The Supreme Court Unanimously Rejects Broad Interpretation of Wire Fraud Statute

Foley Hoag LLP - White Collar Law & Investigations

Key Takeaways

  • Courts are showing continued skepticism of broad use of federal fraud statutes.  Last week, two decisions repudiated creative government interpretations of wire fraud’s “property” requirement.
  • In United States v. Ciminelli, the Supreme Court unanimously rejected the “right to control” theory, holding that only “traditional property interests” can support a federal wire fraud conviction, and the right to accurate information to make an informed economic decision is not such an interest.
  • In United States v. Abdelaziz, the First Circuit overturned convictions in the “Varsity Blues” college admissions scandal, rejecting prosecutors’ argument that admissions slots per se qualified as property.

On May 11, the Supreme Court issued its decision in Ciminelli v. United States, its latest in a series of recent rulings reinforcing a narrow interpretation of wire fraud under federal law.[1]

Ciminelli presented the Court with a question regarding the scope of what constitutes “property” under the wire fraud statute.[2]  (For more information regarding the facts of the Ciminelli case, please see our Supreme Court Preview from last August.)

For decades, the Second Circuit has followed a “right-to-control” property theory, which contemplates that “property” under federal fraud statutes includes certain “intangible” property rights, including an entity’s right to control the use of its assets.  The theory is rooted in the notion that “a defining feature of most property is the right to control the asset in question.” United States v. Lebedev, 932 F.3d 40, 48 (2d Cir. 2019).  Accordingly, a showing that a defendant, through withholding or inaccurate reporting of information, deprived an entity of information necessary to make discretionary economic decisions pertaining to its assets amounts to a “cognizable harm” under the theory.  See United States v. Binday, 804 F.3d 558, 570 (2d Cir. 2015).

Last Thursday, however, the Court rejected the “right-to-control” theory altogether.  In a unanimous decision authored by Justice Thomas, the Court held that “the wire fraud statute reaches only traditional property interests,” and the “right to control” is no such interest.  While acknowledging that “the right to information necessary to make informed economic decisions” may be “useful for protecting and making use of one’s property,” the Court rejected the notion that the “right to control” itself constitutes a property interest as traditionally understood.  The Court also expressed concern about the scope of what the “right-to-control” theory would criminalize, warning that acknowledging a right to accurate information would bring “almost any deceptive act” within its purview.

Coincidentally, the Supreme Court was not the only court to reject a creative “property” theory last week.  On Wednesday, the First Circuit issued its ruling in United States v. Abdelaziz, addressing appeals from the convictions of two parents in the “Varsity Blues” prosecution.  There, the “property” underlying defendants’ mail and wire fraud convictions were “admissions slots.”  In a somewhat prescient 156-page opinion by Judge Lynch, the court rejected the “categorical assertion” that admissions slots qualify as property under the statutes.  The First Circuit cited the Supreme Court’s historic emphasis on “traditional notions of property,” and noted that multiple circuit courts—including Sixth and Ninth Circuit opinions cited with approval in Ciminelli the next day—have rejected intangible interests in property.

The First Circuit did not go so far, however, as to hold that admissions slots can never be property.  Rather, the court explained that the government must prove (using dictionaries, treatises, and case law) that that admissions slots have “historically been treated as property” or bear the “traditional hallmarks” of property.  The court recognized that its ruling “leaves considerable uncertainty as to how district courts should apply the mail and wire fraud statutes’ property requirement in cases involving admission to educational institutions,” but it explained “[t]here are sound reasons to be prudent and cautious about criminalizing conduct, even unethical conduct, in this complicated area affecting so many students and parents.”  As with Supreme Court in Ciminelli, the First Circuit expressed concern about the potential breadth of conduct the government’s theory would criminalize, which in the case of admissions slots could include “embellishments in a kindergarten application.”

Both cases provide a cautionary tale for prosecutors seeking to use federal fraud statutes to fill in gaps to address novel forms of misconduct.  While the government may be able to show that conduct was improper or dishonest, that does not make it a federal crime.

[1] In 2020, the Court rejected the notion that conduct that deprives victims of property only incidentally—rather than as its object—could constitute wire fraud under the statute.

[2] The federal wire fraud statute prohibits a person from “obtaining money or property by means of false or fraudulent pretenses.”  18 U.S.C. § 1343.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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