ACFE Law 4 — Questions and Answers
Question 1: Which of the following best describes 'constructive fraud' as distinguished from actual fraud?
- Fraud committed using electronic means
- A breach of legal or equitable duty that the law treats as fraudulent regardless of intent to deceive (Correct answer)
- Fraud involving construction industry contracts
- A fraud scheme requiring three or more participants
Correct answer: A breach of legal or equitable duty that the law treats as fraudulent regardless of intent to deceive
Constructive fraud involves a breach of fiduciary or legal duty that the law treats as fraudulent without requiring proof of actual intent to deceive.
Question 2: The statute of limitations for civil RICO claims under federal law is:
- 2 years from discovery of the injury
- 4 years from discovery of the injury (Correct answer)
- 5 years from the last predicate act
- 7 years from the commencement of the enterprise
Correct answer: 4 years from discovery of the injury
The Supreme Court established a four-year statute of limitations for civil RICO claims, running from when the plaintiff discovered or should have discovered the injury.
Question 3: Under Federal Rule of Evidence 404(b), evidence of prior bad acts is generally inadmissible to prove character but may be admissible to prove:
- That the defendant committed crimes throughout their life
- Intent, knowledge, identity, motive, or absence of mistake (Correct answer)
- The defendant's propensity to commit fraud
- Prior convictions for any felony offense
Correct answer: Intent, knowledge, identity, motive, or absence of mistake
Rule 404(b) permits prior bad act evidence for purposes such as proving motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident.
Question 4: A grand jury subpoena issued in a federal fraud investigation requires the recipient to:
- Retain legal counsel before complying
- Produce documents or testimony as specified, unless a valid privilege applies (Correct answer)
- Appear with counsel present at all times during testimony
- Receive advance notice at least 30 days before the return date
Correct answer: Produce documents or testimony as specified, unless a valid privilege applies
Recipients of grand jury subpoenas must comply by producing the requested documents or testimony, though they may invoke valid privileges such as the Fifth Amendment or attorney-client privilege.
Question 5: Which of the following is considered a 'predicate offense' under the federal money laundering statutes (18 U.S.C. § 1956)?
- Jaywalking
- Specified unlawful activities (SUAs) such as drug trafficking and fraud (Correct answer)
- Civil contract disputes
- Regulatory violations that carry only administrative penalties
Correct answer: Specified unlawful activities (SUAs) such as drug trafficking and fraud
Federal money laundering statutes require that the funds involved proceed from a 'specified unlawful activity' (SUA), which includes drug trafficking, fraud, and over 200 other predicate offenses.
Question 6: Under the Stored Communications Act (SCA), law enforcement generally must obtain a search warrant to access:
- Email headers and routing information
- Email content stored for 180 days or fewer (Correct answer)
- Subscriber registration information
- IP address login records
Correct answer: Email content stored for 180 days or fewer
Following the Sixth Circuit's Warshak decision and subsequent DOJ policy, law enforcement must obtain a warrant to compel disclosure of email content regardless of storage duration.
Question 7: In securities law, insider trading based on material non-public information violates SEC Rule 10b-5 under which legal theory when a corporate outsider misappropriates information?
- The classical theory
- The misappropriation theory (Correct answer)
- The tipping theory
- The short-swing profit theory
Correct answer: The misappropriation theory
The misappropriation theory holds that a person who misappropriates confidential information from a source to whom they owe a duty of trust violates Rule 10b-5 by trading on that information.
ACFE Law 4
Which of the following best describes 'constructive fraud' as distinguished from actual fraud?