INTRODUCTION II. ELEMENTS OF THE OFFENSE A. Scheme to Defraud by Means of a Material Deception 1. Scheme to Defraud 2. Material Deception B. Intent to Defraud C. Use of the Mails, Wires, or Both in Furtherance of a Scheme to Defraud 1. Causing the Mails, Wires, or Both to Be Used 2. The "In Furtherance" Requirement D. Loss of Money, Property, or Deprivation of Honest Services 1. Loss of Money or Tangible Property 2. Loss of Intangible Property 3. Deprivation of Honest Services III. DEFENSES A. Good Faith B. Statute of Limitations IV. SENTENCING I. INTRODUCTION
The federal mail (1) and wire (2) fraud statutes are powerful tools for prosecutors. (3) Among the statutory weapons available to the government to prosecute individuals, the mail and wire fraud statutes have been used to prosecute a wide range of conduct. (4) The statutes have been used often as a "first line of defense," or "stopgap" device, to permit prosecution of new forms of fraud until Congress enacts particularized legislation to combat the new fraud. (5) Consequently, the mail and wire fraud statutes have been referred to as a prosecutor's "secret weapon." (6) Recently, however, the Supreme Court blunted this tool by narrowing the scope of the honest services fraud statute. (7)
Congress enacted the mail fraud statute with the initial purpose of securing the integrity of the United States Postal Service ("USPS"). (8) Over time, the mail (9) and wire (10) fraud statutes have been expanded to cover a number of modes of communication such as facsimile, telex, modem, and Internet transmissions. In addition, the statutes provide federal courts with jurisdiction over a broad array of frauds, (11) encompassing "not only the full range of consumer frauds, stock frauds, land frauds, bank frauds, insurance frauds, and commodity frauds, but [also] ... such areas as blackmail, counterfeiting, election fraud, and bribery." (12) Prosecutors also use these statutes to prosecute money laundering and Racketeer Influenced and Corrupt Organizations Act ("RICO") violations. (13)
Subsequent congressional action has both broadened the scope of the mail and wire fraud statutes and enhanced the criminal penalties for offenses under these statutes. In response to new schemes that bypassed the USPS by using private carriers, Congress amended the mail fraud statute in 1994 to cover mailings delivered by private interstate commercial carders. (14) In addition, Congress criminalized telemarketing fraud, (15) enhanced the criminal penalties for any mail or wire fraud scheme that specifically targets senior citizens, (16) and passed the Sarbanes-Oxley Act of 2002, which quadrupled the maximum punishment for both mail and wire fraud offenses from five to twenty years imprisonment. (17)
This Article provides an overview of the prosecution of offenses under the federal mail and wire fraud statutes. Because the character, language, and scope of the mail and wire fraud statutes are similar, legal analysis and case law on mail fraud are equally applicable to wire fraud, (18) and vice versa. (19)
Section II of this Article lists and analyzes the elements of a mail or wire fraud offense. Section III examines the available defenses. Finally, Section IV addresses sentencing issues that relate to convictions under the mail and wire fraud statutes.
ELEMENTS OF THE OFFENSE
Mail and wire fraud law has evolved through both congressional action and court decision. Currently, to be convicted of a mail or wire fraud offense, the government must show beyond a reasonable doubt that the defendant perpetrated: (i) a scheme to defraud that includes a material deception; (ii) with the intent to defraud; (iii) while using the mails, private commercial carriers, and/or wires in furtherance of that scheme; (iv) that did result or would have resulted in the loss of money or property or the deprivation of honest services. (20) Farts A through D of this Section provide an overview of these elements.
