently induced and if the automatist's willpower was somewhat relaxed, may have passed into the more profound stage, so that fraud that was at first conscious and voluntary may have become un-conscious and spontaneous. Thus it is extremely difficult to know when an accusation of fraud was fairly brought against a medium.
There is evidence that many trance mediums reproduced in their discourses information subconsciously acquired at some more or less remote period. The trance utterances of Leonora Piper, Rosina Thompson, and others revealed this peculiarity. It is true that extensive and apparently fraudulent arrangements were sometimes made before a séance. It is possible, though unlikely, that such preparations were made automatically in a state similar to the mediumistic trance.
Spiritualists themselves were often called to face exposures of undoubted fraud, and on such occasions various apologies of a more or less ingenious nature were sometimes offered for the fraudulent medium. Sometimes it was said that the medium was controlled by a mischievous, lying, or lower spirit who made use of the medium's physical organism to perform tricks and deceptions, an apology that opened Spiritualists to charges of demonic possession from Christian detractors. It was sometimes stated that the medium felt an irresistible impulse to perform the action that he or she knew was in the mind of the control.
Italian medium Eusapia Palladino sometimes extended her hand involuntarily in the direction in which movement of furniture was to take place, although without actual contact. Perceiving that the spirits desired to move the object, she was impelled to attempt a physical (and fraudulent) forestalling of the action, it was said. Other investigators who examined this medium's phenomena declared that their production caused Palladino a great deal of pain and fatigue, and that she therefore seized an opportunity to produce them easily and without trouble. Such an opportunity, they held, only presented itself when their rigorous precautions were relaxed.
The same explanation was given in connection with other mediums. Following cases of materialization séances when the spirit form was grasped and found to be the medium, apologists attempted an elaborate if ultimately unsatisfying explanation. A certain amount of the medium's physical energy, it was suggested, was imparted to the spirit. If the latter was roughly handled, spirit and medium would unite for their joint benefit, either within or outside of the cabinet. If the medium possessed the greater amount of energy she drew the spirit to herself. If most of the energy belonged to the materialized spirit the medium would instantly be attracted to the spirit. The fact that the latter invariably happened had no significance for committed Spiritualists.
Alternatively, Spiritualists suggested, as did Sergeant Cox, on one occasion, that the medium was controlled in order to impersonate a spirit entity.
Whatever the reason for fraud, it became clear to psychical researchers that even the most honorable medium could not be trusted without reserve, even if his character in normal life was blameless and there was no apparent objective for committing fraud. Investigators had to rely on the strictest vigilance and the most up-to-date scientific methods and apparatus.
The Mechanics of Fraud
While some Spiritualists were apologists for the most questionable phenomena and proved themselves the exponents of an intense "will to believe," a few manifested an eagerness to challenge and expose fraudulent mediumship and proved themselves far from gullible. On a few occasions Spiritualists joined in the exposure of fraudulent colleagues, such as the celebrated rogue William Roy, although these instances were rare.
From the time of the Hydesville phenomena many mediums, including most all the physical mediums, were accused of cheating and fell victim to compromising exposures. In the attempt to test the genuineness of the extraordinary claims of Spiritualism, mediums were pursued both by people who hoped the phenomena proved true and skeptics eager to un-cover fraud. The means of fraudulent production of phenomena has a literature of its own. Hereward Carrington aptly stated:
"The ingenuity of some of these methods is simply amazing, and in some respects the race between fraudulent mediums and psychical investigators has resembled that between burglars and police—to see which could outwit the other. It may be said, however, that these trick methods are now well known. To take one simple example, it may be pointed out that Mr. David O. Abbot's book Behind the Scenes with the Mediums and my own Psychical Phenomena of Spiritualism have between them explained more than a hundred different methods of fraudulent slate-writing."
