Fraud Lawsuits In Connecticut – Is A Promise of Happiness Fraud or Puffery?

Debra Cassens Weiss yesterday posted on article on the ABA’s website about the psychic Sean Morton who is being sued for fraud for taking 6 million dollars from investors on the promise of piles of money and spiritual happiness.  The Securities and Exchange Commission is bringing the suit and the main theory is that Morton is a fraud.  No kidding. 

For this post, I review what constitutes fraud in Connecticut under the common law and grounds for Connecticut attorneys to bring a lawsuit for fraud.   In Connecticut, fraud is committed when:

  • a person makes a false representation as a statement of true fact
  • the person knows the statement is not true
  • the person makes the statement to induce another person to act upon the statement
  • the person who acts upon the statement sustains damages

When an attorney brings a lawsuit for fraud in Connecticut, an attorney must allege more than simple facts stating these elements.  Attorneys bringing a fraud case must make specific allegations describing the actual fraud.  In general the false statements must relate to an existing fact, past fact, or a promise to do something in the future with no intent to do so.  Although generally affirmative statements must be made to support fraud, there are circumstances where a failure to speak can be fraud if there is a duty to speak.

When you bring a lawsuit for fraud in Connecticut, there is also a higher standard of proof.  Ordinarily, in civil cases, an attorney must prove the fraud elements of the case by a preponderance of the evidence.  Many people describe this standard as greater than 50% or more likely than not likely.  In fraud cases, the plaintiff must prove the elements of fraud by clear and convincing evidence.  This standard is greater than a preponderance of the evidence.

If a plaintiff is successful in proving fraud, there are two categories of damages that generally apply.  First, a plaintiff may rescind or get out of the induced transaction (i.e. cancel the contract) and sue for restitution type damages.  This type of remedy seeks to put the plaintiff in the same position as if the fraud never occurred.  Alternatively, a plaintiff may affirm the transaction and seek compensatory damages.   This type of remedy may apply when a plaintiff wants to keep some consideration from a transaction but sue for fraud damages.

In addition to these two categories of damages, a successful lawsuit for fraud could also result in an award of punitive damages, which is generally the cost of suit less expenses or the attorneys fees incurred in the case. 

Here is a short list of some of the types of fraud lawsuits attorneys bring in Connecticut:

  • Contract fraud – you enter contract based on false statements
  • Consumer fraud – think about the recent Toyota lawsuits
  • Advertising fraud – you buy a product based on a false claim, bait and switch 
  • Investment fraud – think Bernie Madoff, Sean Morton, Ponzi schemes
  • Real estate or mortgage fraud – false appraisals, straw buyers

When you consider the allegations against the psychic Sean Morton, it is evident he would be subject to a fraud lawsuit in Connecticut.  There might be a legitimate defense, however, to the some of the claim.  In general, puffery, opinions, exaggerations, and comments made in jest are not fraud. 

So what do you think, is a promise of happiness and piles of money by a self proclaimed prophet fraud?