In addition to these four elements, the wire fraud statute, 18 U.S.C. [section] 1343, also requires proof that the communication at issue crossed state lines. (21) This interstate requirement applies only to the wire fraud statute because, in passing the statute, Congress relied solely on its Commerce Clause (22) power for constitutional authority. (23) In contrast, Congress has exclusive jurisdiction over the USPS (24) and thus had an independent source of constitutional authority for the mail fraud statute. (25) Courts also have determined that congressional jurisdiction extends to any mailing sent through a private commercial carrier that deals in interstate business, even when the particular mailing does not actually travel interstate. (26)
Each use of the mail or wires constitutes a separate offense and therefore can be a separate count in an indictment. (27) In addition, mail and wire fraud charges can be used in conjunction with other offenses or more specific fraud offenses, such as insider trading and bank fraud. (28)
Scheme to Defraud by Means of a Material Deception
Proof that the defendant engaged in a scheme to defraud is a common requirement under both the mail and wire fraud statutes. (29) Neither the mail fraud statute nor the wire fraud statute, however, defines what constitutes a scheme to defraud, and the legislative history with respect to the issue is sparse. (30) While courts have generally found the scope of the federal fraud statutes to be broad, modern courts have varied on whether to limit the scheme to defraud to a more narrow interpretation. (31)
Scheme to Defraud
In general, a scheme to defraud involves depriving a person "of something of value by trick, deceit, chicane, or overreaching." (32) It has been described as "a departure from fundamental honesty, moral uprightness, and candid dealings in the general life of the community." (33) Many circuits find a scheme to defraud upon proof of conduct intended or reasonably calculated to deceive ordinary people. (34) Importantly, the government need not show that the scheme was successful for the conduct to constitute a scheme to defraud under the mail and wire fraud statutes. (35)
The Supreme Court in Neder v. United States (36) held that the government must prove that the deceptive conduct underlying the scheme to defraud was material. (37) In Neder, the Court acknowledged that the mail and wire fraud statutes make no mention of a materiality requirement; however, it found that Congress intended to adopt the common law requirement that a deception, in order to constitute fraud, must be material. (38)
The Neder Court cited the Restatement (Second) of Torts in defining materiality. (39) Until recently, some circuit courts held that for a misrepresentation to be material, it must be a statement upon which a reasonable person would rely. (40) However, courts now find a material deception when a victim has relied upon the statement, regardless of whether a reasonable person would have done so. (41) Courts argue that the ordinary prudence or reasonable person standard should not be a "shield which a defendant may use to avoid a conviction." (42) As one circuit noted, "we refuse to accept the notion that 'the legality of a defendant's conduct would depend on his fortuitous choice of a gullible victim.'" (43) Accordingly, the ordinary prudence or reasonable person standard is merely a "tool" that the jury may use to determine if the defendant had fraudulent intent but which cannot be used to preclude finding a scheme to defraud. (44)
Intent to Defraud
The second element the government must prove for a mail or wire fraud conviction is a defendant's intent to defraud. (45) The intent requirement focuses on "a willful act by the defendant with the specific intent to deceive or cheat, usually for the purpose of getting financial gain for one's self or causing financial loss to another." (46) Intent to deceive has been distinguished from "puffing," or mere exaggeration of the qualities, opportunities, or value of an article. (47) Statements in advertising that go beyond "puffing," however, can be indicative of intent to defraud when the advertised product falls substantially short of the way the defendant represented it. (48) To determine whether a particular representation goes beyond puffery, courts rely on the presence or absence of good faith on the part of the "puffer." (49)
The government often meets its burden of proving intent to defraud by using circumstantial evidence, (50) and "a liberal policy has developed to allow the government to introduce evidence that even peripherally bears on the question of intent." (51) Similarly, the defendant also can use circumstantial evidence to show that he or she did not have the requisite intent. (52)
Intent may be inferred from evidence indicating that the defendant attempted to conceal activity (53) or from the defendant's misrepresentations. (54) In some cases, the defendant's knowledge of a false statement will constitute intent to defraud. (55) Although not necessary to establish intent to defraud, (56) the government may introduce evidence of a victim's actual financial loss as proof of the defendant's intent. (57) Moreover, absent substantial prejudice, evidence of prior offenses and later bad acts are admissible to infer intent. (58)
Intent to defraud may be inferred from the defendant's knowledge of illegal activity. (59) Even if the defendant lacked knowledge of illegal activity, however, the intent requirement can be satisfied by proof of a reckless disregard for the truth of one's representations, (60) a conscious avoidance of information that is crucial to the truthfulness of one's representations, (61) or defendant's personal profit from the scheme. (62)
Use of the Mails, Wires, or Both in Furtherance of a Scheme to Defraud
The third element the government must prove for a mail or wire fraud conviction consists of two parts: (i) the...
Mail and wire fraud.
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COPYRIGHT GALE, Cengage Learning. All rights reserved.