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Theft - False Pretenses And Fraud

law misrepresentation deception federal

Larceny and embezzlement deal with takings and appropriations without the consent of the true owner. It is necessary now to confront the question of how far the penal law should go where the owner is not merely deprived of possession or enjoyment of his property, but voluntarily transfers his title to the property, as where he is induced to sell the property or to part with money as a result of trickery or misrepresentation by the other party to the transaction. The expansion of common law larceny to include "larceny by trick" in cases where the theft obtained possession by deception has already been noted. But this covered a small fraction of the domain of fraud because it was limited to transfers of possession. If the swindler induced the owner to part with title, that is, to sell or otherwise transfer ownership, the transaction was seen as falling within the realm of contract or commerce.

A number of reasons conjoined to delay the advance of penal regulation in this area. With regard to controversies between merchants, there was a long history or special tribunals and guild regulation that must have seemed to them preferable to the heavy-handed intrusion of national law and officials. With regard to protection of the ordinary citizen and consumer, the ancient common law misdemeanor of "cheating" might have been cited as filling most of the need. That reached the use of false weights and measures or other devices by which the public generally was mulcted. It did not, in principle, inquire into single transactions, where bargainers were supposed to protect themselves ("Let the buyer beware!"). To a cautious eighteenth-century legislator or judge, it would have seemed dangerous, paternalist, and a nuisance to involve the high courts in such trivial, nonviolent controversies. Dangerous, because conviction would so often depend on appraisal of the complaining victim's credibility and that of the defendant, who in the early days at least could not testify in his own defense and enjoyed limited or no assistance of counsel. Moreover, it would have been evident to opponents of penalizing "private" fraud that there would be serious difficulties in distinguishing substantial deception from sellers' exaggeration of value and other conventional puffing of wares (Rex v. Wheatley, 96 Eng. Rep. 151 (K.B. 1761)). Such concerns would manifest themselves during the eighteenth and nineteenth centuries in the first penal laws against private fraud by the very narrow limits placed on the kind of misrepresentation that would be criminal. To this day, under the Penal Code of France mere lying by one party to bargaining is not criminal. To prove criminal fraud the prosecution must also show a "mise-en-scène," that is, a stage setting for the lie such as would inveigle even skeptics.

False representation. The first false-pretense statutes were couched in terms of obtaining money or other property by means of a knowingly false and fraudulent misrepresentation of fact. We may pass without further comment the conventional restriction of this new theft law to theft of "property," and defer for a moment discussion of "knowingly false and fraudulent." What would constitute a sufficient "misrepresentation of fact"? That question may be best be answered by specifying what was not included.

Misleading omissions. The false-pretense laws did not create an affirmative obligation to tell the other party to a bargain everything that he might like to know. Silence is not misrepresentation, even when it is obvious that the other party labors under a misunderstanding. The antiques dealer may acquire Grandma's rocking chair for one-tenth of its market value, she being manifestly ignorant of the fact that it is a rare piece of seventeenth-century Americana. The oil company may send its disguised agent to buy Farmer Brown's land cheap without telling him that oil has been discovered on adjoining land. Not until the enactment of the twentieth-century "blue sky laws" and the federal Securities Act of 1933 did affirmative disclosure become an obligation enforced by penal law, and then the obligation was particularized by specific questions that the promoter was obliged to answer in the registration forms drafted by the enforcement agency. The principle has been extended to other kinds of promotions, such as land sales and franchising.

Opinions and promises. Opinions, including most certainly the seller's expressed opinion of the value of his goods, were not treated as punishable misrepresentations of fact under the typical false-pretense statute, however clear the proof might be that the seller did not hold that opinion. Promises, predictions, and statements of intention were not covered, however clear the proof that the promisor did not intend to perform or did not believe his prediction. Although modern courts are willing to regard such deception as factual misrepresentation of the state of mind of the swindler, the earlier attitude was that the true state of mind of the accused with respect to promises and intentions incident to a bargain seemed too chancy an issue for a criminal trial. Moreover, penalizing false promises would seem as dangerously close to using criminal law to enforce debts and other contracts. True, such a law would reach only promisors who did not at the time of promising mean to abide by the promise, so that honest promisors would, theoretically, not be imperiled. But again, who could judge reliably the subjective good faith of a promisor? Every user of a credit card, every borrower from a small-loan company, every purchaser on deferred payment, would be in jeopardy if at the time of the transaction his financial condition and prospects were so unfavorable as to give rise to an inference that he knew he would be unable to pay the obligation when it came due.

