Two fathers found guilty by a Boston jury for paying bribes to secure college spots for their children have little in common with two bank executives convicted in Portland, Ore., for bank fraud and related crimes. But their cases are set on a collision course that could meet in the U.S. Supreme Court, with ramifications for white-collar prosecutions around the country.
On Oct. 8, 2021, a jury convicted the first set of trial defendants in the government’s “Varsity Blues” investigation, which has seen 57 defendants charged, of whom 47 have pleaded guilty.
Also on Oct. 8, a divided panel of the U.S. Court of Appeals for the Ninth Circuit, in United States v. Yates, vacated convictions on all the counts against two bank executives. The alleged plots have little in common: In the Varsity Blues prosecution of the two parents, money was funneled to college sports teams through a private counselor to secure college admissions; in Yates, funds were moved to mask the health of a bank.
The principal charges are also different—wire fraud in the former case and bank fraud in the latter (along with related counts in both). But both sets of statutes aim at individuals who obtain property from victims through fraud, an area of the law that has received unusual recent attention from the Supreme Court—and not the kind of attention the government had been seeking.
Government’s Dilemma
The government’s problem in the two trials is similar to the one it faced in the “Bridgegate” prosecution. There, a unanimous Supreme Court reversed the convictions of two officials who closed lanes on the George Washington Bridge to retaliate against a mayor of a city who had declined to endorse their boss.
Paying someone off to secure college admission, just like moving funds to make loans appear non-delinquent—and like closing bridge lanes—is conduct that most would agree is wrong, unethical, and perhaps even criminal. But whether such conduct constitutes a federal crime, specifically designed to punish individuals who deceive victims to obtain property, is a different question, and one the government must answer any time it charges bank fraud, mail fraud, or wire fraud—crimes punishable by decades in federal prison.
Is Admission to a School Property?
The government’s principal theory in the Varsity Blues case was that the parents fraudulently obtained property in the form of college admissions. But they paid full tuition for those slots. The schools did not lose any money; in fact, at least one of the parents made an additional contribution.
As a result, the threshold and novel question is whether a person can be guilty of fraudulently obtaining property for which he pays in full. Even if the government gets beyond that issue, it must still contend with the question that has already divided two judges in the same courthouse: whether admission slots constitute property?
The fundamental problem for the government is the mismatch between legal theory and reality. The victims, as presented by the indictment, are the universities, but the direct victims of the scheme are college applicants who would have received offers of admissions that were instead extended to the defendants’ children.
To be sure, universities suffered too; their integrity and reputations have been called into question, and they were deceived in the admissions process. But even the government would admit that neither of those things constitutes property. As a result, the government is stuck fitting square pegs into round holes.
Yates Opinion
Yates crystalizes the issue. In the portion of the opinion that drew on the Supreme Court’s decision in Bridgegate, the Ninth Circuit explained that “the loss to the victim must be an object of the fraud, not a mere implementation cost or incidental byproduct of the scheme.” But when the target of the deception is one person or entity (schools in the Varsity Blues case) and the victim who suffers the direct harm is another (the qualified but rejected college applicant who was the last one out), the loss to the victim is necessarily the byproduct of the scheme, rather than its object.
Like the Bridgegate defendants who sought to slow down traffic on the bridge and in the course of that scheme created unnecessary labor for employees, the Varsity Blues defendants wanted their children admitted and, in the process, probably harmed the qualified-but-rejected applicants. The added labor in the former scheme—held insufficient by the court—was just as much a byproduct, as was the damage done to the qualified applicants in the latter.
Moreover, in Yates even the government conceded—albeit not until oral argument on appeal—there is “no cognizable property interest in the ethereal right to accurate information.” At bottom, that is all the identified victims in the Varsity Blues prosecution can claim to have lost—a property interest in the right to accurate information during the admissions process.
To be fair, the government secured other counts of conviction against the two parents (with their own host of legal issues), and may well squeak by on appeal.
But the incongruity in victim and property loss, is not a one-off problem for the government. For instance, it recently charged an aircraft company employee with wire fraud for deceiving authorities about a flight system, but as far as the indictment discloses, the defendant did not commit the alleged fraud to obtain any property from the identified victims.
As Justice Kagan reminded us, “not every corrupt act . . . is a federal crime,” and that is true whether it is an abuse of power by a government official, a deceitful act by a bank executive, or a payoff to get a child admitted into college.
The trial judge in Yates predicted that the government’s legal theories could lead to a “really interesting appellate or Supreme Court decision”; the Varsity Blues judge made a similar prediction (though in the context of ruling on a different issue). Both may prove to be right.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owner.
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Andrey Spektor is a litigation partner at Bryan Cave Leighton Paisner and a former New York federal prosecutor.