Mail and wire fraud.

AuthorMatthews, Kendra M.
PositionTenth Survey of White Collar Crime
  1. Introduction

    Since its enactment in 1872, the federal mail fraud statute(1) has been a powerful tool for federal prosecutors.(2) The statute provides:

    Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations or promises ... for the purpose of executing such a scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail or such carrier according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing ... shall be fined under this title or imprisoned not more than five years or both. If the violation affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.(3)

    The federal wire fraud statute,(4) enacted in 1952, contains nearly identical language(5) and prohibits fraudulent schemes that make use of interstate television, radio, or wire communications.(6) These two statutes have been applied to "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."(7) When legislatures have been slow to act in particular areas, these statutes have "frequently represented the sole instrument of justice that could be wielded against the ever-innovative practitioners of deceit."(8)

    This article focuses primarily on the mail fraud statute, which has been utilized more frequently than its wire fraud companion. Since the mail and wire fraud statutes are similar, court decisions addressing the character and scope of one statute are generally applicable to the other.(9) The following sections outline the elements of mail fraud, and address interpretations of and changes in the elements brought about by Supreme Court rulings and Congressional action.

  2. Elements of the Offense

    To prove mail fraud under section 1341 the government must show: (1) a scheme to defraud (2) committed with intent to defraud and (3) use of the United States mails to further the fraudulent scheme.(10) The government is not required to prove that the scheme to defraud was successful.(11) It need only prove that a scheme existed in which use of the mails was reasonably foreseeable and that an actual mailing occurred in furtherance of the scheme. Each use of the mails constitutes a separate offense, thus, each mailing can constitute a separate count in an indictment.(12)

    1. Scheme to Defraud

    Determining what constitutes a "scheme or artifice to defraud" is essential to applying the statute. Prior to 1988, the circuit courts were inconsistent in their determinations of what constituted such a scheme. Many courts applied a broad definition and found fraud where the defendant's conduct strayed from a standard of "moral uprightness, of fundamental honesty, fair play and right dealing in the general business life of members of society."(13) Other courts interpreted the phrase narrowly to include only those schemes aimed at obtaining tangible property ("traditional frauds").(14) Still other courts extended the meaning of the phrase to include schemes involving deprivation of intangible rights.(15)

    In 1988, Congress amended Title 18, explicitly establishing that the deprivation of intangible rights falls within the reach of the mail and wire fraud statutes.(16) Congress passed this amendment in response to the Supreme Court's ruling in McNally v. United States,(17) which excluded those schemes that deprived victims of intangible non-property rights. However, it is important to note that at least one circuit has found that acts completed before 1988 are still governed by McNally, while acts completed after 1988 are governed by the amendment.(18)

    Although current application of the mail fraud statute allows prosecution for the deprivation of intangible property or non-property rights, there remains some uncertainty as to exactly which intangibles may be protected by the statute. At least one circuit court has held that a federal court may look to the state law of its jurisdiction to determine if an interest is "property" for purposes of the statute.(19)

  3. Traditional Frauds

    Traditional frauds are those activities "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."(20) These types of schemes involve "some sort of fraudulent misrepresentations or omissions reasonably calculated to deceive persons of ordinary prudence and comprehension."(21) Examples of traditional fraudulent schemes prosecuted under section 1341 include false insurance claims,(22) fraudulent investment schemes,(23) misrepresentations in the sale of used automobiles,(4) false application forms for loans,(25) fraudulent loan marketing schemes,(26) check kiting schemes,(27) false advertising,(28) and various bribery and kickback schemes.(29)

    1. Fraud Involving Intangible Rights

    Frauds involving deprivation of "intangible rights" may also be prosecuted under the mail and wire fraud statutes. The term "intangible rights" encompasses both property and non-property rights. Unlike traditional frauds which may arise regardless of the relationship between the defendant and the victim, frauds related to intangible rights stem from a fiduciary relationship between the defendant and the defrauded party or entity.

    Cases involving non-property rights are premised on the theory that a fiduciary who fails to disclose material information to his or her principal deprives the principal of the right to honest and faithful services.(30) In the private sector, this has led to prosecution of professionals who have defrauded clients,(31) and organization officials who have defrauded organization members.(32) The mail fraud statute has also been used in the public arena, including prosecution for voter fraud(33) and public corruption involving bribes and kickbacks.(34)

    Breaches of a fiduciary duty between employers and employees can also form the basis of a violation of the mail fraud statute.(35) The Second Circuit, however, has ruled that only those breaches constituting "concealment by a fiduciary of material information which he is under a duty to disclose to another under circumstances where the non-disclosure could or does result in harm to the other" are actionable.(36) In cases where this test is applied to convict corporate officials, the courts have often found that the fiduciary has concealed material information about the breach of his fiduciary duty from his employer, and that the fiduciary's concealment of this information was potentially harmful to the employer.(37)

    In applying this "material information" test, several circuits have ruled that monetary loss is not required for conviction - the loss of economic information is sufficient.(38) Other courts have utilized a slightly different test focusing on the foreseeability of the harm.(39) The inquiry is whether the employee could reasonably foresee that nondisclosure of information would cause the employer harm.(40) Although the mail fraud statute does not require actual harm to the victim,(41) the D.C. Circuit requires that the defendant must have contemplated that harm would probably result.(42)

    There is some debate in the circuit courts about whether intangible rights can be violated if they are not premised upon fiduciary duty. For example, the majority of circuit courts have held that permits, licenses, and certificates are not the "property" of the government for purposes of prosecuting schemes to fraudulently acquire such papers.(43) However, a few courts have found that state-issued licenses constitute property, due to the states' regulatory interests and the accompanying rights which are bestowed on the holders.(44)

    1. Intent to Defraud

      The second element the government must prove for a mail fraud conviction is that the defendant had fraudulent intent.(45) Because intent involves the defendant's state of mind, it is difficult to prove by direct evidence. Consequently, it is usually proven by circumstantial evidence.(46)

      A variety of circumstantial evidence has been held relevant to infer fraudulent intent. For example, intent may be inferred from evidence that the defendant attempted to conceal activity.(47) Although proof of actual loss by a victim is not necessary to prove intent,(48) actual loss is relevant to determine the defendant's intent.(49) Also relevant is whether the defendant took steps to ameliorate the loss.(50) Intent to defraud may be inferred from the defendant's misrepresentations,(51) knowledge of a false statement,(52) as well as whether the defendant profited or converted money to his own use.(53) In addition, just as in other crimes that require proof of intent, evidence of prior offenses is admissible to infer intent absent substantial prejudice.(54)

      Intent to defraud also may be inferred from the defendant's knowledge.(55) Conversely, lack of knowledge can negate intent.(56) Furthermore, in some circuits, intent to defraud may be inferred when the defendant recklessly disregards whether his or her representations are true.(57) Defendant can be held liable for recklessly failing to acquire that knowledge.(58)

      Puffing, or mere exaggeration of qualities, opportunities, or value of an article, does not constitute fraudulent intent.(59) Yet...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT