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Opinion 1

One of the elements or requirements of all fraud laws is that the subject of the fraud be material.  The purpose of the materiality requirement is to ensure that the “thing” that someone was defrauded about is important enough to justify legal action. The common law could not have conceived of ‘fraud’ without proof of materiality (Whistleblower Law Collaborative, 2020). 

For example, imagine you purchase a car and the dealer tells you that the previous owner was a little old grandmother who only drove it 1,000 miles a year to and from church.  Now, imagine that you later discover the dealer had lied to you and the grandmother actually drove 1,000 miles a week.  That lie would be material. As a result, you would be justified in wanting your money back. Now, however, imagine that you discover the dealer had lied to you, and actually, the car was only driven 1,000 miles a year, but it was by a little old grandfather who drove it back and forth to church.  That lie is probably not material, reasonable people wouldn’t care whether their car’s previous owner was a grandmother or a grandfather, so long as the condition of the car was as described (Whistleblower Law Collaborative, 2020).  

To establish materiality as an element, it is sufficient that the statement has the capacity or a natural tendency to influence the determination required to be made. "Material", when used with respect to evidence, is often confused with "relevant," but the two terms have wholly different meanings. To be "relevant" means to relate to the issue. To be "material" means to have probative weight, i.e., reasonably likely to influence the tribunal in making a determination required to be made. A statement may be relevant but not material (The United States Department of Justice, 2020).

During the course of an examination, information is material if having knowledge of such information might reasonably be expected to influence a client’s or employer’s decisions based on a fraud examiner’s report. Accordingly, materiality is a user-oriented concept. Thus, an item of information that, if omitted from a report, would change a user’s perceptions and conclusions is material. When determining what information is material, fraud examiners should not consider what they themselves think is important and material; instead, they should try to decide what users will consider important and material (ACFE, 2022).

In financial information, the amount of an item is material if its omission or misstatement would affect the judgment of a reasonable person who is relying on the financial statements. Materiality is an entity- specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of an individual entity’s financial report (ACFE, 2022). 

Fraudulent Misrepresentation of Material Facts can be prosecuted criminally or civilly. Although it might be necessary to prove that the victim relied upon the false statements and actually suffered a loss in a civil case, these elements of proof might not be necessary in a criminal prosecution. In addition, in some statutes, materiality is assumed and need not be proved (ACFE, 2022).

Normally, only material false statements may serve as the basis for a misrepresentation of material facts case. Materiality usually refers to statements sufficiently important or relevant to a reasonable person in acting or making a decision. For example, a claim that a company enjoyed a 50% growth in profits would probably be material to a prospective investor, whereas a statement that the company was considering moving its headquarters from Toronto to New York City might not be. The materiality of allegedly false statements is often a central issue in security fraud cases (ACFE, 2022).