Honest Mistake vs. Fraud: Building Your Defense

Honest Mistake vs. Fraud: Building Your Defense

The detective’s voice on the phone was calm, almost friendly. “We just need to clear up a few things about that insurance claim you filed.” Your stomach drops. You filed that claim six months ago—there was an error in it, sure, but you fixed it as soon as you realized. Didn’t you? Now their calling it fraud. Your hands are shaking because you know the differance between making a mistake and committing a crime, but does the prosecutor?

This is the moment where everything changes. What you thought was a honest mistake is now potentially a felony charge, and your next decision—weather you talk to that detective or hire an attorney—could determine wether you spend the next five years explaining yourself to a jury or walking away free.

What Prosecutors Look For When Deciding Mistake vs. Fraud

When your under investigation, prosecutors aren’t trying to figure out what happend—they think they already know. They’re building a case. And the differance between them charging you with fraud or dropping the whole thing comes down to five specific factors there analyzing right now.

First, the intent standard. Fraud requires you “knowingly” made a false statement. That’s the legal standard. But here’s what prosecutors actually look at: did you have access to the correct information when you made the error?

If you did, they’ll argue you knew. If you didn’t, thats your opening. The mistake-of-fact defense basically says you had an honest and reasonable beleif that what you were doing was correct. In California, this is explicity recognized under Penal Code Section 484(a) for theft cases.

But here’s the trap—prosecutors will argue that a “reasonable person” would have known better, even if you personally didn’t. This is where your defense starts getting complicated, because they’re not judging you by the standards of your industry or your experiance level. Their judging you by what they think any random person should of known.

Second, the pattern test. One error? That could be a mistake. Three errors? That’s starting to look like a pattern. Ten errors? Your getting indicted. Prosecutors love patterns because patterns show intent. If you made the same “mistake” multiple times, they’ll argue you knew exactly what you were doing. But here’s the thing—sometimes patterns aren’t patterns. Sometimes you make the same error repeatedly because you were trained wrong, or because your company’s software had a glitch, or because the regulations changed and nobody told you. The timeline matters here more then anything.

Third, the correction timeline. This is probly the most important factor, and most people don’t even realize its being analyzed. When did you discover the error? When did you correct it?

If you found the mistake yourself and fixed it immediatly—before any investigation, before anyone asked questions—that’s powerful evidence of innocent intent. If you only “discovered” the error after the FBI showed up at you’re office? That looks like consciousness of guilt. I’ve seen cases where the entire defense hinged on proving the defendant discovered and self-reported the error three weeks before the investigation started. That three week window was the differance between a dismissal and a five-year sentence.

Prosecutors also look at financial motive. Were you under pressure when the error occurred? Were you facing bankruptcy? Did you benefit financially from the “mistake”? The fraud triangle—we’ll get to this in more detail—says fraud requires three elements: pressure, opportunity, and rationalization. If prosecutors can show you had financial pressure at the time, your mistake starts looking alot more like fraud.

But here’s the flip side: if you were financially stable when the error occured, that negates motive. Why would someone whose comfortable commit fraud? This is where your bank statements, your tax returns, and your financial history become critical evidence.

Finally, the concealment factor. Did you try to hide the conduct, or did you act openly? Criminals conceal. Honest people operate in daylight.

If you sent emails asking “is this allowed?” before you did it, that’s evidence of good faith. If you deleted files after you learned of the investigation, that’s evidence of guilt—what lawyers call “consciousness of guilt.” One of the most powerful pieces of evidence in a 2025 case I reviewed was the defendants browser history, which showed he had Googled “how to correct [error]” two weeks before any investigation. That single search proved innocent intent better then any testimony could of.

Here’s what most people don’t understand: prosecutors have economic thresholds they use to decide weather to charge you. Below $50,000 in alleged fraud, they’ll often accept restitution and a civil settlement. Between $50,000 and $250,000, your in the grey zone—they might charge you, they might not. Above $250,000? Your almost certainly getting indicted irregardless of the circumstances.

