Business Fraud

Business Fraud

A claim for fraud involves a material misrepresentation that deceives, misleads, violates a confidence or injures a public interest. The plaintiff must prove the defendant made a false representation of material fact which was intended and did induce the justifiable reliance of the plaintiff and that reliance caused damage to the plaintiff. There can be actual fraud - for instance a seller of business alters the books to reflect a continuing profit when there are really losses. A claim for actual fraud requires that the defendant had knowledge that they are committing a fraudulent act that would mislead the plaintiff.

Constructive Fraud

Constructive fraud arises when there is a confidential or special relationship between the parties and it’s taken advantage of to deceive the other party. It is also commonly pled as a breach of fiduciary duty. To establish constructive fraud, a plaintiff  must show that  defendant  made false or misleading statements, plaintiff relied upon them and the plaintiff was damaged as a result. While a Complaint for fraud must identify with specificity the acts that constitute fraud, a claim for constructive fraud does not have such a requirement.

Colorado's Fraudulent Transfer Act

Colorado has enacted the Uniform Fraudulent Transfer Act which provides remedies for defrauding past and present creditors. There are a number of tests (or “badges” as they are called) to determine if a transfer is fraudulent under Colorado law. These include preferential treatment of some creditors and transfers to corporate insiders to avoid creditors of the business. The law can be used to hold officers and directors personally liable for the debts of the company and to claw back fraudulent transfers.

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