Examples of Business Fraud That Cost Companies Billions—Learn From These Mistakes

Business fraud can be devastating. Examples of business fraud can lead to terrible outcomes including ruined reputation, severe financial losses and even bankruptcy in some cases. False pretenses means that an individual or business makes a false statement or promise to defraud another person or business. That individual or business that relied on the lie then gives up something valuable.

The Key Elements to Proving False Pretenses

1. The business or individual makes a misleading statement or lies about services, profits, assets, or credentials. Essentially, the business makes a false representation.
   
2. The business or individual is aware of the false representation and knows that it’s not true.
   
3. There is an intent to deceive.
   
4. An individual or business then believes in the lie and gives up something valuable, such as investments or signs a contract.
   
5. The victim then suffers a financial loss as a result of the lie.
   

What Are Examples of Business Fraud?

Businesses may engage in fraud in a number of ways. Some examples include the following:

• Using shell companies or fake invoices to transfer money
• Making claims of false partnerships to make a deal seem more appealing
• Manipulating financial statements to make the business more attractive to investors
• Promising that certain services or goods exist while knowing that they do not
• Obtaining property through misrepresenting financial documents

Is False Pretenses a Felony or Misdemeanor?

A common question is: is false pretenses a felony or misdemeanor? The answer depends on the extent of the fraud. Depending on the value involved, penalties could range from a misdemeanor to a felony.

Misdemeanors include a property value that is less than $100, which is a second degree misdemeanor. A first degree misdemeanor is property value more than $100 but less than $750.

Grand theft, which is property that is valued over $750 is classified as a felony. A value between $750 and $20,000 is a first degree felony. A second degree felony includes property that is more than $20,000 but less than $100,000. A third degree felony includes property that is $100,000 or more.

Penalties for these classifications include 60 days in jail, 6 months of probation, and a fine of up to $500 for a second degree misdemeanor to a fine of $10,000 and 30 years in jail for a first degree felony.

Examples of Business Fraud That Cost Companies Billions

One of the most famous examples was Enron, which was an energy company that by 2000 was #7 on the Fortune 500, with a stock price over $90 and a market value of $70 billion. Enron counted future profits from long-term contracts as current income. But the money had not come in at the time. For example, a ten-year contract and the associated profits were deemed immediate income right away rather than being spread out over the decade.

Further, Enron created shell companies to hide debt and sell assets to pretend companies while acting like it profited on the books. Once it looked like the company was crumbling, the executives engaged in side trading and sold all their shares. When Enron declared bankruptcy in 2001, it was the largest bankruptcy in history at the time. Shareholders lost $74 billion and perpetrators of the scheme were sentenced to jail.

Another famous example is Theranos, which misrepresented its product capabilities. Theranos claimed that it could run full blood tests with a mere finger prick. There was over $700 million lost in investor’s money. Other companies such as Walgreens and Safeway were deceived. The CEO, Elizabeth Holmes, was sentenced to 11 years.

Smaller Instances of Business Fraud

An instance of payroll fraud happened when a payroll manager at a school district manipulated the District’s payroll accounting software to increase her net pay each pay period, and deposited the stolen funds into her personal bank account, stealing up to $471,000.

Tyco International had thousands of employees and billions in revenue when the CFO and CEO looted the company for personal luxuries. Both men were convicted of grand larceny, securities fraud, and conspiracy.

In summary, the classification of a false pretenses offense in Florida hinges on the property’s value and the nature of the fraudulent activity. Higher property values and more elaborate schemes typically result in more severe felony charges. Understanding whether is false pretenses a felony or misdemeanor in your specific case requires legal expertise.

Why Choose Clayton Trial Lawyers for Your Business Fraud Case

In order to maximize your potential settlement value, you should contact and consult with an attorney that specializes in dealing with business fraud lawsuits. An attorney can help you investigate the fraud, show you the best way to terminate the employee, and navigate the legal steps to take to file a lawsuit.

While your case may not go to court, an attorney can help you negotiate and settle. Dealing with business fraud with the help of an attorney can ensure that your business has the best chance for recovery. We are experienced trial attorneys — not just litigators — with “in the trenches” experience representing employers and employees on challenges such as business fraud.

If your business has been affected by fraud or you need to protect yourself from false pretenses charges, contact our legal team today for a consultation.