Supreme Court Reins in Wire Fraud and Honest Services / Corruption Prosecutions Yet Ag

A gavel rests on top of an open law book with the U.S. Supreme Court building in the background - Corruption Prosecutions concept

In May, the US Supreme Court issued another in a string of decisions that limit prosecutors from expanding federal fraud prosecutions beyond the scope intended by the statute. In Ciminelli v. US, the US Supreme Court continued its trend of finding that federal prosecutors exceeded the scope of the law when pursuing public corruption prosecution cases.

In Ciminelli, the Court rejected the “right-to-control” theory previously advanced in wire fraud prosecutions. Under that theory, a criminal defendant could be convicted of wire fraud for trying to deprive someone of valuable economic information necessary to make discretionary economic decisions. In the Court’s unanimous decision, Justice Clarence Thomas wrote, “[T]he wire fraud statute reaches only traditional property interests. The right to valuable economic information needed to make discretionary economic decisions is not a traditional property interest. Accordingly, the right-to-control theory cannot form the basis for a conviction under the federal fraud statutes.”

Understanding Ciminelli v. US

The Ciminelli case arose from the “Buffalo Billion” initiative, a state-funded program to spur economic growth by investing $1 billion in development projects in the Buffalo, New York area. Louis Ciminelli was a developer convicted of federal wire fraud for his involvement in a scheme to rig the bidding process in the Buffalo Billion initiative.

Ciminelli paid a lobbyist between $100,000 and $180,000 every month to become a “preferred developer,” which granted his company priority status to obtain state-funded jobs for his company. Ciminelli used this influence to secure the $750 million “Riverbend project.” When the scheme was discovered, Ciminelli was charged with wire fraud.

At trial, the government relied exclusively on the “right-to-control” theory, which allows the prosecution to establish wire fraud by showing that a defendant deprived a victim of potentially valuable economic information needed to make discretionary economic decisions. Consistent with that theory, the trial court instructed the jury that “property” as defined under 18 USC §1343 “includes intangible interests such as the right to control the use of one’s assets,” which could be harmed by depriving the victim of “potentially valuable economic information that it would consider valuable in deciding how to use its assets.” The trial court defined “economically valuable information” as “information that affects the victim’s assessment of the benefits or burdens of a transaction, or relates to the quality of goods or services received or the economic risks of a transaction.”

On appeal, Ciminelli argued that the right to control one’s assets is not “property” under the wire fraud statute.

The Supreme Court analyzed the statute and agreed, finding that because the right to valuable economic information needed to make discretionary economic decisions is not a traditional property right, the right-to-control theory cannot form the basis for a conviction for federal wire fraud. The opinion goes on to state, “the Government must prove not only that wire fraud defendants ‘engaged in deception,’ but also that money or property was ‘an object of their fraud.’” Nonetheless, “lower federal courts for decades interpreted the mail and wire fraud statutes to protect intangible interests unconnected to traditional property rights.”

Finding the right-to-control theory invalid under federal fraud statutes, the Court stated, “[T]he right-to-control theory vastly expands federal jurisdiction without statutory authorization. Because the theory treated mere information as a protected interest, almost any deceptive act could be criminal.”

US Supreme Court Continues to Limit the Scope of Fraud Prosecutions

Ciminelli is a victory for federal criminal defendants and is another decision that will stop federal prosecutors from expanding the scope of the law to prosecute people in cases alleging public corruption. In United States v. Blaszczak, the Court vacated a conviction for insider trading, while in Kelly v. United States, the Court vacated the conviction of two former New Jersey public officials who were charged with a crime for limiting access to the George Washington Bridge for political motives.

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Categories: Fraud