Why? Because prosecutors have limited resources, and they focus on cases that justify there time investment. This is prosecutorial economics, and it matters more then the actual law in determining wether you get charged.

The Fraud Triangle – And How It Can Save You

There’s this thing called the fraud triangle that every prosecutor learns about, and if you understand it, you can use it to build you’re defense.

The triangle has three sides: pressure, opportunity, and rationalization. According to criminologist Donald Cressey who developed this model in the 1970s, all three elements must be present for fraud to occur. Take away one side of the triangle, and the whole thing collapses.

Here’s how it works. Pressure is the motivation—financial hardship, job loss fears, medical bills piling up. Opportunity is the weakness in the system that makes fraud possible—poor internal controls, lack of oversight, access to financial systems. Rationalization is the mental justification—”I deserve this,” “I’ll pay it back later,” “The company won’t miss it.”

Now here’s where it gets intresting for your defense. If prosecutors can’t prove all three elements existed, they can’t prove fraud. This is what I call fraud triangle inversion—you use the absense of these elements to prove innocence.

Were you financially stable when the error occured? That eliminates pressure. Did you operate under proper oversight and report to supervisors? That eliminates opportunity. Did you act openly and ask questions about the correct procedures? That eliminates rationalization.

The absense of fraud markers is just as powerful as the presense of mistake markers.

But there’s another layer to this that defense attorneys need to understand: the 10-80-10 rule. In fraud prevention circles, researchers have found that 10% of people will never commit fraud no matter what, 10% are activly looking for opportunities to commit fraud, and 80% might commit fraud if the conditions are right—if all three elements of the fraud triangle align.

Here’s the problem: prosecutors love the 80%. Why?

Because that 80% are otherwise honest people who made bad decisions under pressure. They’re educated, they have assets to seize, they cooperate with investigators, and they’re easier to convict then the hardcore criminals in the 10% who actually know what their doing. Your in the 80%, your a target. Your not sophisticated enough to avoid detection, but your educated enough that prosecutors can argue “you should have known better.”

This is why cooperation can backfire so badly for people in the 80%. You think cooperating will help because your honest and have nothing to hide. But prosecutors see you as an easy conviction. They’ll use every word you say against you, and they’ll get you to fill in the gaps in there case for them.

So how do you use the fraud triangle to save yourself? You systematicly eliminate each element.

For pressure, gather you’re financial records showing stability. Bank statements, tax returns, investment accounts—prove you weren’t desperate for money. For opportunity, show that proper controls existed and you followed them. Emails to supervisors, compliance checklists, internal audits. For rationalization, demonstrate you acted openly and sought guidence. “Is this the correct procedure?” emails are worth there weight in gold.

The fraud triangle isn’t just prosecution theory—its your defense roadmap. Every element they need to prove fraud is an element you can disprove to show mistake.

Building Your Mistake-of-Fact Defense

The mistake-of-fact defense is probaly your strongest legal argument when facing fraud charges for what you beleive was an honest error. But understanding how it works—and how to actually prove it—is where most people get lost.

The legal standard is this: if you had an honest and reasonable belief that your conduct was legal, you may lack the criminal intent required for fraud. In California, this is explicit under Penal Code Section 484(a) PC for petty theft cases. At the federal level, for crimes requiring specific intent to defraud, an honest mistake of fact can negate the intent element entirely.

But here’s the catch—it has to be both honest and reasonable. Honest means you genuinly believed it. Reasonable means that belief wasn’t completly absurd.

And here’s where prosecutors set a trap: they’ll argue that what’s “reasonable” should be judged by what a regular person would think, not what someone in your industry would think.

