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INTRODUCTION TO FRAUD

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The tort of fraud can go beyond a civil action and, in a number of cases, can have criminal implications. A general definition for fraud is the following:

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An intentional misrepresentation of a material fact that induces a party to act to his or her detriment.

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Like all the other tort actions that have been presented, the tort of fraud is bounded by the rule described earlier. Thus, each of the elements of the tort must be established:

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  • Intent: The party committing the act of fraud must have the so-called mens rea element, or state of mind knowing that it is committing the fraudulent act.

  • Misrepresentation of a material fact: The information or fact being misrepresented must be a significant piece of information or fact that somehow demonstrates importance to the party being exposed to that fact or information. In other words, the material fact “is of substantial importance that may influence an individual to act.”

  • Inducing a party to act: The misrepresentation prompts the party to take an action from which it hopes to benefit.

  • Detriment: However, instead of benefiting, the party is in some way harmed to its detriment by acting on the misrepresentation.

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As an example related to pharmacy practice, consider a case in which a pharmacist knowingly bills an insurance company for a medication order filled for a patient who does not exist, and is paid by the insurance company for filling the bogus prescription. Applying the fraud rule described previously, the following elements of fraud appear to exist:

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  • The pharmacist had knowledge that he was filling a bogus prescription for a patient who did not exist, and charging the insurance company for the filling of that bogus prescription.

  • The phony or bogus prescription serves as the material fact or information.

  • The insurance company, trusting that the pharmacist is acting honestly, acts upon the receipt or request for payment, and pays the pharmacy for filling the bogus prescription.

  • The insurance company, paying the pharmacy for the bogus prescription, is acting to its detriment since no real patient is benefiting from the payment to the pharmacy for filling the bogus prescription.

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Once the party acting to its detriment—like the insurance company described earlier—realizes that it has been taken advantage of, it can bring a civil action against a defendant for both compensatory damages as well as punitive damages (the latter damages based upon the fact that there was intent to commit the act of fraud). In addition, if a report is filed with law enforcement, a criminal action may also be initiated against a defendant who commits a fraudulent act since most criminal fraud offenses are considered felonies.

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The areas where fraudulent acts occur in high abundance are those in which credit cards or banking loans are involved.

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THE FALSE CLAIMS ACT

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