Legally Proving Fraud

“Thousands of people each year fall victim to fraudulent acts — often unknowingly. While many instances of fraud go undetected, learning how to spot the warning signs early on may help save you time and money in the long run.” – FindLaw  

The main points conveyed in this section are:

1. Legally proving fraud can be difficult unless the events that occurred can be factually confirmed to pass the test of each element of proof that is required to prove fraud and you must document the specific facts required to prove fraud in a court of law.
    
2. identifying and avoiding fraud via due diligence are better than being a victim of fraud.

Alleging that you have been a victim of fraud or alleging that someone is a fraud are very different than legally “proving” fraud. 

There are many reliable attorney referral sites and legal resources on the internet that explain the varying levels of proof required in a fraud lawsuit to prove to a judge and jury that you have been a victim of fraud.

Virtually every set of circumstances can be different and the level of proof required can vary from state to state. Common things that you must have factual evidence of having occurred may range from three (3) to nine (9) or more elements.

For example, The Free Online Legal Dictionary defines fraud in the following excerpts and cites five (5) elements of proof:

Note: Martial Art Fraud comments are provided along with excerpts from their site. You can also find many other references on the internet listing various elements of proof required to prove fraud. After reviewing quite a few in different states and jurisdictions, a general pattern of common elements seems to be fairly well reflected by the following excerpts.

“Fraud: A false representation of a matter of fact—whether by words or by conduct, by false or misleading allegations, or by concealment (or omission) 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.“

Martial Art Fraud: When a martial art studio or instructor employs advertisements, web sites or verbal representations that are intended to attract potential new students who may then be compelled to enroll at the studio and pay tuition, there is a clear intent by the studio or instructor to benefit from that process.

If during that process a martial art instructor or school owner engages in trademark infringement by using registered trademarks without a license from the trademark owner, employ counterfeit items, make deceptive statements or engage in any other manner of misrepresentation to the public whether by commission or omission in order to attract new prospects, then their dishonesty is calculated for their advantage.

During your initial evaluation of any martial art school you can identify certain key information that you can then easily verify as fact with a reputable 3rd party by performing a bit of due diligence which may help you avoid being deceived and/or defrauded.

“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 (Martial Art Fraud: martial art gear, apparel, skills training, martial art credentials, rank certificates, etc) 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,
   • Martial Arts Fraud:
   • Registered trademarks provide constructive notice to the public of the registrant's claim of ownership of the mark, so ignorance is not a defense and any statements contrary to said ownership are false
   • Registered trademarks provide a legal presumption of the registrant's ownership of the mark and the registrant's exclusive right to use the mark nationwide on or in connection with the goods and/or services listed in the registration and any statements contrary to said exclusivity are false
     • False statements of fact are present when trademark infringement or trademark counterfeiting occur because the underlying martial art instruction, credentials, products, etc. which are being provided to the student are not regulated by, originated by or authorized by the trademark owner. 
     • False statements of fact occur when a studio or instructor engages in unauthorized use of registered trademarks 
     • False statements of fact occur when a studio's ads, web sites, etc. when they feature unauthorized registered trademarks
     • False statements of fact occur when a studio's promotional literature bears unauthorized registered trademarks
     • False statements of fact occur when a studio's application forms bear unauthorized registered trademarks
     • False statements of fact occur when prospective students are told by a studio owner, instructor or a staff member during enrollment presentations that the student will be learning a trademarked martial art system (that the studio is not licensed to teach).
     • False statements of fact occur when counterfeit certificates and credentials bearing unauthorized registered trademark are used to induce new student enrollments
        
