Ostensibly, fraud consists of two elements: the act and the intent. The act of committing or attempting to commit fraud is often the substance of a case. But, just as a fraud examination depends on predication to trigger an investigation, a fraud charge relies on demonstrable intent to result in a conviction. In a recent, high-profile example of this, Theranos founder Elizabeth Holmes was found guilty on some charges but not others because the jury could not agree about whether she had deliberately deceived investors. Much of her case relied on proving her fraudulent intent.
However, not all organizations choose to pursue litigation when fraud has been uncovered. According to the ACFE’s Occupational Fraud 2022: A Report to the Nations, 58% of cases were referred to law enforcement, while 29% of organizations pursued civil litigation, and 26% sought both criminal and civil remediation. Of the criminal referrals, 66% resulted in conviction. Often, the evidence of fraud is apparent, but the intention to deceive and defraud remains difficult to establish.
While an individual might be under pressure or have potential incentives to commit fraud, it does not translate directly to the intention to commit fraud. Gerry Zack wrote in Fraud Magazine, “Intent is a mind-set and involves a conscious awareness that the acts being taken are done with the deliberate purpose of deceiving others. Unless authorities see signs of such intent, fraud charges are unlikely to be brought.”
It must be proven that one had the intent to defraud, but the actual fraud does not to have been successful; however, the success of a scheme often serves as good evidence of the fraudster’s intent. Additionally, according to the United States Department of Justice, "The requisite intent under the federal mail and wire fraud statutes may be inferred from the totality of the circumstances and need not be proven by direct evidence … Fraudulent intent is shown if a representation is made with reckless indifference to its truth or falsity.” Intent can be reasoned from statements, conduct, victim testimony, and complaint letters, all of which can help demonstrate that the perpetrator knew that victims were being misled.
Guilty or Not Guilty?
In another recent case, a federal district court judge overturned a jury’s conviction of two men for securities fraud, conspiracy to commit securities fraud, and conspiracy to commit wire fraud in a bond-rigging scheme. Judge Brian M. Cogan found that the prosecutors had failed to introduce sufficient evidence to prove the element of criminal intent; in Cogan’s opinion, the evidence was just not enough to convict one executive and warranted granting the other an opportunity for a new trial. The latter faced sufficient evidence to establish criminal intent because of his knowledge of who controlled the bonds, material information that should have been shared with investors. The investigator of the case noted that no matter how obvious criminality may seem, it is nonetheless challenging to prosecute a white-collar case.
A federal appeals court later restored both convictions. Prosecutors argued that the judge overstepped his authority by taking on the role of the jury and forcing his own opinion of the evidence. The appellate court agreed, issuing a 104-page decision in which U.S. Circuit Judge Robert Sack wrote that neither an acquittal nor new trial was warranted because there was enough evidence for a “rational jury” to find the men guilty.
The U.S. Supreme Court declined to hear the appeal.
Capacity to Form Intent
Another man, a disbarred lawyer, argued he could not have formed the intent to commit his crimes of federal bank fraud due to his footballing past that is full of injuries and mental impairments—including possible chronic traumatic encephalopathy (CTE).
After a life of sports, George Skouteris, Jr. turned to a law career. But, as the United States Court of Appeals for the Sixth Circuit wrote, “His client service, however, was more in the form of a turnover than a touchdown. Case in point, he routinely settled cases without client permission, forged client signatures on settlement checks, and then deposited those checks into his own account. Complaints from angry clients mounted, as did interest by state and federal authorities.”
Skouteris’s defense argued that he suffered from major depression, alcohol use and seizure disorders, which together limited his capacity to organize his mental efforts and caused errors in his handling of client settlements. Although the government’s expert agreed that Skouteris suffered from the depression and alcohol use disorders, they determined that Skouteris was mentally capable of forming and carrying out complex thoughts, schemes and plans. The jury agreed and found Skouteris guilty. He was sentenced to 30 months’ imprisonment and ordered to pay nearly $150,000 in restitution.
As we have seen in these examples, intent to commit fraud is easy to understand, but much harder to prove. What did someone know? What did they do or fail to do? Were actions in error or deliberate? Even the courts and juries don’t always agree.