Fraud, by definition, is difficult to predict. It becomes even tougher to predict when dealing with friends or family members.

However, a 2019 case at the Ontario Superior Court of Justice teaches us that anyone who invests money or conducts business with someone they trust should take a few key steps to protect themselves.

What is Civil Fraud?

The Supreme Court of Canada held in a unanimous decision in 2014 that plaintiffs must prove the following four elements to establish civil fraud:

1. A false representation made by the defendant;
2. some level of knowledge of the falsehood of the representation by the defendant (whether through knowledge or recklessness);
3. the false representation caused the plaintiff to act; and
4. the plaintiff’s actions resulted in a loss.

In so doing, the Supreme Court placed a high evidentiary burden on plaintiffs.

Civil Fraud in the Mughal case

A plaintiff was recently called to meet that high evidentiary burden in a civil fraud case in Ontario.

In 2014, Mughal reconnected with his old friend, Qureshi, who he knew from his time in university in Pakistan. Shortly after, Qureshi attempted to convince Mughal to invest in his company called Bama Inc.

Qureshi described Bama Inc. as an electrical-supply company with international contracts and business relationships. He also referred Mughal to a website which described Bama Inc. as a “leading supplier” of products, tools and equipment.

Qureshi told Mughal to expect returns of 4-8% on his investment. Mughal initially invested $60,000 and was paid a “profit” payment of $4000 several months later. Encouraged by the return, Mughal eventually invested a total of $210,000 in Bama Inc.

Bama Inc., as it turned out, was nothing more than a shell company with no assets or employees. Qureshi was using Mughal’s funds to invest in a different failing company. Qureshi gave Mughal false reassurance on the legitimacy of the transaction by returning a portion of his original investment as a “profit” payment.

In 2019, the Superior Court of Justice held that Qureshi had committed civil fraud and Bama’s directors were ordered to return Mughal’s $210,000 investment plus interest.

What steps should I take to protect myself?

Seek representations and assurances in writing

If you believe you’re a victim of fraud, take steps to capture all false representations or assurances in writing – whether by email, text, or even video/photos.

The decision in Mughal underlines the importance of compiling evidence against fraudsters. The court was particularly persuaded by the evidentiary record that Mughal kept including screenshots of the sham website as well as deceptive text messages from Qureshi.

Meet everyone you’re doing business with

To recover losses from civil fraud, it is essential to implicate the responsible persons. If you are dealing with a corporation, small business, or even a group of friends, meet with all persons implicated in the transaction.

In Mughal, only Qureshi was liable for civil fraud because Mughaldid not meet or communicate with Bama’s other two directors.

Take time to remember important details

Cases of civil fraud often turn on the quality and reliability of the testimony given. It is vital to take the time to remember and note down key details about the fraudulent interactions including name, time, date, location.

The judge preferred Mughal’s testimony because he had a grasp of the details – his testimony was consistent and clear.

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