Examples of fraud
Tort or Crime? Or Both?
Additional Fraud Examples Fraud also can be committed in the
hiring process. For instance, courts have found employers liable for misrepresenting
to employees about conditions at a business that later affect
employment adversely. In one case, former professional football player Phil
McConkey received a $10 million award because his employer misrepresented
the status of merger talks with another company. McConkey lost his
job the year after he was hired when the two companies merged.
Other instances of business fraud can include:
• Misrepresentation in employment. Screenwriter Benedict Fitzgerald sued
actor–director Mel Gibson and his production company for defrauding
him into taking a much smaller salary based on their representation that
the movie budget was only $4 million–$7 million instead of the estimated
$25 million–$50 million that had been actually budgeted.
• Misrepresentation about products. The tobacco industry is beginning to
lose lawsuits when plaintiffs allege fraud based on the industry’s claiming
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for years that no tobacco consumption harm had been scientifically
proved when it knew that such harm had been established. In 2008, for
instance, the Oregon Supreme Court affirmed a $79.5 million punitive
damage award in the fraud case of deceased smoker Jesse Williams.
• Concealment about products. Farmers and growers have received over
$1 billion from DuPont in settlements based on the damage the fungicide
Benlate caused various plants. DuPont allegedly committed fraud by concealing
that Benlate could cause crop damage even when the company
was asked about the possibility.
• Nondisclosure to third parties about home sale prices. Fannie Mae, the
nation’s largest investor in home loans, told lenders in 2008 that it considered
certain “practices that may distort or artificially inflate” house prices
to be potentially fraudulent. Fannie Mae referenced situations where
home developers or builders represented that they sold homes in an area
for reported high prices but in reality gave back part of the purchase price
to buyers. The concern is that such practices can defraud future home buyers
in that development into paying higher prices than they actually should
and also mislead banks that loan money for home mortgages in the area.
The previous chapter on contracts discussed fraud as voiding a contract.
But fraud is also an intentional tort, and one who is a victim of fraud can sue
for damages, including punitive or punishment damages. Today many frauds,
as well as other intentional torts, occur on the Internet. See Sidebar 10.5 .
A variety of intentional torts take place on the
Internet. Defamation occurs when e-mailers place
messages on Listservs or public chatrooms that
hold others up to “public contempt or ridicule.”
Intentional infliction of mental distress arises, for
example, when threats are made via e-mail or websites.
A jury in Oregon awarded plaintiffs over $100
million when it found that a website threatened
abortion providers. When computer hackers break
into company databases, trade secrets are easily
Perhaps the most common intentional cyberrelated
tort is fraud. The Federal Trade Commission
has released a list of such frauds or scams that include
a variety of pyramid schemes, fraudulent auctions,
deceptive travel offers, sale of unmiraculous “miracle”
products, health care rip-offs, phony credit card
charges, and work-at-home frauds. There was even a
“rebate” check sent to consumers that if cashed gave
them new Internet service that could not be canceled.
The FTC reports that its enforcement actions against
Internet scams have risen steadily in recent years.
>> sidebar 10.5