More efficient controls evolved with the development of the science of deception. Wooden sleeves and pants were tied on the Davenport brothers in Bangor, Maine. Augustus Politi was brought before the psychical research society of Milan in a woolen sack. Elizabeth d'Esperance, Mrs. C. E. Wood, and Annie Fairlamb were meshed in nets like fish to prevent masquerading during their séances of materialization. Florence Cook was closed into an electrical circuit. Charles Bailey was shut in a cage with mosquito netting. Eusapia Palladino was tied by Enrico Morselli to the couch with a thick, broad band of surgical tape like that used in asylums to fasten down violent lunatics. Rudi Schneider was under a formidable triple control while being tested at the National Laboratory of Psychical Re-search.
From the simple method of holding the medium (one of the most efficient methods of control) to the electrical indicators and infrared cameras of modern psychical research laboratories (as in the Institut Métapsychique ), a long line of evolution might be traced to the point where fraud was reduced to a negligible factor. To operate fraudulently under the conditions thus imposed might be a far greater marvel than a genuine physical phenomenon.
With mental phenomena the control was more laborious and fraught with many psychological difficulties. There is no doubt, however, that persevering examination of an imposture inevitably leads to the discovery of the source of deception. Through the early twentieth century many physical mediums avoided detection primarily because of the ineptness of the observers.
As early as 1894 pioneering researcher F. W. H. Myers divided séance-room phenomena into three classes. The first and by far the largest class consisted of tricks whose mechanism was perfectly well known—as well known as the way in which the ordinary conjurer produced the rabbit from the hat. These tricks, indeed, were generally on a lower level than those of the conjurer at a fair, but in spite of repeated exposures they deceived the great mass of seekers hoping and expecting to contact the supernatural.
The second class consisted of phenomena somewhat similar to those of the first class, but that confounded the average magician, who was unable to reproduce the phenomena. If these phenomena were genuine, the first class may be called imitations of them. If they were fraudulent, they indicate that here and there a so-called medium had professional secrets of his own.
The third class consisted of a few rarely attested phenomena, of which Home fire-tests are examples, which were not imitated with any kind of plausibility, even by the most accomplished conjurers. This leads to the hypothesis that genuine mysterious phenomena have occurred, or, equally interesting, that some kind of hallucination was induced in the observers in some readily imitable manner.
In the past, charges of fraud often resulted from a lack of knowledge of unsuspected possibilities. William H. Mumler, the first spirit photographer, was promptly accused of trickery when, instead of the spirit of the dead, the double of the living appeared on his plate. The famous third limbs or "pseudopods" of Eusapia Palladino were first ascribed to movement of her hands.
The suggestion that a mysterious substance, ectoplasm, existed as an agent for physical phenomena provided some critical examples of the problem of fraud in psychical research. For example, in his experiments with the Goligher Circle, William J. Crawford posited the existence of ectoplasm to account for some otherwise odd phenomena carring minute particles of fresh paint discovered on objects and on the medium's body. It was later discovered that the phenomena in the circle was fraudulently produced. The idea of ectoplasm was later abandoned altogether, but before that searching out the substance and attempting to define its properties proved a formidable task for psychical researchers.
Charles Richet, for example, suggested that "there is a quasi-identity between the medium and ectoplasm, so that when an attempt is made to seize the latter a limb of the medium may be grasped; though I make a definite and formal protest against this frequent defence of doubtful phenomena by the spiritualists. More frequently the ectoplasm is independent of the medium, indeed, perhaps it is always so."
Apologies for Fraud
The resemblance of the materialized phantom to the medium was a frequent source of the accusations throughout the history of materializations. The more dedicated argued that the double of the medium served as a model for the first materialization and appeared before the manifestation of true phantoms.
Sir Arthur Conan Doyle suggested that the medium's double served as a pattern on which the temporary new body was built. He carried the suggestion too far, however. In pointing out that in certain cases so much ectoplasm was taken from the medium that hardly anything was left behind than an invisible simulacrum, he conjectured that when a materialized figure was seized it might not dematerialize into the simulacrum but absorb the residue of the medium. The acceptance of such a naive explanation would have opened the gates of fraud and made it nearly impossible to present evidence in case of brazen fraud.
The problem, however, was not so complicated as Doyle suggested. The simple truth was that nearly all materializing mediums were from time to time exposed by spirit grabbing. The "ectoplasm" was often seen to disappear, but quite often the medium was found in undergarments and without shoes, so that conscious or unconscious masquerade appeared to be incontestable.
