Civil v. Criminal Fraud

Forums: Legal, Criminal Law, State Default, Perry V United States
Email this Topic • Print this Page

A person commits a given crime of fraud and the government decides to bring charges against him. Does the government have a choice whether to charge him with civil or criminal fraud? Is the act of fraud the same and the government decides which it prefers to charge him with?

Topic Stats
Top Replies
Link to this Topic

Type: Question • Score: 1 • Views: 6,566 • Replies: 11

No top replies

What jurisdiction? Your question assumes that the whole world has the same legal system, so I guess that makes you American?

1 Reply

@contrex,

United States of America

0 Replies

@gollum,

In US law, I believe that any fraud is a "civil fraud" but only those acts defined by statute are "criminal fraud", and therefore the law, (not "the government") decides whether a fraud is in that subset of all frauds which are criminal.

0 Replies

@gollum,

gollum wrote:

A person commits a given crime of fraud and the government decides to bring charges against him. Does the government have a choice whether to charge him with civil or criminal fraud? Is the act of fraud the same and the government decides which it prefers to charge him with?

Criminal fraud is a public wrong. Civil fraud is a private wrong.

The decision to make a criminal charge is in the hands of the prosecutor's office. The decision to file a civil complaint is in the hands of the person or entity injured.

The penalty for criminal fraud is a fine paid to the government and/or a prison sentence. The penalty for civil fraud is compensation paid to the injured party.

If the fraud is committed against the government, then it could choose either to file a civil complaint. It would be up to a federal prosecutor to bring criminal charges. The people making these decisions are all employed by the government, so you could say that the government decides whether to bring criminal charges or a civil complaint, but they're not the same people.

2 Replies

@joefromchicago,

So if tomorrow the state of California (or Illinois, or New York) defaults on its issued bonds, and given Perry v. United States as precedent >

Quote:

Held:

(a) The fact that the Government's repudiation of the gold clause of the bond is unconstitutional does not entitle the plaintiff to recover more than the loss he has actually suffered, and of which he may rightfully complain. P. 294 U. S. 354.
http://supreme.justia.com/us/294/330/

> can bondholders or the SEC sue the state governments or the rating agencies, and if so would the charges be criminal or civil? Thanks.

2 Replies

@High Seas,

P.S. follow-up legal question, can the bondholders seize state assets in case of default? Parks, bridges, toll roads, fire stations?

0 Replies

@High Seas,

High Seas wrote:

So if tomorrow the state of California (or Illinois, or New York) defaults on its issued bonds, and given Perry v. United States as precedent ...can bondholders or the SEC sue the state governments or the rating agencies, and if so would the charges be criminal or civil? Thanks.

Suing a state is somewhat tricky, since the general rule is that a state cannot be sued without its permission. So I don't know if bondholders are entitled to sue a state or not. The SEC, which doesn't hold any bonds (as far as I know), couldn't sue.

High Seas wrote:

P.S. follow-up legal question, can the bondholders seize state assets in case of default? Parks, bridges, toll roads, fire stations?

No, I'm pretty sure that a state's creditors cannot attach public assets to satisfy debts.

1 Reply

@joefromchicago,

"If the fraud is committed against the government, then it could choose either to file a civil complaint. It would be up to a federal prosecutor to bring criminal charges. The people making these decisions are all employed by the government, so you could say that the government decides whether to bring criminal charges or a civil complaint, but they're not the same people."

joefromchicago-
Thank you.

Thus, a particular fraud is not by its nature civil or criminal. It depends on who is filing the suit or charges (i.e., a private party or a government prosecutor) and in the case of a government prosecutor, prosecutorial discretion. Also I believe some government agencies do not have authority to file criminal charges (e.g., the SEC).

1 Reply

@joefromchicago,

joefromchicago wrote:

.......
Suing a state is somewhat tricky, since the general rule is that a state cannot be sued without its permission. So I don't know if bondholders are entitled to sue a state or not. The SEC, which doesn't hold any bonds (as far as I know), couldn't sue.

High Seas wrote:
P.S. follow-up legal question, can the bondholders seize state assets in case of default? Parks, bridges, toll roads, fire stations?