This is what I call the reasonable person trap, and it destroys defenses all the time. You work in healthcare billing, and you interpreted a regulation a certain way based on industry practice. Prosecutors put a juror from Queens who’s never seen a medical bill in there life on the stand and ask, “Would a reasonable person think this was okay?” Of course the juror says no. But that juror isn’t a reasonable healthcare billing specialist—they’re a reasonable person with no industry knowlege.

Your defense against this trap? Expert witnesses. You need someone who can testify that in your industry, your interpretation was reasonable. Not just technically defensible, but actually reasonable based on how professionals in your field operate. A reasonable accountant, a reasonable doctor, a reasonable contractor—these are diffrent from a “reasonable person,” and your expert witness needs to establish that standard.

Now lets talk about the evidence that actually proves mistake-of-fact.

First, contemporaneous documents. This is anything you created at the time that shows you believed your conduct was legal. Emails asking “is this the right way to do this?” Notes from training sessions. Questions you sent to compliance officers. Criminals don’t create paper trails asking for permision—honest people do.

I reviewed a case in 2025 where the defendant had forwarded a confusing regulation to his supervisor with the subject line “want to make sure we’re doing this correctly.” That single email, sent three weeks before the alleged fraud, became the cornerstone of his defense. It showed good faith inquiry, openness, and genuine confusion about the correct procedure.

Second, digital evidence—and this is increasingly important in 2025 cases. Your browser history, your search queries, your document edit logs, these all tell a story about your intent.

If you Googled “how to commit fraud” before the conduct, your toast. If you Googled “how to correct [error]” after discovering it, that proves innocent intent.

In one recent case, the defendants search history showed queries like “what does this regulation mean?” and “correct procedure for filing.” Those searches, made before any investigation started, were powerful evidence of confusion and good faith. Contrast that with a defendant who deleted his browsing history after learning of the investigation—that’s conciousness of guilt, and it destroys your credibility.

Here’s something most people don’t realize: document metadata tells a story prosecutors will examine. When you created a file, when you edited it, when you last accessed it. If you created a “justification memo” after learning of the investigation, the timestamp will expose that. But if you have contemporaneous notes showing you were confused and seeking guidence at the time, those timestamps help you.

Third, pattern of corrections. Did you discover other errors and fix them? Did you self-report problems before anyone asked? A pattern of self-correction suggests honest intent. If you only “found” the error after getting caught, that suggests concealment.

One critical point about mistake-of-fact defense: it works diffrent for specific intent crimes vs. general intent crimes.

For federal fraud charges (mail fraud, wire fraud, honest services fraud), prosecutors must prove you had specific intent to defraud. That’s a high bar, and an honest mistake can negate it even if the mistake was unreasonable. For state crimes requiring only general intent, the bar is lower—you might be convicted even if you honestly believed your conduct was legal if that belief was unreasonable.

This is why jurisdictional analysis matters. The same conduct can be charged as federal mail fraud (specific intent required) or state larceny (general intent may suffice). If your under investigation and both state and federal authorities are involved, your attorney needs to understand which jurisdiction gives you better defense options.

Finally, the “good faith belief” paper trail strategy. If your in business, healthcare, or any regulated industry, you should be creating this paper trail now, before any investigation.

When regulations are confusing, email your lawyer or compliance officer with questions. When your unsure about a procedure, document that uncertainty and ask for guidence. Forward confusing rules to supervisors with “want to make sure we’re doing this right” notes.

These documents become your evidence of good faith later. Criminals don’t ask permission. Honest people operating in good faith seek clarity when their confused. That distinction can be the differance between a conviction and an acquittal.

Should You Cooperate? (The Highest-Stakes Decision You’ll Make)

Look, this is where people destroy themselves.

Your sitting accross from a detective or an FBI agent, and they say, “If you just tell us what happened, we can clear this up.” You think, “I have nothing to hide—I’ll just explain the mistake and they’ll understand.”

Stop. Right there. That is the single most dangerous thought you can have when facing fraud allegations.