It was suggested that many genuine mediums, when they felt their powers ebbing, could not resist the temptation of supple-menting then by artifice. Some, in an extreme state of suggestibility, might have obeyed the secret urging of a deceitful person. Such was the defense of Eusapia Palladino in an instance in Genoa before Cesare Lombroso. Julien Ochorowitz said, "When it is understood that the medium is but a mirror for reflecting and directing the nervous energies of the sitters to an ideoplastic purpose, it will not be found surprising that suggestion should play an important part. With controllers imbued with the notion of fraud the medium will be dominated by the suggestion of fraud."
Gustav Geley was forced to declare that "when a medium tricks the experimenters are responsible." Hereward Carrington's advice in the case of genuine mediums who resorted to trickery was "to say nothing but to let the medium see by one's manner that one is displeased and the phenomena evidently not convincing. If she perceives that such attempts are useless, she will settle down, pass into a trance, and genuine phenomena will be obtained." In his Mysterious Psychic Forces (1907), Camille Flammarion notes:
"One may lay it down as a principle that all professional mediums cheat. But they do not always cheat; and they possess real, undeniable psychic powers. Their case is nearly that of the hysterical folk under observation at the Salpétrière or elsewhere. I have seen some of them outwit with their profound craft not only Dr. Charcot, but especially Dr. Luys and all the physicians who were making a study of their cases. But because hysterics deceive and simulate it would be gross error to conclude that hysteria does not exist."
Unconscious fraud was facilitated by the anesthetic condition observed by William James in automatic writing, which involved the medium's hands and arms to a considerable degree. James H. Hyslop found this as an explanation when, with the medium's consent, he made several flashlight photographs of the production of physical phenomena. The medium was dumbfounded when the pictures were shown to her. They plainly showed that she produced every manifestation.
The unconscious impulse to cheat is sometimes quite beyond control. Laura I. Finch, editor of the Annals of Psychic Science, confessed that once, during a materialization séance, she felt a nearly overpowering impulse to roll up her sleeve in the cabinet and pass her arm out between the curtains.
Andrew Jackson Davis adduced the impulse as a partial explanation of the Stratford Poltergeist phenomena that occurred in the home of Eliakim Phelps. The testimonial given to Henry Gordon by the Springfield Harmonial Circle in January 1851 attempted an explanation:
"It may be stated, however, as a circumstance which seems to have been the cause of some misapprehension, that the individual referred to is highly susceptible to the magnetic power of the spirits, and that under the influence of an impression which he is unable to resist, he occasionally endeavors to perform the very action which he perceives to be in the mind of the spirit."
Professor Haraldur Neilsson of Iceland quoted a case in Psychic Science (July 1925) in which a perfectly senseless fraud was committed by one of the circle and a spirit afterward confessed to instigating the fraud.
A few have suggested, though it stretches credulity, that a state of dissociated consciousness prompting automatic preparations for fraud before a séance be considered as a possibility for understanding a medium's tricks. Such activity might be attributed to a form of "posthypnotic promise." Frank Podmore suggested that in trance the medium may promise to apport flowers in the next séance and then, in the waking state, might buy them and hide them in the séance room without conscious knowledge. Some hint of this possibility is given in Philippe Tissé's book Les Rèves (Paris, 1890), which narrates the case of a man who repeatedly commits thefts in the daytime under the effect of a dream in the night before.
Fraud by Psychical Researchers and Parapsychologists
Accredited scientists who performed psychical research were expected to have training in various disciplines that made them reliable observers and experimenters. It was assumed that only mediums were likely to practice fraud and that it was the task of the scientist to expose any fraud. Many scientists approached the paranormal already convinced that claimed phenomena must be fraudulent (or the result of some other mundane explanation), since they not only violated accepted physical laws but contradicted their own personal experience. Thus, to the average scientist examining mediums, it was only a matter of finding out how a medium cheated.
In the nineteenth century many scientists had a devout religious heritage, a heritage they felt had been stolen from them by science. When the opportunity of using science to reconstruct the lost foundations upon which their traditional religious beliefs had been constructed, they eagerly pursued it. The biographies of the founders of psychical research suggest that just such a motivation energized their investigations.