Misrepresentation of law. Nothing would have seemed more self-evident to lawyers and judges than the dichotomy of law and fact; and a statute penalizing misrepresentation of fact must, especially in view of the libertarian principle that penal statutes are to be "strictly construed," not be extended to misrepresentation of law. Misrepresentation of law was not covered. This result was facilitated by a mechanical misapplication of the adage that everyone is presumed to know the law. That adage properly applies only to exclude the defense, in any criminal prosecution, that the accused did not know that his behavior was prohibited. Of course, a misrepresentation of law might under some circumstances escape the false-pretense statute by being couched as an expression of opinion. But it seems clearly arbitrary to give categorical immunity to such knowingly false representations as "This transaction is tax-exempt," "This insecticide may be lawfully used in this state," or "This insurance policy cannot be legally terminated for any reason."

Materiality of misrepresentation. Since the false-pretense statute speaks in terms of obtaining property "by means of" misrepresentation, a causal relation between the swindler's deception and the victim's loss must be shown. For example, if the victim knew the true facts, it could not be said that he parted with his money as a result of the misrepresentation, although the swindler might in such situations be guilty of attempt to obtain by false pretense. It was not necessary that the false pretense be the sole cause of the harm to the victim: deception by others, false rumor, or the victim's greed or self-deception might be contributory causes without immunizing the swindler's fraud.

The idea that the misrepresentation must be material is linked to the causation element of the offense. A salesman may feign a joviality or enthusiasm he does not feel. He may assume a name other than his own, pretend to be rich or pious, or falsely claim membership in a lodge or a veterans' association. Except where such identifications are relevant to an extension of credit to him, they would be held immaterial to the transaction, that is, presumptively not causative. This would be the case even if it could be proved conclusively that the victim would not have entered into the transaction but for a deception of this sort, as where the victim was intensely prejudiced against the race or religion of the salesman, who consequently misrepresented himself in that respect while avoiding all deception as to the mercantile aspects of the deal.

It is thus apparent that the requirement of materiality goes beyond the question of actual causation, and enables the courts to disregard some effective deception for reasons of policy. In effect, it is held that some methods of advertising and "hard sell," although possibly reprehensible, are so pervasive and so uncertainly separable from laudable business activities as to call for repression by less drastic methods than the penal law, for example, by affirmative administrative regulation of competitive practices.

Transcending the limitations of the early false-pretense statutes. Beginning in the nineteenth century, mounting social pressures to penalize all sorts of swindling led to judicial evasion of the limits fixed by the false-pretense statutes and to supplementary legislation, culminating in the federal Mail Fraud Act, which reaches every trick, artifice, or scheme to defraud (18 U.S.C. §§ 1341–1342 (2000)). Judicial expansion of the concept of criminal false pretenses often rested on the incontrovertible proposition that misrepresentations need not be express but can be implied. Thus, granting that omission is not to be penalized, the stock salesman who garnishes his expressed rosy view of the company's profitability (mere "opinion" and "puffery") with the reassuring statistic that the stock has earned an average profit of 20 percent for the last ten years might nevertheless be convicted on a showing that he omitted to state that all the earnings had been in the first year, with steady losses thereafter. Notwithstanding the literal truth of the "average" figure, there would be a finding of an "implicit" misrepresentation that 20 percent was typical of recent earnings.

In the same way, opinions might give rise to implied representations of underlying fact. For example, if a stock salesman assured the customer that the share were nonassessable, when he knew that in fact the necessary steps had not been taken to qualify for nonassessability, he implicitly misrepresented those facts. Opinions were, in any event, not ruled out as a basis of liability if given by one who spoke with purported professional expertise, such as a lawyer, doctor, or disinterested appraiser. Even promises might be brought within the literal scope of "misrepresentation of present fact" when some courts began to view the promisor's state of mind as a "fact like the state of his digestion." The promise could be said to imply that the promisor then had in mind a good faith purpose to perform.

