Business Fraud

Business fraud is a false statement or a hidden fact that someone used to get you to act, and that cost you money when you did. It is different from a broken promise. A contract claim asks whether someone performed. A fraud claim asks whether they lied to get you into the deal in the first place.

That difference matters because fraud opens remedies contract law does not. You may be able to rescind the transaction instead of just collecting damages, reach a person individually rather than only the entity they hid behind, and pursue punitive damages when the conduct was deliberate.

Rokita Law, P.C. represents businesses and business owners in Beverly Hills, Newport Beach, Los Angeles and Orange County in fraud disputes, on both the claimant and the defense side. Amanda Rokita handles cases involving investor and partner deception, misrepresentations in the sale of a business, falsified financials, diverted funds, and concealed liabilities.

Schedule a Business Fraud Consultation.

What Has to Be Proven

California defines deceit by statute in Civil Code section 1710. A fraud claim generally requires five things.

• A misrepresentation. A false statement, a half-truth, or a concealed fact someone had a duty to disclose, or a promise made with no intention of keeping it.
• Knowledge of falsity. The person knew the statement was untrue, or made it recklessly without any basis for believing it.
• Intent to induce reliance. They said it to get you to act.
• Justifiable reliance. You actually relied on it, and doing so was reasonable given what you knew and what diligence you performed.
• Damages. The reliance cost you something measurable.

Reliance is where most business fraud cases are won or lost. A sophisticated buyer who ran full diligence and had access to the underlying records faces a harder argument than one who was denied access or given doctored documents. What you asked for, what you were shown, and what you were told when you asked is usually the heart of the case.

Types of Business Fraud We Work With

Fraud in the Sale or Purchase of a Business

Inflated revenue figures, undisclosed customer losses, hidden litigation, environmental or lease problems left out of the disclosure schedules, or misstated inventory. These claims often turn on the representations and warranties in the purchase agreement and whether a diligence request was answered falsely or dodged.

Investor and Partner Fraud

Money raised on a business plan the promoter never intended to follow, funds used for something other than the stated purpose, side deals concealed from co-owners, or an ownership interest that turns out to be worth far less than represented. Where securities were sold, Corporations Code section 25401 may apply and can be easier to prove than common law fraud.

Financial Statement and Accounting Fraud

Books manipulated to support a valuation, a loan application, or a distribution. This includes revenue recognized early, expenses shifted between periods, phantom receivables, and liabilities kept off the statements entirely.

Embezzlement and Diverted Funds

An employee, officer, or partner moving company money to themselves through fake vendors, inflated invoices, unauthorized payroll, or personal spending run through business accounts. California also allows a civil claim with treble damages and attorney fees under Penal Code section 496 where property was taken by theft, which the California Supreme Court confirmed applies in business disputes.

Vendor, Supplier, and Contractor Fraud

Payment collected for goods or services never delivered, substituted materials, forged certifications, billing for work not performed, or credentials and capacity that were fabricated to win the contract.

Concealment and Failure to Disclose

Fraud does not require anyone to say anything false. Staying silent is actionable where a fiduciary relationship exists, where someone made a partial disclosure that was misleading without the rest, or where they actively prevented you from discovering the fact.

Fraudulent Transfers

Assets moved to a spouse, a shell entity, or a friendly third party to put them out of a creditor’s reach. California’s Uniform Voidable Transactions Act allows those transfers to be unwound, which often matters more than the underlying judgment.

Related Claims We Often Bring Alongside Fraud

• Negligent misrepresentation. The statement was false and the speaker had no reasonable basis for it, but you cannot prove they knew. A lower bar than fraud, though punitive damages are not available.
• Breach of fiduciary duty. Partners, members, officers, directors, and majority shareholders owe duties of loyalty and candor. Self-dealing and concealment by someone in that position is often both a fiduciary breach and constructive fraud.
• Unfair competition. Business and Professions Code section 17200 reaches unlawful, unfair, or fraudulent business practices. It provides restitution and injunctive relief rather than damages, and it has a four-year deadline, which sometimes survives when a fraud claim would not.
• Conversion and unjust enrichment. Useful where the money or property can be traced and the defendant has no legitimate claim to it.

