Mail and wire fraud.

• Author: Newman, Samuel A.
• Position: Annual white collar crime survey

1. INTRODUCTION

   To federal prosecutors of white collar crime, the mail fraud statute is our Stradivarius, our Colt 45, our Louisville Slugger, our Cuisinart--and our true love. We may flirt with RICO, show off with 10b-5, and call the conspiracy law `darling,' but we always come home to the virtues of 18 U.S.C. [sections] 1341, with its simplicity, adaptability, and comfortable familiarity. It understands us and, like many a foolish spouse, we like to think we understand it.(1)

   As the above statement by a former federal prosecutor indicates, the mail(2) and wire(3) fraud statutes provide powerful prosecutorial tools. The purpose of these two statutes is to prevent the use of the mails or wires(4) in the furtherance of fraudulent activity. Despite sparse legislative history, courts initially assumed that the statute intended to secure the integrity of the Post Office.(5) Over time, however, courts have found a wide range of activities punishable under the mail and wire fraud statutes.(6) Some commentators suggest that in practice the statutes have been extended beyond their original role to provide federal jurisdiction over a broad array of frauds.(7)

   Used together, 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) Prosecutors also use these statutes to prosecute money laundering and Racketeer Influenced and Corrupt Organizations Act ("RICO") violations.(9) A violation of [sections] 1341 or [sections] 1343 can provide the unlawful act necessary to establish a RICO(10) or money laundering violation.(11) Once a mail fraud or wire fraud offense has been proven, both the RICO and the money laundering statutes allow for more severe penalties.(12)

   When legislatures have been slow to combat certain types of crimes, the mail and wire fraud statutes have often served as a "first line of defense," that is, a "`stopgap' device which would permit the prosecution of newly-conceived frauds until such time that Congress enacted particularized legislation to cope with new frauds."(13) The mail and wire fraud statutes have, therefore, been referred to as "at least one secret weapon"(14) possessed by federal prosecutors.

   In 1994, to combat telemarketing ploys directed at the elderly, Congress promulgated the Senior Citizens Against Marketing Scams Act ("SCAMS Act"). The Act responded to the ever-increasing threat of new schemes and the increasing use of private carriers in such schemes, by amending the federal mail fraud statute to cover not only the United States Postal Service (USPS) but private interstate commercial carriers as well (e.g., United Parcel Service, FedEx, DHL).(15) The Act also specifically criminalized telemarketing fraud.(16) The SCAMS Act enhanced the penalties for mail and wire fraud convictions when targeted at individuals aged 55 and over.(17)

   This Article concentrates on the mail fraud statute because it has been utilized more frequently than its wire fraud counterpart. However, the wire fraud statute has been applied to an increasing variety of means of communication such as facsimile, telex, modem and internet transmissions.(18) As technology advances, the wire fraud statute may overshadow its more popular companion statute. Although there are differences between the statutes, particularly their distinct jurisdictional requirements, they are sufficiently similar in wording that court decisions addressing the character and scope of one statute generally apply to the other.(19)

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

2. ELEMENTS OF THE OFFENSE

   On its face, [sections] 1341 applies to any instance where the mails are used in furtherance of a scheme to defraud.(20) In light of the common law definition of fraud, however, courts have traditionally read into the statute a third element: the defendant must have an intent to defraud.(21) Therefore, to convict a defendant for violating [sections] 1341, the government must prove beyond a reasonable doubt that the defendant perpetrated (1) a scheme to defraud, (2) with the intent to defraud, (3) while using the United States mails or a private interstate commercial carrier to further that scheme.(22) Parts A through C of this Section review each of these elements seriatim.

   The wire fraud statute, 18 U.S.C [sections] 1343, further requires that the communication cross state lines.(23) This interstate requirement arises because Congress relied on its Commerce Clause powers to assert jurisdiction over wire fraud. In contrast, exclusive congressional jurisdiction over the United States Postal Service provides the necessary constitutional foundation for federal prosecution under the mail fraud statute.(24) The courts have not yet addressed whether a scheme to defraud sent through a private commercial carrier would actually have to travel interstate to give rise to congressional jurisdiction, or if, to fall within federal jurisdiction, it is enough that the carrier itself deals in interstate mailings.(25)

   Each use of the mails constitutes a separate offense and can, thus, constitute a separate count in an indictment.(26) 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. However, vicarious criminal liability cannot sustain an indictment; each person must willfully participate in a fraudulent scheme that includes foreseeable use of the mails.(27)

   1. Scheme to Defraud

      Both statutes require the common element of a "scheme to defraud."(28) To secure a conviction the government is not required to prove that the scheme to defraud was successful.(29) As one court stated, "[[sections] 1341] punishes the scheme ... rather than the completed fraud ... It punishes, in short, the attempt to defraud."(30) The government must prove that a scheme existed in which use of the mails was reasonably foreseeable and an actual mailing occurred in furtherance of the scheme.(31)

      Throughout the history of these statutes, Congress has not "attempt[ed] to define or establish the precise parameters of the term `scheme to defraud.'"(32) Likewise, the legislative history is "sparse."(33) Therefore, courts have attempted to discern the purpose and scope of the statute from the bare face of the statute. For example, the Eighth Circuit recognized that "[t]he relative lack of definite standards ... [in the statute] has permitted the courts to exercise wide latitude in determining what schemes are within the purview of that statute."(34)

      In its 1999 Neder v. United States(35) decision, the Supreme Court added some definition to the term "scheme to defraud" by explicitly reading a materiality requirement into the statutes. Relying on the rule that "`[w]here Congress uses terms that have accumulated settled meaning under ... the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms,'"(36) the Court explained that prosecutors must establish a "scheme" that meets the common law definition of fraud.(37) The Court ultimately decided that the plain language of the statute is incompatible with other traditional, common law elements of fraud, such as materiality, "justifiable reliance," and actual injury or damage.(38)

      By realigning the statutes with common law principles of fraud, the Court's Neder decision will require prosecutors to establish that a material falsehood was used in the scheme.(39) In Neder, the Court offered the following definition of materiality as guidance:

      (a) a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question; or (b) the maker of the representation knows or has reason to know that its recipient regards or is likely to regard the matter as important in determining his choice of action, although a reasonable man would not so regard it.(40) In the century following its 1872 enactment, the statute was typically used to prosecute traditional frauds, in which people used the mails in furtherance of a scheme to defraud someone of money or other tangible property.(41) The statutory reading was broadened within the past few decades to address conduct not within the realms of traditional fraud. In particular, 18 U.S.C. [sections] 1346 extended the definition of "scheme or artifice to defraud" to include the deprivation of another's intangible right to honest services.(42)

      The remainder of this Part of the Article will: (1) trace the application of the statutes to traditional fraudulent schemes, and offer examples of common scams and cons targeted by prosecutions under the statutes; and (2) review the "intangible rights" doctrine of non-traditional frauds in both the public and private sector violations.

      1. Traditional Frauds

         Traditional frauds are generally intended to defraud individuals of money or other tangible property interests, involving "calculated efforts to use misrepresentations or other deceptive practices to induce the innocent or unwary to give up some tangible interest."(43) Misrepresentations or omissions must have been "reasonably calculated to deceive persons of ordinary prudence and comprehension."(44) This standard is an objective one; the court evaluates "whether a reasonable person would have acted on the misrepresentations."(45) Proof of actual harm to the victim or success of the scheme is not required.(46) Examples of traditional fraudulent schemes prosecuted under [sections] 1341 include false insurance claims,(47) fraudulent investment schemes,(48) misrepresentations in the sale of used automobiles,(49) false application forms...