The possibility of rebuilding a lost faith coupled with the genuine scientific breakthrough that would result if their work proved fruitful was enough to test the integrity of any individual. The contemporary awareness of fraud in every area of scientific endeavor testifies to the temptation to cheat, even when the likely reward was far less than that afforded by any positive data in psychical research. It is to the credit of psychical re-search that no serious charges of fraud were leveled at the primary people involved in leading the Society for Psychical Re-search and the American Society for Psychical Research during its foundational years.
Within the last decade or so, however, a formidable attack on the credibility of Sir William Crookes was sustained. He allegedly was a party to deception by the medium Florence Cook because he was sexually involved with her, and the séances were a coverup for the affair.
There is every reason to doubt much of Cook's phenomena; the claim that Crookes was her lover is not conclusive, but does explain why he reported so favorably on them, given his scientific training and later unquestioned accomplishments. Crookes's defenders have argued that he was scrupulous in his other investigations of psychical phenomena, and that it would be absurd to attempt to invalidate his work with Daniel Dunglas Home, for example, on the grounds that he was sexually involved with him. Yet the question remains: if Cook was a fraud, why was Crookes so completely taken in?
After the death of veteran psychical researcher Harry Price, other researchers declared that Price had been guilty of deception in the famous case of the haunting of Borley Rectory, and that doubt must therefore be cast upon his other investigations. In his biography The Search for Harry Price (1978), author Trevor H. Hall (who also made the substantive charges against Crookes), even questions Price's personal integrity. Hall seems to go beyond the evidence of Price's shortcomings as a researcher in extending his critique to Price's basic honesty.
The modern era of parapsychology has also been affected by evidence of error and deception. In the summer of 1974 J. B. Rhine announced that Walter J. Levy, Jr., the director of the Institute for Parapsychology, had been discovered deliberately falsifying experimental results. This announcement was clearly a challenge to parapsychology, then in the midst of a controversy surrounding charges of fraud directed at S. G. Soal, a leading British parapsychologist. Soal died in 1975, and three years later hard evidence of fraud (conscious manipulation of computer data) was uncovered and publicized. Fortunately for the field, such cases have been rare, and parapsychologists have not been hesitant in reporting them when found.
Conjuring Campaigns Against Parapsychology
By World War I awareness of the depth of fraud that beset Spiritualism had become common knowledge within psychical research, though hope remained that some elements of real phenomena existed and could be isolated. It was during this time that Harry Houdini introduced his magic show, and it became evident that his conjuring skills would be helpful in uncovering Spiritualist tricks the average untrained researcher would miss.
Many intelligent Spiritualists and psychical observers were led to believe that what they perceived was the result of psychic faculty. Doyle thought Houdini's tricks so inexplicable that he declared him a psychic.
Trained stage magicians were especially helpful in the observation and denouncement of fraudulent psychics and heal-ers whom laboratory-oriented parapsychologists considered outside their concern. Such phenomena is often found in worship services and thus difficult to fully examine as one might in an experimental situation, but the religious setting has not proved insurmountable.
Assuming the mantle of Houdini during the late twentieth century as the archenemy of fake psychics and miracle workers is the magician James Randi (known as "the Amazing Randi"). He has never acknowledged observing any genuine psychical phenomena, and operates out of a stated desire to destroy belief in the paranormal. He has become a leading public spokesperson for the Committee for the Scientific Investigation of Claims of the Paranormal. While his work has rarely spoken to the claims and efforts of mainstream parapsychology, he has demonstrated that he can ostensibly perform ESP, psychic surgery, metal bending and other parapsychological phenomena by trickery. He also demonstrated that at least some who call themselves parapsychologists were incompetent in detecting fraud.
To prove his point Randi planted magicians in tests by parapsychologists. At a press reception in New York in 1982, he revealed that two young "metal benders," Steve Shaw and Mike Edwards, had deceived parapsychologists at the McDonnell Laboratory for Psychical Research, Washington University, St. Louis, for four years. On various occasions Randi himself was present at some sessions in disguise. The researchers at McDonnell believed that Shaw and Edwards had demonstrated genuine paranormal talent in metal bending and psychokinesis.
