Supreme Court’s Kousisis Decision Leaves ‘Material’ Question Open

The US Supreme Court, in Kousisis v. United States, upheld the federal wire fraud convictions of defendants charged with engaging in a “disadvantaged business enterprise fraud” scheme but declined to clearly define what makes a misrepresentation “material.” Still, Justice Amy Coney Barrett’s decision left some hints about materiality which will be increasingly important given shifting priorities at the Department of Justice.

In order to obtain payments after contracting with government agencies to paint a bridge, defendants in Kousisis fraudulently certified that certain work on the project had been performed by a “disadvantaged business enterprise,” as the terms of the contract required for payment. In fact, that work was performed by a non-DBE company, and the named DBE company was only used as a “pass-through.”

The defendants argued that the prosecution was barred by precedent that forbade prosecutors from using the wire fraud statute where the primary goal of a scheme was to deceive the government in its capacity as a regulator, rather than to obtain the government’s interests in property.

The defendants also argued that because the contracting agency received the full economic benefit of its bargain, the prosecution was an impermissible end-run around the Supreme Court’s recent decision in Ciminelli v. United States, when the court struck down the prosecution’s theory that the charged scheme deprived a victim of information necessary to decide how to control the disposition of their property.

Rejecting these arguments, Barrett’s opinion for the court endorsed the US Court of Appeals for the Third Circuit’s “fraud in the inducement” theory that a defendant may be guilty of wire fraud if he makes a material misrepresentation to the victim in an effort to induce the victim to enter into a transaction, regardless of whether the scheme contemplates an economic loss to the victim.

Explicitly left open by Barrett’s opinion, however, was how to define exactly what makes a misrepresentation “material” in this context—even as she wrote that “the ‘demanding’ materiality requirement” is what prevents “every intentional misrepresentation designed to induce someone to transact in property” from constituting wire fraud. The court left this question open because the parties in the case had agreed that the defendants’ misrepresentations were “material.”

But Barrett may have hinted at how the court views questions of materiality in this context—to support her statement that the materiality requirement was “demanding,” she cited the Supreme Court’s unanimous decision in Universal Health Services, Inc. v. United States ex rel. Escobar. That case didn’t concern the mail or wire fraud statutes but rather the False Claims Act, a civil statute that enables the government and private whistleblowers to sue government contractors for fraud and obtain treble damages.

The FCA, unlike the mail and wire fraud statutes, includes a statutory definition of materiality: “[T]he term ‘material’ means having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” Justice Clarence Thomas’ opinion in Universal, however, notes that this statutory definition uses “language that we have employed to define materiality in other federal fraud statutes,” including mail, wire, and bank fraud. He then wrote that the materiality standard is “demanding” and that a “misrepresentation cannot be deemed material merely because the Government designated compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment.”

By stating that the materiality standard in this context is “demanding,” and then citing to Universal Health Services, Barrett may have been hinting that under the mail and wire fraud statutes, too, misrepresentations can’t be deemed material merely because the government designated compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment.

Coincidentally, judicial interpretation of the mail and wire fraud statute’s materiality requirement in this context became even more important for reasons unrelated to Kousisis: On May 19, DOJ announced a “Civil Rights Fraud Initiative,” which consists of a task force aiming to bring FCA cases against recipients of federal funds who falsely certify, as a condition of receiving the federal funds, that they are complying with federal civil rights laws.

While the above quoted passage of Universal will play an important role in FCA cases brought pursuant to this Civil Rights Fraud Initiative, the same contractors and grantees who come under scrutiny pursuant to that initiative must also be prepared for scrutiny by federal criminal prosecutors armed with the mail and wire fraud statutes and now with Kousisis as precedent.

If those recipients of federal grants and contracts are investigated or charged with mail or wire fraud as well as violating the FCA, they shouldn’t forget Barrett’s reminder that the materiality requirement is “demanding,” or her implication that for mail and wire fraud cases as well, a misrepresentation isn’t “material” merely because the government designated compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment.

The case is Kousisis v. United States, U.S., No. 23-909, 5/22/25.

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

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Paul Tuchmann is a partner in Wiggin and Dana’s litigation department and a former federal prosecutor.

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