What You Can Recover

Out-of-pocket losses are the baseline. Beyond that, California allows benefit-of-the-bargain damages in some fraud cases, meaning the difference between what you were promised and what you received. Rescission is available where the transaction can be unwound, which puts both sides back where they started rather than compensating you for the loss.

Punitive damages are available under Civil Code section 3294 when fraud, oppression, or malice is proven by clear and convincing evidence. That is a demanding standard, but the possibility changes settlement dynamics considerably.

Certain claims carry their own multipliers and fee shifting. The treble damages available for theft-based claims are the clearest example, and they frequently exceed what a straight fraud verdict would produce.

Deadlines

Fraud claims in California carry a three-year limitations period under Code of Civil Procedure section 338. The clock starts when the aggrieved party discovers the facts constituting the fraud, not necessarily when the fraud occurred.

The discovery rule is narrower than it sounds. Once you have enough information to make a reasonable person suspicious, the period begins whether or not you investigated. Related claims run on different schedules, including four years for breach of a written contract and unfair competition, and two years for negligent misrepresentation in some circumstances. Waiting to see how things develop is how viable claims expire.

What to Do Early

Preserve everything. Emails, texts, drafts, financial records, and the diligence file. Send a litigation hold before anything gets deleted on a normal retention schedule.

Do not confront the other side yet. A premature accusation tells them exactly what you know and gives them time to move money and clean up records.

Trace the money. Where the funds went is usually more persuasive than what anyone said, and it determines whether there is anything left to collect.

Ask about a prejudgment remedy. California allows attachment of assets before judgment in certain commercial cases. Where a defendant is likely to dissipate assets, that motion may matter more than the merits.

If You Are the One Being Accused

Fraud allegations get attached to ordinary business disputes routinely, often to pressure a settlement or to reach an individual behind an entity. California requires fraud to be pleaded with particularity, meaning who said what, when, to whom, and by what means. Vague allegations are frequently subject to demurrer.

The defenses that matter tend to be reliance, materiality, and the economic loss rule, which limits when a contract dispute can be recast as a tort. Rokita Law defends business owners, officers, and investors against these claims and moves early to narrow what is actually in play.

Frequently Asked Questions

Is this fraud or just a breach of contract?

If they intended to perform and then failed, it is a contract claim. If they never intended to perform, or lied about a material fact to get you to sign, it is fraud. The same facts can support both, and they are often pleaded together.

Can I sue the individual, or only the company?

Individuals are personally liable for their own fraudulent conduct regardless of the entity they were acting through. This is one of the practical reasons a fraud claim is worth pleading when the facts support it.

How long do I have to file?

Generally three years from discovery of the fraud. Because discovery is judged by when you should have suspected something rather than when you confirmed it, the safe assumption is that the clock is already running.

What if I signed a contract saying I did not rely on anything outside the document?

Integration and non-reliance clauses are real obstacles but not absolute ones. California permits evidence of fraud in the inducement in circumstances where the parol evidence rule would otherwise exclude it.

Do I have to report it to law enforcement?

No. A civil fraud claim proceeds independently of any criminal case, and the two have different standards of proof. Whether a report helps or complicates your civil position is worth discussing before you make one.

Is it worth pursuing if the other side has no money?

Collectability should be assessed before you spend anything. That said, fraud claims sometimes reach assets a contract claim cannot, including transfers made to keep property away from creditors.

Serving Businesses Throughout Los Angeles and Orange County

• Beverly Hills office, serving Los Angeles County.
• Newport Beach office, serving Orange County.

We also handle matters in federal court where diversity jurisdiction or a federal claim applies, including the Central District of California in both its Los Angeles and Santa Ana divisions.

Schedule a Consultation

If you believe you were defrauded in a business transaction, or you have been accused of it, the first weeks matter. Call Rokita Law, P.C. at (888) 765-4825 or schedule a consultation online.