Dishonesty is a vital ingredient when a prosecution seeks to establish fraud. The same basic principles apply to any type of financial fraud and it is possible to analyse how it might relate to specific circumstances such as investment fraud.
Parties at risk of prosecution should consider how dishonesty is established to understand how it can affect their own circumstances.
The leading case on dishonesty: R v Ghosh (1982)
The seminal case of Regina v Ghosh (1982) established the judicial test for dishonesty. In Ghosh, a surgeon billed for procedures he did not perform. He argued he was legitimately due the fees for consultancy and was not acting dishonestly.
The jury convicted him based on the Court’s instructions to consider the contemporary standards of honesty and dishonesty. The surgeon appealed and the verdict was upheld thereby establishing the test for dishonesty.
The test for dishonesty
Dishonesty is a question of fact for the jury focusing on the defendant’s state of mind. A jury will use the two-part test of dishonesty established in Ghosh in many different types of cases if dishonesty might be a component.
The first part is objective. A jury must determine whether an act was dishonest in accordance with ordinary standards of a reasonable and honest person. If the jury does not find an act dishonest by that standard, then the case will not proceed further. However, if the jury does find that a reasonable and honest person by committing the act would be acting dishonestly, then they will proceed to the second part of the test.
This second part is subjective. The jury must determine whether the defendant must have realised the act was dishonest. An affirmative finding by the jury as to both steps results in a finding that the act was dishonest.
The test of dishonesty applied to investment fraud
The test of dishonestly will be applied to investment fraud. Not all risky or bad investments result from fraud and dishonesty is a crucial element to prove that investment fraud occurred.
A jury will begin with the first, objective step of the test by determining whether, according to ordinary standards, a reasonable and honest trader or firm would have performed the act. This will usually be demonstrated by having experts testify about accepted industry procedures and standards for honesty. The jury will also consider professional expectations and practices.
If the jury finds that the act is dishonest according to the objective standard, they move to the second, subjective step and deliberate whether the trader or firm in this instance must have realised the act was dishonest. Because investment fraud is complex and there are infinite types of dishonesty, the subjective step of the test is important; the defendant must have known it was dishonest and willingly participated anyway.
To avoid a finding of dishonesty, a jury must be encouraged to empathise with the defendant and understand why their actions were motivated by honesty. This can be proved through testimony, disclosure of documents; and most importantly, putting the jury in the defendant’s place to understand motivations and impulses. In this way, even if overzealous sales or risky trades may appear dishonest according to ordinary objective standards, the subjective intent to act honestly may be proved and exonerate an innocent defendant.
Always seek expert advice
The risks associated with a successful prosecution mean that expert advice should be sought at an early stage if parties are being investigated or have been accused of investment or other financial fraud; contact our experts by telephone 01616 966 229 or complete our online enquiry form today for more information.