Investment Fraud

Another popular area for application of the mail and wire fraud statutes is that of franchise and investment fraud. Examples of investment fraud include misrepresentations about: the value of the investment; the security of the investment; the exclusivity of the investment; the actual existence of the business assets underlying the investment; and the qualifications of those that are soliciting the investment.

Examples of franchise fraud include: franchising a non-existent exclusive geographic sales territory; misrepresenting franchisor obligations; or misrepresenting franchisee services to be supplied.

Similarly, land fraud, where unimproved building lots are marketed as safe investments, is another great example of potential cases in this area. Often in such schemes the seller will lie either about improvements to be made or the nature of the secondary market (i.e. resale value). In applying the “reasonably calculated to deceive” formulation, courts determine whether fraud or mere sharp dealing occurred by considering the buyer’s opportunity to verify such information for himself. Like consumer fraud, a common defense will be that such claims were made in good faith.

Another area of investment fraud with popular mail/wire fraud application is that of tax shelter funds. Sometimes a broker will syndicate oil or gas reserves that don’t actually exist at all. Since there is no actual security, the regular securities fraud analysis may be inapplicable, leaving prosecutors the option to use the wire fraud statute to sidestep this substantive requirement. This is the case in most securities fraud contexts where the security doesn’t exist, is valueless, or is not actually owned by the seller.

In any of these fraud schemes, it is common for unknowing purchaser or franchisee to make payment via mail or interstate wire, triggering the statutes.