Mail fraud. The Mail Fraud Act incorporates the broadest definition of criminal fraud. Any "trick, scheme, or device" suffices for conviction, and false promises are explicitly included. Opinion, value, or law may be the subject of material deception. Materiality does not totally disappear as a criterion, but a misrepresentation that, standing alone, would have been held immaterial under a false-pretense statute may figure as one element of a "scheme to defraud." The Mail Fraud Act is not confined to obtaining property; a "scheme to defraud" obviously may be directed at defrauding others of valuable services. Indeed, it has been held that the government is defrauded where its normal administrative processes are vitiated through the exercise of improper influences upon officials.

Even the criminal-intent requirement has been somewhat diluted so as to come very close to penalizing reckless as well as knowingly false representations. This result was reached by holding that a promisor's state of mind is a fact that may be misrepresented. Thus, a promoter who makes confident predictions of profit in order to sell securities may be convicted of mail fraud if he is far less confident than he represents himself to be and omits to disclose circumstances that impugn that confidence. Being sanguine himself, he actually believes what he asserts, so that he acts in good faith and without intent to deceive. The prediction is honest but reckless. Or, stated more cautiously, the promoter, aware of his own secret doubts, knowingly misrepresents the extent of his confidence (Knickerbocker Merchandising Co. v. United States, 13 F. 2d 544 (2d. Cir. 1926)).

Mail fraud is a peculiarly American phenomenon that deserves a word of explanation. In principle, under American federalism ordinary crime is the concern of the states rather than of the federal government. The federal government would naturally promulgate penal law relating to treason against the United States, to enforcement of federal tax and customs laws, and to perjury committed before the federal courts and agencies. Theft law, under this concept, would fall within the domain of the states, as do murder, rape, arson, burglary, and assault. But the line begins to blur. Theft of federal property seems to demand uniform national law and enforcement, and appropriate legislation is enacted. As the interstate rail and highway system developed, protection of this national network similarly evoked federal penal legislation against train robbery, stealing of goods moving in interstate commerce, transportation of stolen goods across state lines, and even transportation of women "for immoral purposes." Thus arose a dual jurisdiction whereby a great many local crimes could be prosecuted either by the state or by the national government if some federal "peg" could be proved.

In the case of mail fraud, the federal peg was use of the mails to carry out the scheme to defraud. This was more than a technicality. The mails were extensively employed to conduct fraudulent public promotions extending far beyond the bounds of the state or foreign country where the enterprise was operated. The federal government, by making the subsidized facilities of the postal service available to swindlers, would be perceived as aiding in the exploitation of the victims. State officials where the victims resided would be hampered in investigating operations thousands of miles away, and there would be overlapping and wasteful enforcement effort when numerous state investigations were initiated. Within the postal service, enforcement officers called postal inspectors were employed to determine when the mails were being used for noxious purposes (including not only fraud but extortion, dissemination of pornography, and the like) and to assemble evidence for prosecuting those who thus exploited the federal facilities. Unfortunately, once this enforcement apparatus was created, it followed the tradition of bureaucratic expansionism and involved itself in a great deal of petty local misconduct where, for example, the culprit used the mail, however peripherally, in writing to the victim in the same city or state.

Continuing limits on criminality of fraud. Notwithstanding the breadth of the mail fraud statute and some comparable state laws, much chicanery remains beyond the scope of theft law. If businessmen combine to raise prices above the competitive level that would prevail but for their conspiracy, their illegal behavior must be explicitly penalized by antitrust laws. If a merchant takes advantage of the buyer's ignorance or need for credit to overcharge him outrageously, no crime is committed. If the officers of a corporation vote themselves unconscionable salaries and bonuses, only civil suits present a slim possibility of recovery. Immune from theft law also are manufacturers who cut costs and increase profit by substituting inferior ingredients, and manufacturers who purposely build rapid obsolescence into their automobiles so as to sell more high-profit replacement parts. The taxpayer who defrauds the government of taxes by understating his income and the importer who evades customs duties by smuggling face prosecution under specific statutes, but not for theft. The advertisers who secure our patronage by manipulating our emotions rather than by misrepresentation—for example, by baselessly associating health, virility, sexual attraction, or worldly success with their cereals, skin creams, and cigarettes—are not guilty of theft if, without representations, they merely suggest the association by depicting virile men and lovely women availing themselves of these products.

