Mail and wire fraud.

Author:Weston, Brandon
Position::Annual Survey of White Collar Crime
 
FREE EXCERPT
  1. 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 because they apply to a wide range of conduct. (3) The statutes have often been used 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. (4) Consequently, the mail and wire fraud statutes have been referred to as a prosecutor's "secret weapon." (5) In 2010, the Supreme Court blunted this tool somewhat by narrowing the scope of the honest services fraud statute. (6)

    Although Congress enacted the mail fraud statute with the initial purpose of securing the integrity of the United States Postal Service ("USPS"), (7) the statutes have now been applied to many modes of communication. (8) In addition, the statutes provide federal courts with jurisdiction over a broad array of frauds, (9) 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." (10) Prosecutors also use these statutes to prosecute money laundering and Racketeer Influenced and Corrupt Organizations Act ("RICO") violations. (11)

    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, which bypassed the USPS by using private carriers, Congress amended the mail fraud statute in 1994 to cover mailings delivered by private interstate commercial carriers. (12) In addition, Congress has criminalized telemarketing fraud, (13) enhanced the criminal penalties for any mail or wire fraud scheme that specifically targets senior citizens, (14) 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. (15)

    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, (16) and vice versa. (17)

    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.

  2. ELEMENTS OF THE OFFENSE

    For a mail or wire fraud offense, the government must show beyond a reasonable doubt that the defendant perpetrated: (i) a scheme to defraud by means of 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. (18) Parts 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. (19) This interstate requirement applies only to the wire fraud statute because, in passing the statute, Congress relied solely on its Commerce Clause power for constitutional authority. (20) In contrast, Congress has exclusive jurisdiction over the USPS2' and thus had an independent source of constitutional authority for the mail fraud statute. (22) Courts have determined that the 1994 extension of the mail fraud statute to "private or commercial interstate carrier[s]" was a constitutionally permissible exercise of the Commerce Clause, even when the particular mailing does not actually travel interstate, because Congress may regulate facilities or instrumentalities of interstate commerce. (23) By extension, courts have upheld the wire fraud statute's applicability to internet communications, even in the absence of proof that a fraudulant communication traveled through out-of-state servers. (24)

    Each use of the mail or wires constitutes a separate offense and therefore can be a separate count in an indictment. (25) 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.

    1. 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. (26) 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. (27) 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. (28)

      1. Scheme to Defraud

        Generally, a scheme to defraud involves depriving a person "of something of value by trick, deceit, chicane, or overreaching." (29) It has been described as "a departure from fundamental honesty, moral uprightness, and candid dealings in the general life of the community." (30) Many circuits find a scheme to defraud upon proof of conduct intended or reasonably calculated to deceive ordinary people. (31) 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. (32)

      2. Material Deception

        The Supreme Court in Neder v. United States held that the government must prove that the deceptive conduct underlying the scheme to defraud was material. (33) 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. (34)

        The Neder Court cited the Restatement (Second) of Torts in defining materiality. (35) Some circuit courts previously required that, for a misrepresentation to be material, there had to be a statement upon which a reasonable person would rely. (36) However, courts now find a material deception where a victim has relied upon the statement, regardless of whether a reasonable person would have done so. (37) Courts argue that the ordinary prudence or reasonable person standard should not be a "shield which a defendant may use to avoid a conviction." (38) 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.'" (39) Accordingly, the ordinary prudence or reasonable person standard is merely a tool, which the jury may use to determine if the defendant had fraudulent intent, but which cannot be used to preclude finding a scheme to defraud. (40)

    2. Intent to Defraud

      The second element of mail or wire fraud is a defendant's intent to defraud. (41) The intent requirement focuses on "a willful act by the defendant with specific intent to deceive or cheat, usually for the purpose of obtaining financial gain or causing financial loss to another." (42) Intent to deceive has been distinguished from "puffing," or mere exaggeration of the qualities, opportunities, or value of an article. (43) "Puffing" concerns expressions of opinion, as opposed to the knowingly false statements of fact which the law proscribes. (44) Statements in advertising that go beyond "puffing," however, can be indicative of intent to defraud when the advertised product falls substantially short of the defendant's representations. (45) 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." (46)

      The government often meets its burden of proving intent to defraud by using circumstantial evidence, (47) and "a liberal policy has developed to allow the government to introduce evidence that even peripherally

      bears on the question of intent." (48) The defendant can also use circumstantial evidence to show that he or she did not have the requisite intent. (49)

      Evidence indicating that the defendant attempted to conceal activity (50) or make misrepresentations (51) may allow courts to infer intent to defraud. Concealment through the omission or failure to disclose need not rest on a clear legal duty; it is sufficient that the community would normally expect, disclosure. (52) The government may introduce evidence of a victim's actual financial loss as proof of an intent to defraud, (53) though it is not required. (54) Moreover, absent substantial prejudice, evidence of bad acts--whether before or after the charged offense-- are admissible to demonstrate intent. (55)

      Intent to defraud may be inferred from the defendant's knowledge of illegal activity. (56) Even if the defendant lacked knowledge of illegal activity, however, the intent requirement can be satisfied by proof of a reckless disregard or indifference for the truth of one's representations, (57) a conscious or deliberate avoidance of information that is crucial to the truthfulness of one's representations, (58) or defendant's personal profit from the scheme. Currently, a violation of a terms of service agreement establishes...

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