Business Fraud: Criminal Defense and Civil Recovery Strategies

Federal wire fraud and mail fraud statutes are the prosecutors' tools of choice in business fraud cases because they are broadly drafted, carry maximum sentences of twenty years per count, and can be charged based on a single email or interstate wire transmission that was sent in furtherance of a fraudulent scheme, and wire fraud defense counsel advising clients on business fraud exposure must evaluate whether any business communication involving misrepresentation or omission of material information could satisfy the statutory elements and whether a pattern of communications across multiple transactions could support multiple counts that dramatically increase the defendant's guideline sentencing range.

Securities fraud is a distinct category of business fraud that arises when a company or individual makes materially false or misleading statements in connection with the purchase or sale of securities, and securities fraud litigation and defense counsel handling business fraud cases involving publicly traded securities must evaluate whether the alleged misstatement was material under the reasonable investor standard, whether the defendant acted with the scienter that both private plaintiffs and the SEC must establish to prove liability, and whether the PSLRA's heightened pleading standard requires dismissal of a securities fraud class action complaint that relies on group-published information.

A business fraud conviction can result in a sentence calculated under the federal sentencing guidelines using an offense level that increases with the financial loss amount, the number of victims, the defendant's role in the scheme, and whether the defendant was in a position of trust, and white collar crime defense attorneys representing individuals facing federal business fraud charges must evaluate whether a plea agreement that includes cooperation with the government is likely to produce a substantial assistance motion that reduces the sentencing exposure below the applicable guideline range. Without early retention of experienced federal fraud defense counsel, defendants routinely waive cooperation opportunities and make statements that foreclose favorable plea outcomes.

A business fraud victim can pursue civil fraud claims for compensatory damages, consequential damages, and in cases of intentional or malicious conduct, punitive damages that can substantially exceed the direct financial loss the fraud caused, and financial fraud civil litigation counsel pursuing business fraud claims must evaluate whether the plaintiff's damages are limited to out-of-pocket losses under the applicable state's fraud damages standard or extend to benefit-of-the-bargain damages and whether any disgorgement or constructive trust remedy is available to prevent the defendant from retaining profits derived from the fraud.

A company that discovers potential business fraud must immediately implement a litigation hold that preserves all potentially relevant electronic and physical records, retain outside counsel to conduct a privileged internal investigation before any disclosure to the government or other parties, and avoid premature adverse personnel actions that could interfere with the investigation, and internal investigation services legal counsel managing a business fraud internal investigation must evaluate whether the investigation's scope is broad enough to identify all exposure and whether the privilege protections attaching to the investigation's communications and findings are being maintained properly.

Companies that discover business fraud may have voluntary or mandatory reporting obligations depending on whether the fraud involves publicly traded securities, federally regulated financial institutions, or government contracts, and mail fraud and business fraud legal practitioners advising on post-discovery strategy must evaluate whether voluntary disclosure to the DOJ, SEC, or other regulatory authority is likely to produce cooperation credit and whether an emergency civil lawsuit with a request for a prejudgment attachment or temporary restraining order is necessary to freeze the fraudster's assets before they can be dissipated.

The most effective business fraud defense strategies challenge the government's evidence of the specific intent element that distinguishes criminal fraud from a contractual dispute, negligent misrepresentation, or good faith business judgment, and criminal securities and financial fraud defense counsel representing individuals under federal business fraud investigation must evaluate whether the government's documentary evidence actually establishes conscious knowledge of falsity as opposed to mere negligence and whether any advice-of-counsel defense is viable based on contemporaneous legal guidance received before the alleged scheme began.

A business fraud victim's most urgent civil priority is often obtaining emergency court relief to freeze the fraudster's assets before they are dissipated, transferred offshore, or converted into forms that are difficult to trace and recover, and fraudulent transfer claim litigation counsel pursuing business fraud asset recovery must evaluate whether a prejudgment attachment, preliminary injunction, or receivership is available to preserve assets pending resolution of the underlying fraud claim and whether the Uniform Fraudulent Transfer Act provides a basis to void transfers the defendant made to third parties in anticipation of litigation.