Throughout history some people have always cheated and tricked others. Since the fourteenth century, such dishonesty and deceit has been known generically as fraud, a word that has far older etymological roots. Yet, oddly to our eyes, English law failed for many centuries to grapple effectively with fraud. Not until 1677 did the Statute of Frauds become law, requiring wills to be written, signed, and witnessed and deeds to be provided for the creation and assignment of all trusts. Victims of fraud could in principle find relief in equity, provided their own unbusiness-like behavior had not been a contributory factor. The English judiciary was uneasy about laying down rules for the definition of various types of fraud. Lord Nottingham, the Lord Chancellor, said that such rules “would be perpetually eluded by new schemes which the fertility of men’s invention would contrive.”
There was a widespread feeling in the eighteenth century, and even into our own times, that a person defrauded deserved to lose. As an English jurist asked rhetorically in the eighteenth century, “Shall we indict a man for making a fool of another?” A legal maxim summed up the attitude of many jurists and of the public at large: caveat emptor, or “let the buyer beware.”
Such hardheaded advice ignored the fact that many of the people defrauded were ignorant and gullible; that others, however prudent, had been cheated by master confidence tricksters; and that some offenses, such as the willful misrepresentation of goods or real estate, could be detected only by experts or after the fraudulent transaction had taken place. To be sure, many victims of fraudsters are trapped by their own greed, but to argue that they do not deserve redress is to shift the blame from where it really lies.
In the past decade or so, legal and popular attitudes in the United States have undergone a dynamic metamorphosis, with caveat venditor (”let the seller beware”) replacing caveat emptor. There has also been a marked change in the attitude of police administrators. Until recently, many saw investigation of fraud as too time consuming and difficult, with a relatively low probability of successful prosecution and adequate sentencing. Fraud investigation therefore took a back seat to the more emotive crimes of violence, burglary, and automobile theft and drug-related offenses. Now there is growing recognition that the losses caused by fraud are often more traumatic, and have longer-term effects, than the quick and sudden violence of the average street offense or burglary.
Nature of Fraud
The ”trilogy of fraud” describes the three basic forms of theft: false pretenses, trick and device, and embezzlement. All three are statutory offenses. Effective investigation requires fundamental knowledge of each type of fraud.
False Pretenses
The requisites are (1) specific intent to defraud, a frame of mind on the part of the thief, (2) misrepresentations by the thief of a material fact, which can be in any form of communication, expressed or implied, (3) reliance by the victim on the representation, inducing him or her to release property to the thief, and (4) actual loss, this being satisfied if the victim in fact did not receive what he or she bargained for.
The intent of the victim is also material. It has to be the victim’s intent that title should accompany the transfer of property to the thief. The victim’s intent is essential as it differentiates between the elements of false pretenses and theft by trick and device.
False pretenses thefts present an added requisite, corroboration. This is usually demonstrated by the “false token” or writing subscribed to by the accused, or the testimony of two witnesses and corroborating circumstances. This is a precaution against perjury by an ostensible victim. Frequently, allegations of false pretenses are based upon contractual arrangements. This brings into play the parole evidence rule, which precludes any evidence of prior or contemporaneous verbal agreements that would alter the provisions of a written contract. However, in a criminal action based upon the same facts, the parole evidence rule is generally held to be operative only between the original parties to the contract, and in a criminal prosecution the state may go outside the provisions of the contract to establish the accused’s real intent and the truth of representations made during negotiations.
Trick and Device
In this form of theft the basic elements of specific intent, misrepresentation, and reliance and loss are the same as those required in prosecution of theft by false pretenses. However, trick and device is distinguished by the intent of the victim, who does not intend to relinquish title to the property, only its possession to the accused. The victim expects that it (money, or something of value) will be used only for a specific purpose, such as a loan, investment, or purchases. The accused, however, has no intention of putting it to such use, specifically intending from the outset to divert it to his or her own use. There is no requirement here for the “corroboration” demanded in false pretenses prosecutions.
This form of theft is the basis for the prosaic street cons or bunco games. It is a fast-moving, high-mobility operation, usually with smaller losses involved (although this is relative to those victimized) and a higher frequency rate. The street con involves “the three G’s” (greed, gullibility, and goodness). One or all can be present. Whether it is the victim’s avarice, naivete, stupidity, or misunderstanding, the con artist works to create a feeling of rapport and “confidence.” The term “street-con” relates primarily to the “switch” scams, the “bank examiner,” and similar approaches. However, this form of theft is not limited to the “short” or “street” buncos. The legal format (elements) has application to long-term, major frauds also, such as those in the securities investment field, fraudulent loans, and real estate scams.