2. knowledge on the part of the defendant (martial art school owner) that the statement is untrue,
   • Martial Art Fraud: 
   • Registered trademarks provide constructive notice to the public of the registrant's claim of ownership of the mark, so ignorance of the laws is not a defense.
   • Registered trademarks provide a legal presumption of the registrant's ownership of the mark and the registrant's exclusive right to use the mark nationwide on or in connection with the goods and/or services listed in the registration
     • Unauthorized use of registered trademarks is thus legally considered an intentionally deceptive act
     • Ownership of registered trademarks is public information and can be easily determined
     • Trademark infringement and the deception that ensues are willful acts. 
     • In the presence of unauthorized registered trademarks, statements made to prospects about the quality of products or service they will receive may be false because the products and services do not originate from the trademark owner and the speaker is not a licensee that who would know current specifications of the trademark owner
     • A supposed “master” instructor can be reasonably presumed to have a high degree of knowledge about their field, further invalidating ignorance as a defense
        
3. intent on the part of the defendant (martial art school owner) to deceive the alleged victim,
   • Martial Art Fraud: 
   • Registered trademarks provide constructive notice to the public of the registrant's claim of ownership of the mark, thus its use by an infringer is intended to induce undecided prospective new students into  become paying students 
   • Registered trademarks provide a legal presumption of the registrant's ownership of the mark and the registrant's exclusive right to use the mark nationwide on or in connection with the goods and/or services listed in the registration, thus its use by an infringer is intended to induce undecided prospective new students into  become paying students 
     • Unauthorized use of registered trademarks is an intentional fraudulent misrepresentation of facts to a consumer and an intentional act to induce student enrollment and subsequent payments
        
4. justifiable reliance by the alleged victim (consumer/student) on the statement, and
   • A prospective new student  who is not knowledgeable about martial arts and contacts a supposed “master” instructor reasonably expects to be able to rely on the statements of the master or their staff members who are represented as having a high degree of knowledge about their field.
   • A prospective student/parent unfamiliar with martial arts and seeking martial art instruction for the first time justifiably relies on the martial art instructor to be truthful regarding their  martial art school name and the martial art system names which often include foreign language words unfamiliar to the prospect.
   • Martial art instructors who infringe registered trademarks or counterfeit registered trademarks and misrepresent their association with trademarks that they are unauthorized to use are engaging in dishonesty calculated to their advantage.
   • Trademark infringement and trademark counterfeiting are violations of federal law subject to civil and criminal penalties up to and including felony criminal charges and imprisonment.
      
5. injury to the alleged victim (consumer/student) as a result
   • Martial Art Fraud:
   • A consumer who purchases a product or service bearing a registered trademark (that the seller is not licensed to use) and enters into the purchase when the consumer has relied on the “expert” assurances of of the seller (martial art instructor) that the products and services are legitimate has been deceived and material facts have been misrepresented.
   • A martial art student who receives trademark counterfeit certificates of proficiency and other credentials is in a situation analogous to a consumer who enrolls at a university expecting to receive a Harvard^® degree after their four years of tuition and study, but instead receives a counterfeit diploma. 
   • In both scenarios the student has been damaged in that they cannot ever recover the time lost studying and paying for counterfeit services and credentials.
   • The student's training received and/or study time and/or credentials may not be transferable toward the student's original goal.
   • Many other factors may also weigh into a court's assessment of the damage that the fraud has caused the student.

Each of these legal elements of fraud 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.

Martial Art Fraud: A supposed “master” instructor can be reasonably presumed to have a high degree of knowledge about their field and thus making deceptive or misrepresentative statements to a potential new student who does not possess equal knowledge demonstrates bad faith and an intent to induce the student to enroll so the studio or instructor can benefit as a result of the prospect's reliance on the false statements. 

Misleading statements are most likely to be fraudulent where one party exploits a position of trust and confidence, or a fiduciary relationship.

Martial Art Fraud: The core nature of the relationship that exists between a martial art instructor and their student is one of trust and confidence. When such a relationship is initiated under misrepreentation of material fact, then unexpected results are very likely at a later date.

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. Read full article

Protect yourself from becoming a victim of fraud by learning to recognize potentially fraudulent circumstances and then conduct a bit of personal due diligence before making a decision.

The bottom line is that proving fraud may be difficult, time consuming, can be emotionally unrewarding and may be very expensive, so :

1. Identify
2. Verify 
3. Testify