What Are the Consequences If You're Found Guilty of Fraud?

When you think of fraud, perhaps you think of big companies “cooking” their books or billing customers millions of dollars for services they never provided.

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Although corporate fraud gets a lot of attention, fraud also occurs at the individual level. Learn more about what can happen if you're convicted of a fraud offense.

In legal terms, fraud is the use of deception to enrich yourself or deprive someone else of their rights. This type of deception takes several forms, such as misrepresenting the truth or concealing information. For example, if you lie to your insurance company about where you live, you're concealing some of the information needed to determine your risk level and create an accurate price quote.

Is Fraud a Crime?

Fraud is both a civil and a criminal offense. A civil offense is a legal wrong that harms another person. If you commit one of these offenses, the victim has the right to sue you. Criminal offenses are intentional acts that violate at least one law. If you commit a crime, you may be prosecuted by the state.

In some cases, it's possible to be prosecuted and sued for the same offense. For example, when the Enron scandal broke, some of its executives faced criminal charges for their role in the scheme. In 2006, a jury found Jeffrey Skilling and Ken Lay guilty of fraud. After Ken Lay passed away, some of Enron's victims also filed a civil lawsuit against his estate.

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What Are the Legal Consequences of Committing Fraud?

The consequences of fraud depend on several factors. First, the judge considers the amount of harm caused by the offense. For example, you're likely to face harsher penalties if you defraud someone out of $50,000 than you would if you defrauded them out of $500. Next, the judge considers your criminal record. If you have no prior offenses, you may qualify for a diversion program or receive fewer penalties than someone with an extensive criminal history.

Where you live also has a big impact on the penalties you face. Unless you're charged in federal court, the judge has to follow state sentencing guidelines. Each state has different statutes, so the penalties vary. For example, California has multiple fraud statutes, some of which come with jail terms of 6 months, while others require at least two years in prison.

Finally, it depends on whether the prosecutor charges you with a misdemeanor or a felony. Both are criminal offenses, but felonies are more serious. Therefore, a felony conviction comes with much harsher penalties than a criminal conviction.

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Jail or Prison Time

Depending on the circumstances of the offense, you may be sentenced to a jail or prison term following a fraud conviction. The purpose of incarceration is to punish the offender and deter other people from committing similar offenses.

Correctional facilities also offer a variety of services to help inmates develop the skills they need to avoid committing additional crimes. For example, some jails offer financial literacy courses, which may help inmates learn how to budget their income. A person with these skills may be less likely to commit fraud for personal gain in the future.

Fines

After a fraud conviction, you may also have to pay a fine. The amount of the fine depends on the severity of the crime and other factors. For example, the fine for a felony fraud offense is usually higher than the fine for a misdemeanor.

Restitution

The purpose of restitution is to reimburse the victim for their losses. Depending on the circumstances of the crime, restitution may cover stolen funds, lost wages or other financial costs. Restitution is different from a fine, as the money goes directly to the victim. When you pay a fine, the money goes to the court.

Probation

Probation is another possible penalty for a fraud conviction. It may be ordered in lieu of or in addition to a jail or prison sentence. For example, you may be sentenced to six months in jail followed by six months of probation, or the judge may give you one year of probation instead.

During your sentence, you must report to a probation officer and follow all orders issued by the court. For example, you may be ordered to have no contact with the victim or to participate in some type of counseling. If you don't comply, the judge may revoke your probation and order you to serve jail time.