Embezzlement
This form of theft is extremely difficult to prevent in spite of enforced basic accounting procedures and internal control methods utilized by the victim or his company. It is a crime of opportunity, frequently remains undiscovered for long periods, and is usually repetitive, not an isolated act. The embezzler, like the check writer, is the classic recidivist. The elements of the offense require that (1) there is a fiduciary relationship between the victim and the accused, a form of trust whereby the victim entrusts property to the accused (employee usually), (2) the property comes into the hand (dominion, control, possession) of the agent-servant-employee as the property of the victim, the title remaining with the victim at all times, (3) the employee-agent receives the property in the course of employment (some exceptions exist such as obtaining from a constructive trust) and it is lawfully in his or her hands, having received it properly in the scope of employment, (4) the agent-employee forms the intent to take the property for personal use or for some use not contemplated within the trust and deprives the owner of it, this intent forming after possession is acquired legally, (5) the agent-employee takes control-possession of the property, and (6) the victim never intends the agent-employee to use the property for any purpose other than that specified or agreed upon. The rule of corroboration as in theft by false pretenses is not required here.
Motive is important to establish in examining the embezzlement. The crucial question is, why does a certain suspect need the money? The need does not always have to be rooted in an antisocial behavior. It can represent perfectly legitimate problems, such as house payments, medical bills, or automobile expenses and costs.
Check Offenses
Although most jurisdictions have specific sections of the criminal codes that relate to the ”paper” offenses—forgery, nonsuffi-cient funds checks, fictitious checks, and so forth—the crimes are still essentially false pretenses. The technical areas involved include handwriting identification, document examination, paper typing, and check classification systems, but the fundamental principles still remain: deceit and trust. The act of forgery occurs when a person, with intent to defraud, signs the name of another person (or a fictitious person) without authority to do so, or falsely makes, alters, or forges an instrument (checks, notes, bills, contracts, and the like) and tenders, utters, or passes it.
Nonsufficient funds (NSF) checks probably are the most prevalent offenses. When a person with the intent to defraud makes a check, knowing at the time there are insufficient monies on hand or credit with the bank to pay in full the amount on the face of the check, and presents, utters, or passes the instrument, he or she has committed the offense. The amounts required to differentiate between a felony and misdemeanor vary by jurisdiction. Because of the multiplicity of NSF check cases, many police agencies are forced to set an arbitrary minimum limit on the amounts involved. This administrative device does not satisfy the victim, but budgetary and personnel demands prevail.
The Investigative Process
With a few exceptions, most major frauds are legislatively mandated to federal and state agencies. That still leaves the police with more than enough offenses to consume the time and other resources they have available.
A police agency that investigates fraud must adhere to the basic rule applicable to any specialized area of inquiry: placing someone in control who has the needed training and knowledge. Just as efficient homicide investigators must have some understanding of physiology, biology, and psychology, so must fraud investigators be acquainted with the applicable law, business practices, accounting principles, modern data processing, and psychology. They must have this requisite array of knowledge, perhaps not to the level of the professional in these varied fields, but at least to the degree that enables them to recognize the significance of the information developed and the need for specialized help. Consequently, in this era of specialization, the general assignment investigator is losing ground in the larger and more progressive police agencies to specialized investigators.
Any investigation of a protracted nature requires the formulation of a plan that outlines definitively the areas of concern. One form that has proved its efficacy for countless years is a variation of the standard military operational order, or Five Paragraph Field Order: (1) the situation or assessment, (2) the mission, (3) the execution, (4) logistics, and (5) command.
1. Situation assessment. What allegedly occurred? Is the initial information received from a victim or informants, or the ensuing investigation? Victims, through embarrassment and confusion, frequently furnish erroneous facts. This requires a logical assessment of the victim’s motivation, emotional and mental state, degree of reliance, and ability to relate accurately the representation being made, its falsity, and the actual property loss.
2. Mission. This segment relates the strategy to be used in a given case/ situation. A case cannot be based solely upon the unsupported allegations of the victim. The legal requirements of the particular crimes have to be met. Investigative efforts will be directed to documentation, witness testimony, and instruments, all needed to prove or disprove that a crime in fact has been committed. This is the who, what, when, and where of an investigation.
3. Execution. What tactically is to be done to carry out the mission? To do this, consideration has to be given to the documentation to be developed, the witnesses to be identified and interviewed, the corroboration to be established, and the suspects to be identified and researched, including their net worth and the source and application of their funds, and the similar acts and transactions to be analyzed to establish the plan, scheme, design, and intent of the suspects and victim. Intent is a subjective thing, a frame of mind that is extremely difficult to establish and prove.
4. Logistics (support). Consideration is given here to the probable technical and expert assistance that will be needed to support the investigators. It may be available within the police agency or it may have to be obtained from outside. Examples of such outside experts range from accountants and security analysts to plumbers and tile setters and can include any type of help that is required to effectively carry out a successful inquiry. No approach is too ethereal or too prosaic.
5. Command. A fundamental principle applicable to all forms of police investigation concerns the director of operations. There can be only one person who has the responsibility, authority, and final overall accountability. These charges cannot be delegated or handled by a committee. A bifurcated approach, with its resulting duplication and conflicts of direction, hampers the effectiveness of any investigation, thereby reducing its chances of being successful.
