Mail and wire fraud.

AuthorBlumel, Ryan Y.
PositionSurvey of White Collar Crime
  1. INTRODUCTION II. ELEMENTS OF rim OFFENSE A. Scheme to Defraud 1. Traditional Frauds 2. Fraud Involving Intangible Rights B. Intent to Defraud C. Mailing in Furtherance of a Scheme to Defraud 1. Causing the Mails to Be Used 2. The "In Furtherance" Requirement III. DEFENSES A. Good Faith B. Statute of Limitations IV. VENUE V. SENTENCING I. INTRODUCTION

    In the past 130 years, mail (1) and wire (2) fraud statutes have evolved into powerful and broad prosecutorial tools. (3) Courts initially assumed the purpose of the mail fraud statute was to secure the integrity of the United States Postal Service ("USPS"). (4) However, over time, courts have expanded the application of both the mail (5) and wire (6) fraud statutes to a number of modes of communication. In practice, the statutes are used not merely to secure the integrity of the USPS, but also to provide federal jurisdiction over a broad array of frauds. (7)

    Today, the statutes "cover 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." (8) Moreover, prosecutors use these statutes to prosecute money laundering and Racketeer Influenced and Corrupt Organizations Act ("RICO") violations. (9)

    In 1994, both the mail and wire fraud statutes were expanded in three major areas when Congress promulgated the Senior Citizens Against Marketing Scams Act ("SCAMS Act"). (10) First, the SCAMS Act responded to the ever-increasing threat of new schemes, which often utilized private carriers, by amending the federal mail fraud statute to cover private interstate commercial carders. (11) Second, the SCAMS Act specifically criminalized telemarketing fraud. (12) Finally, and most important to Senior Citizens, the SCAMS Act enhanced the penalties for conviction of mail and wire fraud schemes targeted at individuals age fifty-five and older. (13)

    The mail and wire fraud statutes have often been used as a "first line of defense," or "stopgap" device, which permits prosecution of new forms of fraud until Congress enacts particularized legislation to cope with the new fraud. (14) The mail and wire fraud statutes have consequently been referred to as a "secret weapon" of federal prosecutors. (15)

    This Article gives more attention to the mail fraud statute because it is invoked more frequently than its wire fraud counterpart, but notwithstanding this Article's focus on the mail fraud statute, its analysis is generally applicable to both statutes since court decisions addressing the character and scope of one statute commonly apply to cases involving the other. (16) The wire fraud statute, however, has been applied in recent years to an increasing variety of means of communication such as facsimile, telex, modem, and Internet transmissions. (17) As use of the Internet expands, the wire fraud statute may become increasingly important. (18)

    Section II of this Article outlines the elements of a mail or wire fraud offense. Section III examines available defenses. Section IV reviews venue considerations. Finally, Section V addresses sentencing issues.


    On its face, [section] 1341 applies in any instance where the mails are used in furtherance of a scheme to defraud. (19) However, because of the common law definition of fraud, courts have traditionally read the additional element of intent to defraud into the statute. (20) Therefore, to convict a defendant for violating [section] 1341, the government must prove beyond a reasonable doubt that the defendant perpetrated: (i) a scheme to defraud; (ii) with the intent to defraud; (iii) while using the USPS or a private interstate commercial carrier in furtherance of that scheme. (21) Parts A through C of this Section review each of these elements in order.

    The wire fraud statute, 18 U.S.C. [section] 1343, further requires that the communication at issue crosses state lines. (22) This interstate requirement applies only to the wire fraud statute because of Congress' reliance on its Commerce Clause (23) power to assert jurisdiction. (24) In contrast, exclusive congressional jurisdiction over the USPS (25) provides the necessary constitutional foundation for federal prosecution under the mail fraud statute. (26) Courts have also determined that a mailing sent through a private commercial carrier that deals in interstate business gives rise to congressional jurisdiction, even when the particular mailing does not actually travel interstate. (27)

    Each use of the mail constitutes a separate offense and can therefore be a separate count in an indictment. (28) In addition, mail and wire fraud charges can be used in conjunction with other, more specific, fraud offenses such as insider trading and bank fraud. (29) However, vicarious criminal liability cannot sustain an indictment under this statute. (30) Each person must willfully participate in a fraudulent scheme that includes foreseeable use of the mails. (31)

