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What to Do If Your Business Has Been Defrauded

Fraud is all too common in the business world. Technology has increased security in many ways, but it has also opened the door to many new types of fraud. Phishing scams, identity theft, investment fraud, and data theft are just a few of the many types of scams that you and your business are made vulnerable to by technology. 

When your business has been defrauded, it’s important to know how to respond correctly. A prompt and appropriate response is the best way to mitigate damages and hold the scammers accountable.

Verify Fraud Has Occurred

Not every business loss meets the criteria for fraud. The first step in dealing with business fraud is to confirm that your situation meets the criteria for fraud. You’ll need to be able to show the following:

  • Misrepresentation occurred
  • Misrepresentation was material
  • Deceit was the intent
  • You reasonably believed the lie
  • You suffered damages due to the fraud

In this context, “material” means that the lie must have been related to your business and over a substantial issue. Minor misrepresentations don’t typically qualify as fraud. 

If the other party intentionally misled you and you suffered damages as a result, you might have a legally recognizable instance of fraud on your hands. 

Gather Documentation

Once you become aware that fraud has occurred, you’ll need to thoroughly document anything related to the incident. You should collect all documents and communication related to the fraud, including: 

  • Emails
  • Texts
  • Letters
  • Contracts
  • Financial statements
  • Receipts

An additional precaution is to document all oral communication. Oftentimes, you don’t see fraud coming until it’s too late. However, if you’ve begun to suspect that something dishonest is going on and you’re in contact with the other party, keeping notes on your conversations can help establish credibility when you need to take legal action. 

Report It to the Authorities

Fraud is a form of theft. Nearly every type of fraud should be reported to both the local police and the Federal Trade Commission. 

Depending on the circumstances, you may need to also report it to several other entities. These might include: 

  • FBI
  • Your bank and credit card companies
  • Your insurance company
  • US Postal Inspection Service
  • Better Business Bureau
  • National Consumers League (NCL)
  • Your state’s Attorney General’s Office

All these entities can help play a role in investigating the incident and working to make sure it doesn’t happen again to others.

Build a Case

Business fraud can play out in many ways. Sometimes you know exactly who to blame and where to find them. Other times, fraud occurs anonymously through the internet, and there’s no way for you to find or identify the responsible party.

Regardless of the specifics, it’s always smart to begin working with a lawyer as soon as you’ve learned that fraud has occurred. If the defrauding party is located by authorities, you’ll need an attorney to build a case for court showing how the fraud occurred and the resulting damage. 

Even when the fraudsters can’t be tracked down, an attorney can help make sure you don’t make any mistakes while communicating with insurance companies, banks, and other relevant organizations. 

When the person who defrauded you can’t be found, insurance is likely the only avenue for compensation. Unfortunately, some types of fraud will leave you uncovered by relevant insurance policies. Insurance policies are complex, and fraud often involves gray areas. 
Business fraud is stressful, and it often comes with huge financial repercussions. Having a quick and smart response plan in place is your best chance for regaining lost money and holding fraudsters accountable. 

At Woods Lonergan, we’ve been helping New York City companies resolve issues of business law for years. If you suspect fraud, working with an attorney can help mitigate further damages and prevent you from unnecessarily disclosing information that might disqualify you from possible coverage. Give us a call today.