Free paper Sample on Unraveling Fraud: Legal Implications, Remedies, and the Pursuit of Fairness

Published: 2023-12-10
Free paper Sample on Unraveling Fraud: Legal Implications, Remedies, and the Pursuit of Fairness
Type of paper:  Essay
Categories:  Law Criminal law Government Banking
Pages: 6
Wordcount: 1498 words
13 min read

"Fraud and deceit abound in these days more than in former times." The statement was used by Lord Coke in Twyne's case, in 1602. The truth of this statement abounds in the numerous cases of fraud reported and witnessed daily, such as data theft, check tampering, and inventory theft. Fraud is a deliberate deception to acquire unlawful or fair gain or to deprive a victim of a legal right (Gee, 2014). The paper explores fraudulent actions that are committed on behalf of unknowing parties and identifies the different scenarios for fraud liability in individuals, businesses, or employees. The paper further discusses the remedies for fraud actions alongside cases that describe such remedies. For the paper, law articles on fraud liability, remedies in fraud action, and fairness are reviewed.

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Fraudulent acts violate either civil or criminal law. In civil law, the fraud victim sues the perpetrator to recover monetary compensation or avoid the fraud, while in criminal law, governmental authorities prosecute and imprison the fraud perpetrator. Fraudulent acts are considered civil or criminal wrongs whether or not they cause loss of money property or legal rights (Gee, 2014). Most fraudulent actions, however, are purposely committed for monetary gain or other benefits. Fraud is committed on behalf of unknowing parties and could be by individuals, businesses, or employees on behalf of their employers. Fraud actions are committed across and through many media, including mail, phone, wire, and the internet. Each fraudulent act attracts a liability and a remedy (Free, 2015)

Fraudsters are broadly classified into three groups; first-party (individuals), second-party (friendly), or third-party fraud. First-party fraud is a misrepresentation of personal identity. Such acts include distorting personal details to receive more attractive mortgages or credit from a bank. It also includes taking out a loan or using credit without the intention of paying it back. Second-party fraud occurs when a legitimate account holder intentionally gives their credentials to an acquaintance to commit fraud. Third-party fraud is the most common type of fraud where the customer does not have any knowledge of the fraudulent activity. The fraudster impersonates the victim's identity and uses factual evidence to receive the targeted reward, such as credit from the bank. The victim's details are obtained through hacking or some other techniques such as phishing where the victim is duped into revealing confidential information (Free, 2015)

Numerous fraudulent actions, such as third-party fraud, are committed on behalf of individuals, businesses, or organization employees. The actions include physical duplication or fabrication, such as falsification and counterfeiting of documents. The documents include personal identification and social security numbers that are used by fraudsters to obtain credit, passports, travel documents, driver's licenses, or mortgages. After such fraud is committed, individuals or businesses lose huge amounts of money, depending on the amount of credit or other rewards obtained. Typical organizations lose about six percent of their annual revenue to fraud committed by third parties using employees' details. However, fraud committed using owners' and executives' details is more costly than employee fraud. The industries that are mostly affected are banking, government, and insurance (Driel 2018)

Fraudulent actions committed against individuals, businesses, or employees attract liability. Insurers offer fraud liability to protect their clients against damages caused by fraudsters. When a fraud investigation is launched, the card network immediately cancels all unauthorized charges. The most common type of fraud liability is the zero fraud liability policy, where the fraud victim is not held accountable for any amount of unauthorized online or offline purchases made by the fraud perpetrators. Zero fraud liability protects the fraud victim against losses in case their cards are used or stolen and used without their consent. Other insurers offer liability if purchases are made up to a certain amount. However, only consumer cards are required to offer some form of fraud liability. Business or corporate cards are not required to offer fraud liability (Guerra-Pujol, 2017).