    1. Scheme to Defraud

      Proof of a "scheme to defraud" is common to both the mail and wire fraud statutes. (32) However, proof that the scheme to defraud was successful is not required. (33) The government must prove: (i) that a scheme existed in which use of the mails was reasonably foreseeable (34) and (ii) that an actual mailing occurred in furtherance of that scheme. (35)

      Congress has not precisely defined the parameters of criminally fraudulent behavior, and the legislative history of the mail and wire fraud statutes is sparse. (36) Courts have found the scope of the federal fraud statutes to be broad; the degree of limitation on that scope has varied considerably among the modern courts. (37) The Supreme Court recently helped define the term "scheme to defraud" by reading a materiality requirement into the fraud statutes. (38) The Court explained that in mail and wire fraud cases, prosecutors must establish a "scheme" that meets the common law definition of fraud, including proving a material misrepresentation. (39) The Neder Court adopted the Restatement (Second) of Torts definition of materiality to guide prosecutors and to establish that a material falsehood was used in the scheme to defraud in that case. (40)

      In recent years, Congress has expanded the application of the fraud statutes from traditional fraud (41) to the area of intangible rights and other non-traditional frauds. (42) In particular, the current version of 18 U.S.C. [section] 1346 extends the definition of "scheme or artifice to defraud" to include the deprivation of another's intangible right to honest services. (43) However, one court of appeals has voided the "honest services" provision for vagueness when notice was lacking that the conduct is prohibited. (44)

      The remainder of Part A will (i) trace the application of the statutes to traditional fraudulent schemes and (ii) review the "intangible rights" doctrine of nontraditional frauds and its application to violations in both the public and private sectors.

      1. Traditional Frauds

        Traditional frauds are generally intended to defraud individuals of money or other tangible property interests and involve "calculated efforts to use misrepresentations or other deceptive practices to induce the innocent or unwary to give up some tangible interest." (45) Misrepresentations or omissions must be "reasonably calculated to deceive persons of ordinary prudence and comprehension." (46) However, proof of actual harm to the victim (47) or success of the scheme (48) is not required. Rather, courts evaluate "whether a reasonable person would have acted on the misrepresentations." (49) Examples of traditional fraudulent schemes prosecuted under [section] 1341 include false insurance claims, (50) fraudulent investment schemes, (51) misrepresentations in the sale of used automobiles, (52) false application forms for loans, (53) fraudulent bond issuances, (54) check- kiting schemes, (55) false advertising, (56) and various bribery and kickback schemes. (57)

      2. Fraud Involving Intangible Rights

        Prior to 1987, the circuit courts typically applied the intangible rights doctrine to public officials who "deprived the citizenry of the right to good government." (58) The Supreme Court rejected the intangible rights doctrine in McNally v. United States, (59) holding that "the original impetus behind the mail fraud statute was to protect the people from schemes to deprive them of their money or property," not intangible rights. (60) In response to McNally, Congress enacted [section] 1346 in 1988, which clarified that the mail and wire fraud statutes extended to any "'scheme or artifice' to deprive another of the intangible fight of honest services." (61) Although the provision cannot be applied retroactively, (62) [section] 1346 effectively overturned McNally and returned the intangible rights doctrine to its pre-1987 status. (63) Conviction for a [section] 1346 offense requires proof of a scheme to deprive another of honest services. (64) A breach of, or interference with, a fiduciary relationship that exists between the parties may be strong evidence that a defendant caused this deprivation. However, such a breach is not universally required for conviction under the statute. (65)

        Prior to McNally and subsequent to [section] 1346, a mail or wire fraud conviction could be based upon a fraud involving three types of intangible rights--all generally related to the provision of honest services: (i) defrauding persons of nonmonetary, intangible interests; (ii) government officials depriving their constituents of honest governmental services; and (iii) persons with clear fiduciary duties defrauding their fiduciaries by accepting kickbacks or selling confidential information. (66)

        Typical public-sector, honest-services fraud involves either bribery of a public official or failure of the public official to disclose a conflict of interest resulting in personal gain. (67)...

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