What Is Fraud?

What Is Fraud?

January 30, 2024 by investor

What Is Fraud?

Fraud is officially defined as: 

“The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.”

Fraud occurs in startups and small businesses and is usually through the action of a founder or employee.

There are five elements of a fraud as follows:

It represents a material fact which is false.

That is made intentionally.

Which is believed by the victim.

And acted on by the victim.

To the harm of the victim.

For one to commit fraud there must be four elements:


Low chance of getting caught;

Rationalization in the fraudster’s mind that it is okay;

And justifications that result from the rationalization.

Investors will find startups are particularly susceptible to fraud due to their lack of information and controls. 


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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.