Here’s what’s really happening: investigators already believe you committed fraud. Their not there to “clear things up”—they’re there to gather evidence against you. Every word you say will be used to fill gaps in there case. And here’s the part that will keep you up at night: what you think your saying and what prosecutors hear are completly diffrent things.

You say: “I made an error on the insurance claim, but I didn’t realize it was wrong untill later.”

Prosecutors hear: “I made a false statement on an insurance claim” (element one: false statement), “I later realized it was false” (element two: knowlege), “but I didn’t immediately correct it” (element three: intent to defraud).

You just confessed to all three elements of fraud without even realizing it. This is how innocent people get convicted.

The cooperation trap is especially dangerous for people in the 80%—remember the 10-80-10 rule? Your not a sophisticated criminal who knows how to play the game. Your an honest person who made a mistake, and you think cooperation will demonstrate your innocence.

But prosecutors see you as an easy target. You’ll talk without a lawyer. You’ll try to “explain your way out” of the situation. And every explanation you give just makes there case stronger.

Now, there’s something called a proffer letter—sometimes called “queen for a day” agreements. This is where your attorney negotiates an agreement that you’ll come in and tell prosecutors everything, and they won’t use your statements directly against you.

Sounds great, right? Here’s the problem: they can’t use your statements directly, but they can use them to find other evidence. And if you say anything that contradicts what you say later, they can use your proffer statements to impeach you at trial.

I’ve seen proffers destroy cases that should of been easy wins. The defendant goes in thinking he’s clearing things up, admits to facts he didn’t need to admit, and gives prosecutors a roadmap to additional evidence. Then when he gets on the stand at trial and his story has evolved slightly—because humans remember things differantly over time—prosecutors nail him with his proffer statements and call him a liar.

So when should you cooperate?

Here’s the brutally honest answer: almost never without an attorney, and rarely even with one, unless your attorney has negotiated specific terms that protect you.

There are situations where early restitution can prevent charges entirely—but this is a decision you make with legal counsel, not on your own. If the amount in question is below $50,000 and you can make the victim whole immediatly, prosecutors might decline to charge. But if you pay restitution without an attorney negotiating the terms, prosecutors might just take the money and charge you anyway, using the restitution as evidence you knew you were guilty.

Here’s a tactical point most people miss: restitution timing matters more than the restitution itself. If you pay back money before any investigation starts, that looks like an honest person correcting an error. If you pay back money after getting a subpeona, that looks like your trying to buy your way out of criminal charges.

The timing changes the narrative completely.

What about self-reporting? This is a tough call. In some industries—especially healthcare and government contracting—there are self-disclosure programs that can reduce penalties if you report violations before your caught. But self-reporting is also basically admitting you did something wrong. Your attorney needs to analyze whether the benefits of self-disclosure outweigh the risks of giving prosecutors a confession.

I’ve seen self-reporting work out well when: (1) the violation was genuinly inadvertent, (2) the amount was relatively small, (3) the client self-reported immediatly upon discovery, and (4) the client had strong evidence of good faith (paper trail of compliance questions, prompt correction attempts).

I’ve seen self-reporting backfire when: (1) prosecutors decided the violation was more serious then the client thought, (2) the self-report revealed additional problems investigators hadn’t discovered yet, or (3) the client didn’t have a lawyer negotiate the terms before self-reporting.

Now lets talk about something critical: document preservation vs. destruction.

When you learn your under investigation, your first instinct might be to “clean up” files—delete embarrassing emails, destroy drafts of documents, organize your files. Do not do this. Destruction of evidence is its own federal crime (obstruction of justice), and it’s one of the easiest things for prosecutors to prove and juries to understand.

Even if the underlying fraud charges are weak, if they can prove you deleted files after learning of the investigation, your going to prison for obstruction. Its that simple. More people get convicted for the coverup then for the original alleged crime.

But here’s the nuance: you have a right to maintain your files in the ordinary course of buisness. If your company has a document retention policy that says emails get deleted after six months, and your following that policy—not selectively deleting certain emails, but following the existing policy—that’s generally okay.

