by Benjamin R. Barron, Gregory D. Bernstein, and Akhil Sheth

We, the authors, have over twenty-five years’ combined experience as federal prosecutors tackling complex crimes—from billion-dollar fraud, to headline-grabbing public corruption, to wiretaps and organized crime. In this first Criminal Deliberations column, we will expound upon the U.S. Supreme Court’s latest decision on wire fraud prosecutions, and what it means for what’s ahead.

For federal prosecutors across the country, “June gloom” signals something far more ominous than hazy skies and light rain. It’s when the U.S. Supreme Court releases its most consequential opinions of the term. And for two decades, it’s when white-collar prosecutors sit with bated breath awaiting the Justices’ latest salvo against government overreach in enforcing the federal fraud statutes.

At least, until now.

The Supreme Court’s decision this past term in Kousisis v. United States affirmed convictions for a fraud scheme that caused no economic harm to its victim. The decision marks a shift from the Court. To understand why, let’s take a step back.

The federal mail fraud statute dates back over 150 years and the wire fraud statute goes back nearly 75 years. Both use notoriously broad language that Congress has left largely untouched in the decades since. That breadth led to a game of Supreme Court whack-a-mole. Over the last quarter-century, the Department of Justice (DOJ) has used the statutes to pursue ever-broader prosecutions. And the Supreme Court has repeatedly struck back, to quote Justice Kagan, against DOJ’s “ballooning of federal power.”

Exhibit A: Cleveland v. United States. Carl Cleveland was convicted of mail fraud for lying to the State of Louisiana to obtain poker licenses. The result? In 2000, the Court issued a broad, unanimous opinion that state licenses are not “property” under the federal fraud statutes. In the Court’s eyes, to hold otherwise would have endorsed “a sweeping expansion of federal criminal jurisdiction.”

Soon after came Skilling v. United States. The government’s theory was that Enron CEO Jeffrey Skilling engaged in widespread deceptive business practices that deprived Enron and its shareholders of his honest services. In 2010, the Court reversed Skilling’s honest service fraud conviction and held that the statute would be unconstitutionally vague if not confined to bribery and kickbacks.

Next up was Kelly v. United States, the “Bridgegate” case. The DOJ charged New Jersey state officials with fraudulently shutting down the George Washington Bridge to carry out a political vendetta. In 2020, in another unanimous opinion, the Court reversed the convictions and held that the abuse of regulatory power did not amount to a deprivation of money or property. The scheme did not target money or property, so according to the Court the defendants “could not have violated the federal-program fraud or wire fraud laws.” The Court reminded DOJ to not use the fraud statutes to “enforce its view of integrity in broad swaths of state and local policymaking.”

And just two years ago, Ciminelli v. United States. The jury convicted Louis Ciminelli of bribing a New York state official, giving Ciminelli the inside track to land more than $750 million in state-funded construction contracts. DOJ argued that by rigging the bid process and providing false information, Ciminelli stripped the victim of its “right to control” its money with full information and thus violated the wire fraud statute. In yet another unanimous decision, Justice Thomas wrote that the prosecution theory was “unmoored from the federal fraud statute’s text.” The “right to control” theory was not grounded in traditional property rights and thus could not support a wire fraud conviction.

Then came Kousisis.

The case involved a Pennsylvania Department of Transportation program that solicited bids to restore two Philadelphia landmarks: the Girard Point Bridge spanning the Schuylkill River and the 30th Street Train Station. The federal government funded the projects, but on the condition that the agency award some of the funding to socially or economically disadvantaged people.

Alpha Painting & Construction and its project manager, Stamatios Kousisis, wanted to work on both projects. Kousisis’s bids claimed that Alpha would subcontract paint supplies from Markias Inc., a disadvantaged business. This led to Alpha receiving $95 million in contracts for the renovations.

Both projects were successful. Alpha made $20 million, Markias made $170,000, and the Pennsylvania government was happy with the work. But there was one problem: Markias wasn’t really a disadvantaged business subcontractor. To secure the bid, Alpha’s paint suppliers generated purchase orders billed to Markias, who added fees and invoiced Alpha for the inflated amounts. Kousisis then paid the actual suppliers for the paint and Markias for its passthrough services.

The issue before the Court: do the federal fraud statutes allow a conviction for fraudulently inducing a victim into an agreement, even where the victim has suffered no economic harm? And even if Kousisis did not intend to cause economic harm?

Looking at the facts, there isn’t much of a difference from the “right to control” theory that Ciminelli had just recently rejected. The distinction is that the DOJ in Ciminelli chose not to pursue a “fraudulent inducement” theory. So the Supreme Court didn’t weigh in on whether a different prosecution theory would square with the wire fraud statute.

This time, given the chance to address the issue, the Supreme Court responded in the affirmative: “The text of [the wire fraud statute] does not mention economic loss, let alone require it.” This interrupted the decades-old trend of the Supreme Court reversing wire fraud convictions.

But “June gloom” may soon return to the forecast. Because Alpha and Kousisis did not challenge whether the false statements at issue were material, the Supreme Court did not address the issue. And in separate concurrences, three of the justices signaled that may have made the difference in the ultimate outcome.

And in a sense, Kousisis doesn’t really offer anything new. Making a false statement to get money or property—and using an interstate wire to do so—has been wire fraud since the dawn of time. The federal judiciary has long rejected the argument that the fraud statutes require intent to exact financial harm.

Kousisis is still a win, but more like a first-quarter layup than a half-court buzzer-beater. If you’re a DOJ prosecutor, hold onto that umbrella.

Benjamin R. Barron, Gregory D. Bernstein, and Akhil Sheth all of whom are white collar defense attorneys with Keller Anderle Scolnick LLP.

Criminal Deliberationsis a new, occasional column about criminal litigation that offers insights into a trial or ruling. To contribute, email the Editor-in-Chief at gialisa@gmail.com.