Randi's point was driven home in 1984 when Masuaki Kiyota, hailed as the Japanese Uri Geller, revealed in a television interview that he had faked the phenomena that had been verified by both American and Japanese researchers. Randi had long denounced Geller as a fake, but had been unable to provoke a decisive confrontation. Kiyota claimed that he had reproduced the primary Geller phenomenon, metal bending, as well as another frequently hailed phenomenon associated with psychic Ted Serios— the paranormal creation of pictures on film.
The incidents in which researchers did not discover fraud are important, but must also be placed in the larger context of parapsychology. Even before Randi revealed his scheme at the McDonnell Laboratory, for example, parapsychologists had called attention to methodological problems in their research that would have to be solved before they could accept any optimistic initial findings. The application of those proper controls tied the hands of the two magician/subjects and they were unable to perform.
During his research of fake ministers operating as Pentecostal healers, Randi investigated several in whom he could find no evidence of deceit, even though he found their faith naive and personally unacceptable.
Berger, Arthur S., and Joyce Berger. The Encyclopedia of Parapsychology and Psychical Research. New York: Paragon House, 1991.
Christopher, Milbourne. ESP, Seers, and Psychics. New York: Thomas Y. Crowell, 1970.
Houdini, Harry. A Magician among the Spirits. New York: Harper & Brothers, 1924. Reprinted as Houdini, A Magician among the Spirits. New York: Arno Press, 1972.
Keene, M. Lamar. The Psychic Mafia. New York: St. Martin's Press, 1976.
Price, Harry, and Eric J. Dingwall. Revelations of a Spirit Medium. London: Kegan Paul, Trench, Trubner, 1922.
Randi, James. The Faith Healers. Buffalo, N.Y.: Prometheus Books, 1987.
——. Flim-Flam: Psychics, ESP, Unicorns, and Other Delusions. Buffalo, N.Y.: Prometheus Books, 1982.
——. The Magic of Uri Geller. New York: Random House, 1975.
Stein, Gordon. Encyclopedia of Hoaxes. Detroit: Gale Re-search, 1993.
"Fraud." Encyclopedia of Occultism and Parapsychology. . Encyclopedia.com. (April 29, 2017). http://www.encyclopedia.com/science/encyclopedias-almanacs-transcripts-and-maps/fraud
"Fraud." Encyclopedia of Occultism and Parapsychology. . Retrieved April 29, 2017 from Encyclopedia.com: http://www.encyclopedia.com/science/encyclopedias-almanacs-transcripts-and-maps/fraud
A false representation of a matter of fact—whether by words or by conduct, by false or misleading allegations, or by concealment of what should have been disclosed—that deceives and is intended to deceive another so that the individual will act upon it to her or his legal injury.
Fraud is commonly understood as dishonesty calculated for advantage. A person who is dishonest may be called a fraud. In the U.S. legal system, fraud is a specific offense with certain features.
Fraud is most common in the buying or selling of property, including real estate, personal property, and intangible property, such as stocks, bonds, and copyrights. State and federal statutes criminalize fraud, but not all cases rise to the level of criminality. Prosecutors have discretion in determining which cases to pursue. Victims may also seek redress in civil court.
Fraud must be proved by showing that the defendant's actions involved five separate elements: (1) a false statement of a material fact,(2) knowledge on the part of the defendant that the statement is untrue, (3) intent on the part of the defendant to deceive the alleged victim, (4) justifiable reliance by the alleged victim on the statement, and (5) injury to the alleged victim as a result.
These elements contain nuances that are not all easily proved. First, not all false statements are fraudulent. To be fraudulent, a false statement must relate to a material fact. It should also substantially affect a person's decision to enter into a contract or pursue a certain course of action. A false statement of fact that does not bear on the disputed transaction will not be considered fraudulent.
Second, the defendant must know that the statement is untrue. A statement of fact that is simply mistaken is not fraudulent. To be fraudulent, a false statement must be made with intent to deceive the victim. This is perhaps the easiest element to prove, once falsity and materiality are proved, because most material false statements are designed to mislead.
