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Business, Financial and Investor Fraud

An old legal maxim states: “Fraud vitiates every transaction”.

This maxim means there is always a legal action whenever fraud occurs. Even if there isn’t a specific law on the books or case in the common law, there is always a legal option when fraud rears its ugly head. It is legally impossible to agree to fraud or criminal behavior; therefore, a wholly fraudulent transaction will never be enforced. Moreover, evidence of fraud will usually always be admitted to court, even if that type of evidence would be excluded in other situations (for example, oral agreements made before a written contract are usually excluded).

Another legal maxim is the “doctrine of unclean hands.” It goes without saying: you should never participate in a fraudulent scheme. Be aware, the slightest amount of participation in fraud may prevent all recovery down the road, even if recovery is otherwise justified.

Business Fraud Attorneys

The law treats fraud very seriously, and so should you. If you have experience fraud in any capacity, you should consult an attorney to learn how the fraud has affected your legal rights and obligations.

In a broad sense, fraud is the main enemy to free markets. Fraud carries both civil and criminal penalties in both New York and the United States. If another commits a fraud against you, they may likely be not only liable to you, but also criminally liable to the state.

If you are experiencing a fraudulent situation, there is always legal action to take, even if there isn’t necessarily a law on the books for the specific situation.

What exactly is fraud? There are three types: 1) fraud in the factum, and 2) fraud in the execution, 3) fraud as a matter of law.

Fraud in the factum (also known as fraud in the inducement) occurs when the actual terms of the deal are misleading with the intent to mislead. If the defendant has misrepresented an important fact, and intended to mislead you, and as a result you acted reasonably based on this misrepresentation – this is fraud in the factum. In plain English, the defendant must have lied about something important, but you were not gullible in believing the lie.

Fraud in the execution is not when the terms of the deal itself are fraudulent, but when interactions of the parties are dishonest and induce you to do something you wouldn’t otherwise do. Article 3 of the Uniform Commercial Code covers fraud in the execution. For example, if somebody asks for your autograph, and then they draw a promissory note around your autograph, that is fraud in the execution.

Securities Fraud Litigation

Fraud as a matter of law covers activities the law has decided are fraudulent by definition. For example, selling unregistered securities is fraudulent because the law says so. The SEC and the State of New York have many regulations and laws on the books about fraud. Unlike fraud in the factum, intent may not be a factor in the definition of fraud. You may commit fraud even if you don’t intend to commit fraud. It is important to consult with an attorney regarding financial and investing activities to make sure you’re not accidentally commit fraud.

If you’ve been the victim of fraud, there is always something you can do. Contact our commercial litigation lawyers in New York today.


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New York commercial litigator Leon Jacobson, Esq - logo

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