No, I'm pretty sure that a state's creditors cannot attach public assets to satisfy debts.

The SEC was only mentioned because it has the power to define what is a "security". It did that after California issued IOUs - deemed to be securities, these IOUs could no longer be traded (they were being quoted on eBay at 60 to 70 cents on the dollar, and the banks wouldn't accept them at all) so the teachers et al who had received them in lieu of salary just had to wait until the IOUs due date. California couldn't issue more IOUs after that decision, but the SEC didn't prosecute the state concerning that particular issue - as a private borrower would have been prosecuted.

Moving to the federal government, in the big bank bailout the Treasury provided funds, to be repaid with interest, and also obtained warrants. For purposes of valuation these warrants - in addition to their odd "evaporation" feature - were subsequently adjusted by backdating. This is illegal in the private sector: http://baselinescenario.com/2009/05/22/option-pricing-for-beginners/

So, to rephrase Gollum's question here: is the government effectively above the law in financial matters? In Perry the court granted that what the Roosevelt administration did was unconstitutional but pretty much said there was nothing it could do about it. In the later cases there has been no legal consequences either at the federal or the state level. So, therefore, and in order to avoid insolvency / illiquidity in the public sector the only available recourse is to re-define how the government is elected. There are 2 initiatives on the ballot in California now - propositions 20 and 27 - proposing to do just that. I don't know how the people will vote but on grounds of fiscal sanity I hope it will be yes on 20, no on 27. This professor disagrees:

Quote:

For 30 years, I have been a professor of law at UCLA. I teach courses in political theory, government representation and election law. I know of no theory of government holding that segregating Hunters Point from Nob Hill would improve representation, improve life in California or solve unemployment, environmental or other vital problems.
http://www.today.ucla.edu/portal/ut/no-on-prop-20-yes-on-27-171353.aspx

The "other vital problems" the good professor mentions include California's impending bankruptcy. It's no "theory of government", it's arithmetic.

0 Replies

@gollum,

gollum wrote:

.....Also I believe some government agencies do not have authority to file criminal charges (e.g., the SEC).

The SEC does have the right to bring criminal charges, and does it all the time in securities cases - though I must defer to Joe's legal opinion, as he's a lawyer and I'm not. But I've no idea (and hope for Joe's input) if the Dept of Justice or any California AG would prosecute (presumably based on Johnson-era civil rights legislation) the California redistricting Propositions 20 and 27 (as that's the tack the UCLA professor I just quoted seems to be taking) assuming that 20 is passed and 27 isn't. California's finances are as messed up as Greece's, for much the same reasons:

Quote:

....The ballot arguments against Proposition 20 are nearly incomprehensible, with loony claims about "Jim Crow economic districts." That may be a deliberate strategy to confuse voters in the absence of real arguments.

http://www.mercurynews.com/opinion/ci_16057230?nclick_check=1

Parenthetically, Greece's deficit (defined to include discounted contingent liabilities like pensions and health care, which is how the private sector has to keep books) is 3 to 4 times the amount due on outstanding bonds; so is California's. And if California goes under the fallout will be infinitely greater.
http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds-201010

1 Reply

@High Seas,

High Seas-
Thank you.

From Wikipedia:
The Enforcement Division works with the other three divisions, and other Commission offices, to investigate violations of the securities laws and regulations and to bring actions against alleged violators. The SEC generally conducts investigations in private. The SEC's staff may seek voluntary production of documents and testimony, or may seek a formal order of investigation from the SEC, which allows the staff to compel the production of documents and witness testimony. The SEC can bring a civil action in a U.S. District Court or an administrative proceeding which is heard by an independent administrative law judge (ALJ). The SEC does not have criminal authority, but may refer matters to state and federal prosecutors. The current director of the SEC's Enforcement Division is Robert Khuzami, a former federal prosecutor.

________

The enforcement authority given by Congress allows the SEC to bring civil enforcement actions against individuals or companies alleged to have committed accounting fraud, provided false information, or engaged in insider trading or other violations of the securities law. The SEC also works with criminal law enforcement agencies to prosecute individuals and companies alike for offenses which include a criminal violation.

0 Replies

Civil v. Criminal Fraud

Related Topics

Quick Links

My Account

able2know