Third, the false statement must be made with the intent to deprive the victim of some legal right.
Fourth, the victim's reliance on the false statement must be reasonable. Reliance on a patently absurd false statement generally will not give rise to fraud; however, people who are especially gullible, superstitious, or ignorant or who are illiterate may recover damages for fraud if the defendant knew and took advantage of their condition.
Finally, the false statement must cause the victim some injury that leaves her or him in a worse position than she or he was in before the fraud.
A statement of belief is not a statement of fact and thus is not fraudulent. Puffing, or the expression of a glowing opinion by a seller, is likewise not fraudulent. For example, a car dealer may represent that a particular vehicle is "the finest in the lot." Although the statement may not be true, it is not a statement of fact, and a reasonable buyer would not be justified in relying on it.
The relationship between parties can make a difference in determining whether a statement is fraudulent. A misleading statement is more likely to be fraudulent when one party has superior knowledge in a transaction, and knows that the other is relying on that knowledge, than when the two parties possess equal knowledge. For example, if the seller of a car with a bad engine tells the buyer the car is in excellent running condition, a court is more likely to find fraud if the seller is an auto mechanic as opposed to a sales trainee. Misleading statements are most likely to be fraudulent where one party exploits a position of trust and confidence, or a fiduciary relationship. Fiduciary relationships include those between attorneys and clients, physicians and patients, stockbrokers and clients, and the officers and partners of a corporation and its stockholders.
A statement need not be affirmative to be fraudulent. When a person has a duty to speak, silence may be treated as a false statement. This can arise if a party who has knowledge of a fact fails to disclose it to another party who is justified in assuming its nonexistence. For example, if a real estate agent fails to disclose that a home is built on a toxic waste dump, the omission may be regarded as a fraudulent statement. Even if the agent does not know of the dump, the omission may be considered fraudulent. This is constructive fraud, and it is usually inferred when a party is a fiduciary and has a duty to know of, and disclose, particular facts.
Fraud is an independent criminal offense, but it also appears in different contexts as the means used to gain a legal advantage or accomplish a specific crime. For example, it is fraud for a person to make a false statement on a license application in order to engage in the regulated activity. A person who did so would not be convicted of fraud. Rather, fraud would simply describe the method used to break the law or regulation requiring the license.
Fraud resembles theft in that both involve some form of illegal taking, but the two should not be confused. Fraud requires an additional element of false pretenses created to induce a victim to turn over property, services, or money. Theft, by contrast, requires only the unauthorized taking of another's property with the intent to permanently deprive the other of the property. Because fraud involves more planning than does theft, it is punished more severely.
Federal and state criminal statutes provide for the punishment of persons convicted of fraudulent activity. Interstate fraud and fraud on the federal government are singled out for federal prosecution. The most common federal fraud charges are for mail and wire fraud. Mail and wire fraud statutes criminalize the use of the mails or interstate wires to create or further a scheme to defraud (18 U.S.C.A. §§ 1341, 1342).
Tax fraud against the federal government consists of the willful attempt to evade or defeat the payment of taxes due and owing (I.R.C. §7201). Depending on the defendant's intent, tax fraud results in either civil penalties or criminal punishment. Civil penalties can reach an amount equal to 75 percent of the underpayment. Criminal punishment includes fines and imprisonment. The degree of intent necessary to maintain criminal charges for tax fraud is determined on a case-by-case basis by the internal revenue service and federal prosecutors.
There are other federal fraud laws. For example, the fraudulent registration of aliens is punishable as a misdemeanor under federal law (8 U.S.C.A. § 1306). The "victim" in such a fraud is the U.S. government. Fraud violations of banking laws are also subject to federal prosecution (18 U.S.C.A. §§ 104 et seq.).
The Federal Sentencing Guidelines recommend consideration of the intended victims of fraud in the sentencing of fraud defendants. The guidelines urge an upward departure from standard sentences if the intended victims are especially vulnerable. For example, if a defendant markets an ineffective cancer cure, that scheme, if found to be fraudulent, would warrant more punishment than a scheme that targets persons generally, and coincidentally happens to injure a vulnerable person. Federal courts may require persons convicted of fraud to give notice and an explanation of the conviction to the victims of the fraud (18 U.S.C.A. § 3555).
