Legal Question in Intellectual Property in California

A fraud that can become the subject of a successful civil lawsuit must include each of the following five elements:

(1) a false statement of a material fact,(2) knowledge on the part of the defendant that the statement is untrue, (3) intent on the part of the defendant to deceive the alleged victim, (4) justifiable reliance by the alleged victim on the statement, and (5) injury to the alleged victim as a result.

Here, you don't have elements (4) and (5). As to (4), you haven't and couldn't "justifiably" rely upon the client's false statements, because you suspect they are false. Further, (5), you have not sustained any harm yet, at least not of the kind you can sue for.

Finally, I don't know whom you would "report" this incident to.....the police wouldn't be at all interested; at most, you'd have to file and serve your own civil lawsuit, and as mentioned, you don't have all five of the required elements to succeed at trial.

I agree that this is not fraud. It is not good business conduct, however. I wonder if it is possible to solve the problem by simply re-sending them the artwork in question, to prove your point. If they are simply a bad client, you may consider terminating the relationship (assuming, of course, that you ensure that you do so pursuant to your agreement with them).