But once you recieve a subpeona or learn of an investigation, all document destruction must stop immediatly. Your now under a legal obligation to preserve everything.

What if you already deleted something before you knew about the investigation? Tell your attorney immediatly. Don’t lie about it, don’t try to reconstruct it, don’t pretend it never existed. If it comes out at trial that you deleted documents and lied about it, your credibility is destroyed. If you disclose it to your attorney upfront, they can manage the situation and potentially argue it wasn’t done with criminal intent.

Here’s the bottom line on cooperation: you cannot talk your way out of fraud charges without an attorney. I don’t care how innocent you are, I don’t care how honest the detective seems, I don’t care if they say “we just want to hear your side of the story.”

Every single thing you say can and will be used against you. The Fifth Amendment exists for a reason, and its not just for guilty people—its for everyone, because the justice system is designed to protect rights, not to determine truth through interrogation.

If investigators contact you, say this and only this: “I’d like to speak with an attorney before answering any questions.” Then immediately hire a criminal defense lawyer who specializes in fraud cases. Don’t wait, don’t think about it, don’t try to handle the “initial conversation” yourself.

Every hour you wait is an hour prosecutors are building there case while you remain unrepresented.

Your Defense Strategy Roadmap

Okay, so you’ve realized your in trouble—or you think you might be. What do you actually do right now to protect yourself? Here’s the roadmap.

Step 1: Hire an attorney immediately—before charges are filed.

Most people wait until they’re charged to hire a lawyer. That’s a huge mistake. The pre-charge phase is when your attorney has the most leverage. A good fraud defense lawyer can sometimes prevent charges from being filed at all by presenting evidence to prosecutors before they make a charging decision. Once your indicted, the prosecutors have commited publically to the case, and they’re much less likely to back down.

Look for an attorney who specializes in fraud defense specifically, not just general criminal defense. Fraud cases require understanding of complex financial records, regulatory compliance, and white collar prosecution tactics. You need someone whose handled cases like yours and knows how federal and state fraud prosecutions work.

Step 2: Stop talking to anyone about the case except your attorney.

Don’t talk to investigators. Don’t talk to your collegues. Don’t talk to your spouse about the details (spouses can be compelled to testify in some circumstances). Don’t post on social media. Don’t send emails or texts about the case. Everything you say can become evidence, and prosecutors will find it.

Your attorney is protected by attorney-client priviledge—conversations with your lawyer cannot be used against you. But conversations with anyone else? Fair game.

Step 3: Gather your evidence of honest intent.

Work with your attorney to collect every piece of evidence that shows you believed your conduct was legal. This includes:

• Emails asking for guidence or clarification
• Training materials or compliance manuals you were following
• Notes from meetings where procedures were discussed
• Any documentation showing you self-reported or corrected errors
• Financial records showing you weren’t under pressure
• Expert opinions on industry standards
• Communications with supervisors or compliance officers

Your attorney will organize this into a defense narrative that shows mistake, not fraud.

Step 4: Timeline reconstruction.

Create a detailed timeline of when you knew what. When did you first engage in the conduct? When did you learn there might be an error? When did you take steps to correct it? When did you learn of the investigation? This timeline is critical because the difference between discovering an error before an investigation vs. after can be the differance between dismissal and indictment.

Be honest with your attorney about this timeline. If you learned of the error but didn’t correct it immediatly, tell your lawyer why. There might be legitimate reasons (you were seeking guidance on the correct procedure, you were waiting for approval to make changes, you weren’t sure it was actually an error). Your attorney can work with those facts, but they can’t help if they don’t know.

Step 5: Jurisdictional analysis.

This is something most defendants never think about, but it matters enormously. Are you being investigated by state or federal authorities? Could the conduct be charged in multiple jurisdictions? Different jurisdictions have different statutes of limitations, different intent standards, and different procedural rules.