All states maintain a general criminal statute designed to punish fraud. In Arizona, the statute is called the fraudulent scheme and artifice statute. It reads, in pertinent part, that "[a]ny person who, pursuant to a scheme or artifice to defraud, knowingly obtains any benefit by means of false or fraudulent pretenses, representations, promises or material omissions" is guilty of a felony (Ariz. Rev. Stat. Ann. § 13-2310(A)).
States further criminalize fraud in a variety of settings, including trade and commerce, securities, taxes, real estate, gambling, insurance, government benefits, and credit. In Hawaii, for example, fraud on a state tax return is a felony warranting a fine of up to $100,000 or three years of imprisonment, or both, and a fraudulent corporate tax return is punished with a fine of $500,000 (Haw. Rev. Stat. § 231-36). Other fraud felonies include fraud in the manufacture or distribution of a controlled substance (§ 329-42) and fraud in government elections (§ 19-4). Fraud in the application for and receipt of public assistance benefits is punished according to the illegal gain: fraud in obtaining over $20,000 in food coupons is a class B felony; fraud in obtaining over $300 in food coupons is a class C felony; and all other public assistance fraud is a misdemeanor (§ 346-34). Alteration of a measurement device is fraud and is punished as a misdemeanor (§ 486-136).
In civil court, the remedy for fraud can vary. In most states, a plaintiff may recover "the benefit of the bargain." This is a measure of the difference between the represented value and the actual value of the transaction. In some states, a plaintiff may recover as actual damages only the value of the property lost in the fraudulent transaction. All states allow a plaintiff to seek punitive damages in addition to actual damages. This right is exercised most commonly in cases where the fraud is extremely dangerous or costly. Where the fraud is contractual, a plaintiff may choose to cancel, or rescind, the contract. A court order of rescission returns all property and restores the parties to their precontract status.
Fraud is also penalized by administrative agencies and professional organizations that seek to regulate certain activities. Under state statutes, a professional may lose a license to work if the license was obtained with a false statement.
One particularly well publicized area of fraud is corporate fraud. Corporate fraud cases are largely governed by the Securities Exchange Act of 1934 (15 USCA §§ 78a et seq.), along with other rules and regulations propagated by the securities and exchange commission. These laws were a response to the market turmoil during the 1930s and well-publicized corporate fraud cases.
The Securities Exchange Act and the SEC regulate anything having to do with the trading or selling of securities and stocks. They govern fraudulent behavior ranging from stock manipulation to insider trading. They also provide for civil and criminal penalties for corporate fraud.
Despite the act and the SEC, in the early part of the twenty-first century, corporate fraud began to seem endemic. Such well-known companies as energy trader Enron, telecommunications company WorldCom, cable provider Adelphia, and other lesser-known firms went into bankruptcy as a result of corporate fraud. In light of these events, Congress decided to tighten up corporate fraud requirements with the passages of the sarbanes-oxley act of 2002 (U.S. PL 107-204).
Among other features, Sarbanes-Oxley required expanded and more frequent disclosure by public companies of their finances to prevent fraud. It created a Public Company Accounting Oversight Board to register and regulate accounting firms and accounting practices. It also enhanced the SEC's power to monitor and investigate compliance with securities laws, adding stiff penalties for fraudulent behavior by corporations, their officers, and their accountants.
Clemency, John. 2002. "Corporate Fraud: Where Should the Buck Really Stop?" American Bankruptcy Institute Journal 21 (November).
Ribstein, Larry. 2002. "Market vs. Regulatory Responses to Corporate Fraud: A Critique of the Sarbanes-Oxley Act of 2002." Journal of Corporation Law 28 (fall).