Victims of fraud use either civil or criminal remedies against fraudsters. When fraud occurs, the victim decides whether to make a criminal complaint to the authorities or pursue a personal civil remedy. The decision is dependent on the nature of the case and the client's objectives. If the victim seeks to see the perpetrators prosecuted and jailed, he/she uses criminal remedies, but if the victim seeks to recover the stolen assets, civil remedies are the most appropriate as the criminal prosecution process would be lengthy. Criminal remedies are sought for relatively bigger fraud cases that are linked. Civil remedies are often sought by victims as the victims are in control of investigation avenues and easily locate and freeze the stolen assets, and obtain disclosure from the fraudsters and third parties such as banks. The victim may use both remedies by locating fraudsters civically and criminally prosecuting them (Llewellyn, 2016)

There are several remedies available in the court of law for fraudulent actions. The prosecution may order damages provided for by the fraud perpetrator. The damages are intended to restore the fraud victim to the financial position they were in before the fraudulent act was committed, thus being fair to the fraud victim. The victim recovers the damages for all direct losses regardless of whether the fraudulent act was foreseeable or not. If a party is fraudulently induced to enter a contract, common for business and corporate fraud, the court allows for contract rescission, which is a fair deal to the fraud victim. The fraud victim is lawfully allowed to cancel the contract. Rescission attempts to bring the fraud victim, business, or organization to the financial position they were in before the fraudulent action. Rescission is commonly used for organizations that are susceptible to fraudulent contracts such as banks, manufacturers, and the government (Alavi, 2016)

In most instances, the remedies for fraudulent acts, such as damages and rescission, successfully guarantee fairness to both the victim and perpetrator. The argument is illustrated in the failed 2017 Fyre Festival fraud, where 100 investors were bilked out of $27 million. The festival's lead organizer, Billy McFarland, intentionally made false promises to the festival attendees and hence defrauded a dozen of the festival sponsors. The prosecution, in July 2018, determined that Billy McFarland defrauded over 100 investors of $27.4 million meant for the festival, which did not take place. Mr. McFarland made a material misrepresentation to lure the investors to the alleged contract, inflated financial metrics, lied about his business success, and used counterfeit credit record details. The investors thus entered into the contract, unaware of the fraud, and invested millions, expecting to obtain profit from the alleged festival (Sadaf et al., 2018)

In October 2018, Billy McFarland pleaded guilty to the financial fraud charges and was sentenced to six years in federal prison. The investors recovered their lost money in the form of damages that the court of law ordered Billy McFarland to pay. The case illustrates the fairness that results from the use of remedies provided by the courts of law. The remedies successfully guaranteed fairness to both parties, the fraud victims (investors), and fraud perpetrators (Billy McFarland). Firstly, although time was lost, the investors recovered all their lost money and hence were restored to the financial position they were before the fraudulent act. Secondly, the fraud perpetrator, Billy McFarland, was ordered to pay for the damages and sentenced to prison. The remedies provided, therefore, successfully guaranteed fairness for both parties (Sadaf et al., 2018).

Fraud occurs among individuals, businesses, or employees on a daily in the form of forgery or misrepresentations. Victims of fraud should combine both aspects of civil and criminal remedies to ensure they are fully compensated for the damages resulting from fraud. Fraud, due to its complexities, is not easy to detect. Remedies, however, are tools that ensure both the fraud victim and perpetrator obtain fairness.


Alavi, H. (2016). Remedies to Fraud in Documentary Letters of Credit: A Comparative Perspective. EU agrarian Law, 5(1), 1-13.

Driel, H.V. (2018). Financial fraud, scandals, and regulation: A conceptual framework and literature review. Business History.

Free, C. (2015). Looking through the fraud triangle: A review and call for new directions. Meditari Accountancy Research.

Gee, S. (2014). Fraud and fraud detection: a data analytics approach. John Wiley & Sons.

Guerra-Pujol, F. E. (2017). Legal liability for data fraud. Statistical Journal of the IAOS, 33(3), 755-761.

Llewellyn, K. N. (2016). The common law tradition: deciding appeals (Vol. 16). Quid Pro Books.,and%20the%20power%20of%20rules.

Sadaf, R., Oláh, J., Popp, J., & Máté, D. (2018). An investigation of the influence of the worldwide governance and competitiveness on accounting fraud cases: A cross-country perspective. Sustainability, 10(3), 588.

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