Perhaps the most interesting noncriminal frauds are found in the fields of religion, politics, and love. Here the problem is not so much that the theft statutes do not apply as that proof is exceedingly difficult and prosecution would run head-on into widespread complacency about prevarication on these subjects, as if deception were, to some extent, part of the game.

As to religion, even the Constitution comes into play to provide a special preserve for fraud, as shown in the famous case of United States v. Ballard, 322 U.S. 78 (1944). The Ballards, husband and wife, were indicted under the Mail Fraud Act for mulcting the members of a religious sect organized and presided over by themselves. Among the knowingly false representations charged to have been made were assertions that the defendants had communications with various saints and that they had the power of healing, which generally manifested itself in transactions transferring wealth to the Ballards. The defense objected to any attempt to prove that the religious assertions were false, arguing that this would amount to a heresy trial contrary to the guaranty of freedom of religion in the First Amendment. The trial court accepted this argument and limited proof to a showing that the Ballards did not believe their assertions; that is, the fact knowingly misrepresented was their own state of mind, not the actuality of communication with the saints. On this theory they were convicted by the jury, and that theory was ultimately upheld by the United States Supreme Court.

However, in a notable and witty dissent, Justice Robert Jackson argued that the First Amendment difficulty was not solved by limiting the proof to the defendants' subjective disbelief of their own statements, since the normal way of demonstrating such disbelief would be to show that the statements were incredible and would not be believed by a reasonable person. Justice Jackson could not see how a governmental effort to establish the incredibility of a religious assertion could be squared with the First Amendment. But going beyond that, he inclined to the view that it was too dangerous to permit criminal prosecution of a preacher based on his subjective reservations as to this or that tenet of his faith. Moreover, Justice Jackson viewed pecuniary support of church and faith as quite distinct from commerce. The contributor is not seeking his money's worth but rather expresses his faith through giving.

In politics, there is a significant paucity of prosecutions instigated by disappointed contributors against candidates who upon election promptly abandon elements of the party platform, giving rise to an inference that the platform was never meant to be carried out. Political contributions, too, must be treated as expressions of faith rather than purchases of commitments. The grounds of politics are too shifting to subject a change of position to potential prosecution. The inhibitions on electioneering generated by potential prosecutions under such circumstances would raise free-speech issues. Political bias, real or suspected, in a trial where the issue was the good faith of a "promising" candidate would evoke public cynicism, and suggests the imprudence of treating false political promises as a crime.

As for love, whether or not "all's fair in love and war," who is to tell whether the fateful declaration "I love you" was true of false? Does the declaration mean "I lust for you" or "I would die for you"? Does it mean "tonight" or "forever"? To what extent was the victim deceived? To what extent are passionate declarations conventional expressions shaped by literature, movies, or television broadcasts, rather than representations or promises? Would the quality of courtship, sexual relations, or communal life be enhanced by authorizing criminal prosecution in this area, prosecutions that would be as exceptional as were prosecutions for adultery when that was pervasively penalized?

Seduction, that is, obtaining sexual intercourse by deception, seems a fairly straightforward fraudulent obtaining of services, and was once widely punishable not as theft but as part of the regulation of sexual behavior. It no longer is. Notably, even civil suits for "breach of promise" or seduction have been widely discountenanced by law as facilitating blackmail. It remains paradoxical that a villain who obtains one dollar from a trusting woman by falsely representing his credentials commits the serious offense of theft, whereas securing her sexual compliance by the same deception remains unpunishable.

Would-be participants in the "religious racket," attracted by the thought that constitutional protection of religious freedom somewhat obstructs prosecution for fraudulent religious pretenses, should bear in mind that there is no constitutional barrier to prosecution for misrepresenting the purpose to which religious contributions are to be applied. Thus, pretending that the contribution is sought to build a church when in fact the swindler intends to pocket the funds is punishable fraud. Similarly, embezzling funds over which the swindler was given control for a specified religious use is punishable theft.

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over 11 years ago

i was wondering if a person went to the dmv and obtained a fake id about 10 years ago is that the samething as obtaining property under false pretenses and do you know how much jail time a person can get for doing that?