Fraud in commercial transactions can cause serious financial losses and long-term damage to business relationships. When one party misrepresents material facts or conceals critical information to gain an unfair advantage, legal action may be necessary to protect your rights and recover losses.
At Kretzer & Arnett, our attorneys represent businesses and individuals in commercial fraud and fraudulent misrepresentation cases throughout Houston and across Texas. Whether you are pursuing a fraud claim or defending against fraud allegations, we provide strategic, detail-driven representation in complex business litigation.
Fraud claims often arise alongside breach of contract disputes, partnership conflicts, shareholder litigation, real estate transactions, and investment relationships. Unlike ordinary contract claims, fraud involves intentional or reckless deception designed to induce another party to act.
Common commercial fraud scenarios include:
Because fraud allegations can expose parties to punitive damages and rescission of transactions, these cases are often aggressively litigated.
Fraudulent misrepresentation is a civil tort claim that may be brought when one party is harmed by false statements or deceptive conduct during a business transaction.
To prove fraudulent misrepresentation under Texas law, a plaintiff must generally establish:
Fraud claims may be asserted alongside contract claims, but they involve different legal standards and remedies.
Depending on the circumstances, Texas courts may award several types of relief in fraud cases, including: compensatory damages, out-of-pocket losses, benefit-of-the-bargain damages, punitive (exemplary) damages in cases of intentional fraud, rescission of contracts or transactions, and injunctive relief to stop ongoing misconduct.
The availability of these remedies makes fraud claims powerful tools in commercial litigation, but they also require careful pleading and proof.
Fraud accusations can seriously damage reputations and business operations. Defendants in fraud cases may face not only financial exposure but also regulatory and professional consequences.
Common defense issues include:
Because fraud claims carry heightened pleading requirements and potential punitive damages, an early legal defense strategy is critical.
A breach of contract occurs when a party fails to perform as promised. Fraud involves intentional or reckless deception used to induce someone to enter a contract or take action. Fraud claims may allow recovery of punitive damages, while contract claims generally do not.
Yes. Texas law allows fraud claims even when a contract exists, especially when the fraud occurred before the contract was signed (fraudulent inducement) or when one party concealed material facts during negotiations.
Possible remedies include compensatory damages, out-of-pocket losses, benefit-of-the-bargain damages, rescission of the transaction, and, in cases of intentional fraud, punitive (exemplary) damages. Courts may also issue injunctions to stop ongoing misconduct.
Yes. Fraud claims must be pleaded with particularity and proven by clear evidence of intentional or reckless misrepresentation and reliance. This makes early case evaluation and property documentation critical.
Most fraud claims in Texas are subject to a four-year statute of limitations, though the clock may start later if the fraud was concealed and could not reasonably have been discovered earlier.
In some situations, yes. Fraud by nondisclosure may occur when a party had a duty to disclose material information and intentionally withheld it, particularly in business transactions involving fiduciary duties or partial disclosures.
Fraud allegations should be taken seriously, as they can result in significant financial exposure and reputational harm. Early legal representation can help assess the strength of the claim, preserve evidence, and develop defenses related to reliance, causation, and intent.
The Association of Certified Fraud Examiners (ACFE) relies on the “Fraud Triangle” in pursuing fraud investigations. The fraud triangle identifies three key elements that are typically in place wherever occupational fraud is found. These three elements are:
For businesses, understanding the fraud triangle can make it easier to identify the individuals it may be wise to investigate first when unexplained discrepancies appear in your financial records. Keep in mind, however, that although the ACFE has found that all three of these criteria are present in the preponderance of occupational fraud cases, the reverse is not necessarily true: Just because a person within your organization looks susceptible to these three criteria does not immediately implicate this person.
The “rationalization” side of the triangle can be difficult to identify in any particular case until an individual has already been flagged as a likely culprit; much of the time, it is not possible to know what someone is or is not rationalizing until their actions have been examined. Even granting all of these caveats, however, starting with the fraud triangle can often give your business, or your business attorney, a strong toolkit for narrowing down the list of suspects whose activities need review.
There are three main types of “internal” fraud (fraud happening within an organization); the ACFE calls this broad category occupational fraud because the fraudster is using the access conferred by their professional position to carry out the fraud. The three types of occupational fraud recognized by the ACFE are:
Each type implicates a distinct set of concerns and possible next steps.
If you suspect that an employee at your company has been engaging in misappropriation, it is critical to act promptly to secure assets and preserve evidence. We typically recommend speaking with an attorney with some knowledge of white-collar crime and perhaps forensic accounting as early as possible to develop a clear plan for outlining the scope of potential fraudulent activity. This scope may depend to some extent on how you suspect the misappropriation of funds has been occurring: Fraudulent payroll or expense reimbursement tactics suggest one avenue for exploration, while diversion of inventory raises a different set of possibilities.
Depending on whether you begin to suspect occupational fraud because of discrepancies in a specific employee’s activities, or because a portion of your business is showing unusual increases in expenditures, the misappropriation scheme may also be linked to the department or individual who merits an initial closer look. This is another question on which a business attorney may be able to help you evaluate options for collecting needed evidence without alerting a potentially guilty party that they are under enhanced scrutiny.
You may be used to hearing about allegations of corruption among politicians who hold public office. Usually, such allegations concern the possibility that public officials inappropriately used their positions for personal gain or, in some instances, were susceptible to using their public office in exchange for bribes. Corruption works in essentially the same way in cases of occupational fraud; however, the position of trust the fraudster is abusing is within the structure of a private business, rather than in a public office.
Corruption can be carried out via any of the following types of schemes:
Corruption accounts for nearly half of all reported cases of fraud, according to the ACFE. Because an individual who is willing to practice corruption in one way may be equally unscrupulous in another, it is important for any investigation into suspected corruption within a company to look beyond the first discovered instances of wrongdoing to determine whether additional corruption may have been at work.
The third type of occupational fraud is financial statement fraud. Although this type of fraud may have the lowest frequency of any internal fraud, the average cost of a financial statement fraud scheme is the highest of all forms of occupational fraud. This disproportionate value is due largely to two factors:
Frequently, the goal of financial statement fraud is to misrepresent the actual value of a company to reassure investors and secure loans greater than the reasonable collateral available in the company’s total assets. The desire to carry off further fraud that will then funnel a portion of the resources collected as a result of the misrepresentation toward the individual perpetrating the fraud is one possible motive; another common motive for financial statement fraud is to hide the fact that a company’s profit margin or overall growth may be lower on the upcoming financial statement than was promised or predicted. Poor performance, even for a single quarter, can often have a significantly negative impact on a company’s future. So senior management has a commensurately strong incentive to present a rosy picture of the company’s portfolio and profits.
Fraud cases often involve extensive financial records, expert accounting testimony, complex business structures, and multi-party litigation. Effective representation requires not only litigation experience but also a working understanding of business operations and financial documentation.
At Kretzer & Arnett, we represent: businesses pursuing fraud claims, investors and partners alleging deceptive and fraudulent practices, companies defending against fraud allegations, and executives and professionals facing individual liability. We tailor litigation strategy to the commercial realities of each case and pursue efficient, results-focused outcomes. Kretzer & Arnett handles commercial fraud and fraudulent misrepresentation cases throughout Houston and across Texas in both state and federal courts.
