Is it fraud?

In dealing with words I am often struck by the specifics of certain terms and defining just how the world views one term over another. Today the term "defrauded" has caught my attention. When a business is identified as having defrauded customers do any actual customers need to come forward to specify they felt defrauded, or is the basic actions of a business fraudulent with or without customers officially complaining?

I would like to think that a business can be held accountable for fraudulent activities when those actions are discovered, not when multiple persons have already been defrauded by the company.

According to www.consumerfraudreporting.org - Someone who defrauds someone else does so though deception that is practiced "to secure an unfair or unlawful gain". This can take the form of any action whereby information is expressed, concealed, omitted or in some other way concealed to provide a beneficial advantage.

In the Journal of Accountancy, in an article aimed at expert witness CPAs, fraud is defined in the legal sense of the word as:

Definition of Fraud

All multifarious means which human ingenuity can devise, and which are resorted to by one individual to get an advantage over another by false suggestions or suppression of the truth. It includes all surprises, tricks, cunning or dissembling, and any unfair way which another is cheated.

Source: Black’s Law Dictionary, 5th ed., by Henry Campbell Black, West Publishing Co., St. Paul, Minnesota, 1979.

For the CPA common law fraud is made up of three distinct elements.

1. A material false statement that was made with intent to decieve
2. The reliance of a person (the victim) on the statement
3. Damaged incurred by the victim as a result of the false statement

The Federal Trade Commission defines deceptive advertising as any form of advertising that might contain or omit information that would lead consumers acting reasonably to be mislead and would be important to the consumers decision to purchase or use a product.

The FTC also answers the question of rather or not a company is liable for fraud simply because no one has complained:

Are letters from satisfied customers sufficient to substantiate a claim?

No. Statements from satisfied customers usually are not sufficient to support a health or safety claim or any other claim that requires objective evaluation.

My company offers a money-back guarantee. Very few people have ever asked for their money back. Must we still have proof to support our advertising claims?

Yes. Offering a money-back guarantee is not a substitute for substantiation. Advertisers still must have proof to support their claims.

So, by having misleading information or providing products or services that are misrepresented in advertising claims, a company can be guilty of fraudulent activity even without any customers having complained, and with customers which have reported satisfactory experience with the company.