For example, federal fraud charges generally require specific intent to defraud, which is harder to prove then the general intent required for many state fraud charges. If both federal and state authorities are investigating, your attorney might want to try to get the feds to take the case because the intent standard is higher.

There’s also venue issues. Federal cases can be brought in any district where part of the conduct occured. If the alleged fraud involved mail or wire communications accross multiple states, prosecutors might have a choice of venues. Your attorney might be able to challenge venue, arguing that the case should be brought in a different district—preferably one where you have better chances at trial.

Additionally, there are statute of limitations issues. Most federal fraud statutes have a five-year statute of limitations. Some state fraud charges have three-year limits. If the conduct occurred close to the limitations deadline, your attorney might be able to get some charges dismissed on statute of limitations grounds.

These jurisdictional issues are technical, and most people don’t understand them, but they can make or break a case. A sophisticated fraud defense lawyer looks for these defects first—sometimes you can kill a case on jurisdiction or venue before you ever get to the merits.

Step 6: Expert witness identification.

You’ll need at least one expert witness who can testify that your interpretation or conduct was reasonable within your industry. This could be a compliance expert, an industry specialist, an accounting expert, or someone else who can establish that what you did wasn’t obviously wrong to a reasonable professional in your field.

Don’t cheap out on experts. A good expert witness can be worth there weight in gold at trial. A bad expert—or no expert—can leave you trying to explain complex industry practices to a jury that has no context.

Step 7: Understand your options and make strategic decisions.

Your attorney will present you with options at various stages: should we try to negotiate with prosecutors pre-indictment? Should we agree to a proffer? If charges are filed, should we try to negotiate a plea or go to trial?

These decisions depend on the strength of the evidence against you, the quality of your defense evidence, your personal circumstances, and your risk tolerance.

Going to trial is always a risk. Prosecutors have a conviction rate over 90% at the federal level, and they don’t bring cases they don’t think they can win. But sometimes trial is your only option—either because the plea offer is unacceptable or because you genuinly are innocent and refusing to plead guilty to something you didn’t do.

Your attorney’s job is to give you realistic assessments of your chances at trial, the strength of the evidence, and the potential outcomes. Then you make the decision based on your situation and priorities.

One final point: fraud cases are often won or lost in the investigation phase, not at trial. If your attorney can present compelling evidence of innocent intent to prosecutors before charges are filed, they might decline to prosecute. Once your indicted, the prosecutors have made a public committment to the case, and they’re much less likely to back down even if they later realize your actually innocent.

This is why hiring an attorney early—before charges—is so critical.

Don’t Wait Until Its Too Late

Your reading this because you’ve either been contacted by investigators, or you discovered an error that might look like fraud, or you’ve already been charged. Whatever stage your at, understand this—every day you wait is a day prosecutors are building there case while you remain unrepresented.

The differance between a mistake and fraud isn’t always clear in the moment. But how you respond to that ambiguity—wether you hire an attorney immediatly, wether you preserve your evidence of good faith, wether you understand the fraud triangle and can disprove its elements—that’s what determines your outcome.

I’ve seen people walk away from fraud investigations because they had the right defense strategy from day one. And I’ve seen innocent people get convicted because they waited to long to get help, or because they tried to “explain there way out” without understanding how prosecutors think.

If investigators have contacted you, don’t say anything except “I’d like to speak with an attorney.” If you’ve discovered an error that might be characterized as fraud, don’t try to fix it yourself—call a fraud defense lawyer first. If you’ve already been charged, stop reading this article and call an attorney right now.

The line between honest mistake and fraud is real, and its defensible. But you can’t defend yourself alone. You need someone who understands prosecutorial economics, fraud triangle inversion, jurisdictional arbitrage, and all the other tactical elements that seperate winning cases from losing ones. You need someone whose fought these battles before and knows how to win.

Your freedom depends on the decisions you make in the next 24 hours. Make them count.