"Fraud." West's Encyclopedia of American Law. . Encyclopedia.com. (April 29, 2017). http://www.encyclopedia.com/law/encyclopedias-almanacs-transcripts-and-maps/fraud
"Fraud." West's Encyclopedia of American Law. . Retrieved April 29, 2017 from Encyclopedia.com: http://www.encyclopedia.com/law/encyclopedias-almanacs-transcripts-and-maps/fraud
fraud, in law, willful misrepresentation intended to deprive another of some right. The offense, generally only a tort, may also constitute the crime of false pretenses. Frauds are either actual or constructive. An actual fraud requires that the act be motivated by the desire to deceive another to his harm, while a constructive fraud is a presumption of overreaching conduct that arises when a profit is made from a relation of trust (see fiduciary). The courts have found it undesirable to make a rigid definition of the type of misrepresentation that amounts to actual fraud and have preferred to consider individually the factors in each case. The misrepresentation may be a positive lie, a failure to disclose information, or even a statement made in reckless disregard of possible inaccuracy. Actual fraud can never be the result of accident or negligence, because of the requirement that the act be intended to deceive. The question of commission may depend upon the competence and commercial knowledge of the alleged victim. Thus dealings with a minor, a lunatic, a feeble-minded person, a drunkard, or (in former times) a married woman are scrutinized more closely than dealings with an experienced businessman. A lawsuit based upon actual or constructive fraud must specify the fraudulent act, the plaintiff's reliance on it, and the loss suffered. The remedy granted to the plaintiff in most cases is either compensatory (and possibly punitive) damages for the injury or cancellation of the contract or other agreement and the restoration of the parties to their former status. In a few states of the United States both damages and cancellation are available. In certain suits based upon a contract, fraud may be introduced as a defense.
"fraud." The Columbia Encyclopedia, 6th ed.. . Encyclopedia.com. (April 29, 2017). http://www.encyclopedia.com/reference/encyclopedias-almanacs-transcripts-and-maps/fraud
"fraud." The Columbia Encyclopedia, 6th ed.. . Retrieved April 29, 2017 from Encyclopedia.com: http://www.encyclopedia.com/reference/encyclopedias-almanacs-transcripts-and-maps/fraud
fraud / frôd/ • n. wrongful or criminal deception intended to result in financial or personal gain: he was convicted of fraud| prosecutions for social security frauds. ∎ a person or thing intended to deceive others, typically by unjustifiably claiming or being credited with accomplishments or qualities: mediums exposed as tricksters and frauds. DERIVATIVES: fraud·ster n.ORIGIN: Middle English: from Old French fraude, from Latin fraus, fraud- ‘deceit, injury.’
"fraud." The Oxford Pocket Dictionary of Current English. . Encyclopedia.com. (April 29, 2017). http://www.encyclopedia.com/humanities/dictionaries-thesauruses-pictures-and-press-releases/fraud-1
"fraud." The Oxford Pocket Dictionary of Current English. . Retrieved April 29, 2017 from Encyclopedia.com: http://www.encyclopedia.com/humanities/dictionaries-thesauruses-pictures-and-press-releases/fraud-1
"fraud." World Encyclopedia. . Encyclopedia.com. (April 29, 2017). http://www.encyclopedia.com/environment/encyclopedias-almanacs-transcripts-and-maps/fraud
"fraud." World Encyclopedia. . Retrieved April 29, 2017 from Encyclopedia.com: http://www.encyclopedia.com/environment/encyclopedias-almanacs-transcripts-and-maps/fraud
So fraudulent XV. — OF. or L.
"fraud." The Concise Oxford Dictionary of English Etymology. . Encyclopedia.com. (April 29, 2017). http://www.encyclopedia.com/humanities/dictionaries-thesauruses-pictures-and-press-releases/fraud-2
"fraud." The Concise Oxford Dictionary of English Etymology. . Retrieved April 29, 2017 from Encyclopedia.com: http://www.encyclopedia.com/humanities/dictionaries-thesauruses-pictures-and-press-releases/fraud-2
"fraud." Oxford Dictionary of Rhymes. . Encyclopedia.com. (April 29, 2017). http://www.encyclopedia.com/humanities/dictionaries-thesauruses-pictures-and-press-releases/fraud-0
"fraud." Oxford Dictionary of Rhymes. . Retrieved April 29, 2017 from Encyclopedia.com: http://www.encyclopedia.com/humanities/dictionaries-thesauruses-pictures-and-press-releases/fraud-0