High Court Could Clarify Scope of Oft-Used Wire, Mail Fraud Laws

Prosecutors have repeatedly tested the boundaries of what constitutes wire or mail fraud, advancing aggressive and novel theories. In response, the US Supreme Court and lower courts have repeatedly held that these statutes have more limited application, without necessarily clarifying where the lines should be drawn.

The terms of the mail fraud and wire fraud laws have applied to a wide range of offenders, from enterprises selling worthless distributorships to professionals devising plans to inflate medical expenses or politicians accepting bribes.

And more recently, the Department of Justice used the wire fraud statute, which dates back to the 1800s, to regulate cryptocurrency.

While courts continue to grapple with the scope of those statutes and their application to novel facts, the upcoming Kousisis and Alpha Painting & Construction Co. v. United States, slated for Supreme Court oral argument Dec. 9, may further clarify the limits of wire or mail fraud.

We explore how the statutes are currently understood, the cases that have shaped this legal discourse, and how Kousisis might further shape the parameters for prosecuting fraud.

The Elements

Preliminarily, courts have acknowledged that the federal wire and mail fraud statutes don’t reach every transaction involving “money or property,” and that civil and state law remedies may reach conduct that these federal criminal statutes don’t. But courts have historically diverged over which transactions those statutes do reach—and when civil and state laws may be more appropriate.

The Ninth Circuit Model jury instructions set forth the following elements:

• The defendant knowingly devised a scheme to defraud for the purpose of obtaining money or property by means of false representation
• Those representations were material
• The defendant acted with the intent to defraud, that is, the intent to deceive and cheat
• An interstate wire communication was used to carry out the scheme.

The same elements apply to mail fraud, except the scheme must be carried out using the mail.

Even where these elements may be theoretically satisfied, the DOJ manual instructs that isolated transactions involving minor loss should be left to civil or state court criminal litigation.

“Serious consideration, however, should be given to the prosecution of any scheme which in its nature is directed to defrauding a class of persons, or the general public, with a substantial pattern of conduct,” it says.

Tightening the Reins

In response to a series of expansive prosecutorial theories, a string of Supreme Court decisions have clarified those statutes’ limits.

The first case, McNally v. United States, ruled in 1987 that the mail fraud statute can’t criminalize “the intangible right of the citizenry to good government” because it only protects money and property. Other decisions followed, including notably:

• Cleveland v. United States (2000) held that renewable video poker licenses didn’t constitute property, and ruled that absent “clear statement by Congress, we will not read the mail fraud statute to place under federal superintendence a vast array of conduct traditionally policed by the States.”
• Skilling v. United States (2010), limited the application of the honest services statute (a species of wire and mail fraud that applies to schemes that violate the right to honest services) to defendants who hold a fiduciary duty and participate in bribery and kickback schemes.
• Kelly v. United States (2020), reversed the lower court convictions arising out of “Traffic-gate,” finding that changing the traffic flow onto the George Washington Bridge’s tollbooth plaza as political retaliation didn’t violate the federal fraud statute because “the scheme here did not aim to obtain money or property.”

Most recently, in Ciminelli v. United States, the Supreme Court decided in 2023 that the right-to-control theory (namely, that depriving a party of valuable economic information could be considered fraud) “cannot form the basis for a conviction under the federal fraud statutes.” In other words, “the federal fraud statutes criminalize only schemes to deprive people of traditional property interests.”

Based on that precedent, earlier this year in United States v. Milheiser, the US Court of Appeals for the Ninth Circuit vacated the convictions of a group of defendants based on the government’s expansive interpretation of the fraud statute.

Upholding those convictions, the Ninth Circuit concluded, would mean that virtually “all deception would be federal fraud.” Under Supreme Court precedent, “the scheme must be ‘one to deceive [the victim] and deprive [her] of something of value,’” and “a false statement must directly or indirectly deceive the victim about the nature of the bargain.”

What to Expect

Kousisis presents yet another opportunity for guidance on these important statutes. In this case, Alpha Painting and its manager Stamatios Kousisis were convicted on wire fraud charges based on their evasion of regulatory and contractual Disadvantaged Business Enterprise participation goals.

The government argued in their closing statement that the alleged fraud “had nothing to do with dollars and cents,” but that “obtaining” PennDOT’s money with false promises of compliance was nonetheless property fraud.

The US Court of Appeals for the Third Circuit upheld the convictions but vacated the sentence. The Supreme Court subsequently granted certiorari on three questions:

• Whether deception to induce a commercial exchange can constitute mail or wire fraud, even if inflicting economic harm on the alleged victim was not the object of the scheme
• Whether a sovereign’s statutory, regulatory, or policy interest is a property interest when compliance is a material term of payment for goods or services
• Whether all contract rights are “property”

How it resolves those questions will clarify issues over which the appellate courts are deeply split—but is unlikely to end the continuing back and forth between prosecutors and the courts.

The case is Kousisis and Alpha Painting & Construction Co. v. United States, U.S., No. 23-909, to be argued 12/9/24.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Mark Krotoski is partner at Pillsbury Winthrop Shaw Pittman and leads the cartel enforcement and cyber disputes teams. He was previously chief of the Criminal Division in the US Attorney’s Office for the Northern District of California.

Anne Voigts is partner and appellate practice leader at Pillsbury Winthrop Shaw Pittman, former Supreme Court clerk, and former assistant US attorney in the Northern and Central Districts of California.

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