Mail and wired fraud.

Author:Greenwood, Lee
Position::Twenty-Third Annual Survey of White Collar Crime
 
FREE EXCERPT
  1. INTRODUCTION II. ELEMENTS OF THE OFFENSE A. Scheme to Defraud B. Intent to Defraud C. Mailing in Furtherance of a Scheme to Defraud 1. Causing the Mails and/or Wires to Be Used 2. The "In Furtherance" Requirement D. Loss of Money, Property or Deprivation of Honest Services 1. Loss of Money or Property 2. Deprivation of Honest Services III. DEFENSES A. Good Faith B. Statute of Limitations IV. VENUE V. 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, which permits 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)

    Congress enacted the mail fraud statute with the initial purpose of securing the integrity of the United States Postal Service ("USPS"). (7) Similarly, the wire fraud statute was enacted to respond to the need to protect against schemes that began to utilize wires, specifically radio and television. Today, the mail (8) and wire (9) fraud statutes have been expanded to include a number of modes of communication such as facsimile, telex, modem and Internet transmissions. In addition, the statutes provide federal jurisdiction over a broad array of frauds, (10) covering "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." (11) Moreover, prosecutors use these statutes to prosecute money laundering and Racketeer Influenced and Corrupt Organizations Act ("RICO") violations. (12)

    Recent Congressional action has both broadened the scope of the mail and wire fraud statutes, and enhanced the criminal penalties for mail and wire fraud offenses. In 1994, Congress expanded both the mail and wire fraud statutes to respond to an ever-increasing threat of new schemes, which often bypassed the USPS and instead utilized private carriers, by amending the federal mall fraud statute to cover mailings delivered by private interstate commercial carriers. (13) In addition, Congress expressly criminalized telemarketing fraud, (14) and enhanced the criminal penalties for any mall and/or wire fraud scheme that specifically targeted senior citizens. (15) Even more recently, Congress 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. (16)

    This Article provides a brief overview of the prosecution of mail and wire fraud offenses under the federal statutes. Because the character, language, and scope of the mail and wire fraud statutes are similar, legal analysis and case law discussing mail fraud offenses are equally applicable to wire fraud offenses. Likewise, legal analysis and case law that concerns wire fraud offenses can be applied to instances of mail fraud. (17)

    Section II of this Article analyzes the elements that need to be proven to establish a mail or wire fraud offense. Section III examines the available defenses. Section IV reviews the venue considerations. Finally, Section V addresses sentencing issues that relate to convictions under the mail and wire fraud statutes.

  2. ELEMENTS OF THE OFFENSE

    For more than a century, mail and wire fraud jurisprudence has evolved through both congressional action and court decision. Currently, to be convicted of a mail or wire fraud offense, the government has to show beyond a reasonable doubt that the defendant perpetuated: (i) a scheme to defraud that includes a material deception; (ii) with the intent to defraud; (iii) while using the mails, private commercial carders, 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.

    The wire fraud statute, 18 U.S.C. [section] 1343, in addition to the aforementioned elements, requires that the communication at issue cross state lines. (19) This interstate requirement applies only to the wire fraud statute because of Congress' reliance on its Commerce Clause (20) power to assert jurisdiction. (21) In contrast, exclusive congressional jurisdiction over the USPS (22) provides the necessary constitutional foundation for federal prosecution under the mail fraud statute. (23) Courts have also determined that a mailing sent through a private commercial carder that deals in interstate business gives rise to congressional jurisdiction, even when the particular mailing does not actually travel interstate. (24)

    Each use of the mail and/or wires constitutes a separate offense and can therefore 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. (26) However, vicarious criminal liability cannot sustain an indictment under the statutes. (27) Each person must willfully participate in a fraudulent scheme that includes foreseeable use of the mails, wires, or both. (28)

    1. Scheme to Defraud

      Proof that the defendant engaged in a scheme to defraud is a common requirement under both the mail and wire fraud statutes. (29) However, neither the mail nor the wire fraud statute defines what constitutes a scheme to defraud, and the legislative history with respect to this 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)

      In general, a scheme to defraud involves depriving a person "of something of value by trick, deceit, chicane, or overreaching." (32) It has also been described as "a departure from community standards of 'fair play and candid dealings.'" (33) Some courts find that a scheme to defraud is 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 ruled that for a misrepresentation to constitute a scheme to defraud, the government has to prove that the deception was material. (36) 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. (37)

      The Neder Court referenced the Restatement (Second) of Torts to define materiality; (38) however, circuit courts are split with regard to the precise standard to use when determining if a statement was a material misrepresentation. For example, some circuits hold that for the misrepresentation to be material, it has to be a statement on which a reasonable person would rely. (39) This interpretation follows from a commitment to interpreting "federal criminal statutes ... narrowly." (40) To illustrate, in United States v. Brown the Eleventh Circuit reversed the convictions of four former housing development executives who had been convicted of defrauding homebuyers by selling homes at prices above the market rate. (41) The Eleventh Circuit held that the development executives' conduct did not constitute a "scheme to defraud" because no "person of ordinary prudence" would have relied on the developers' statements about the market value of the properties. (42) The court reasoned that because market values and other housing information are publicly and "readily available" to potential homebuyers, the defendants did not materially deceive or defraud the consumers. (43)

      Other circuits have taken a different approach, finding material deception present even when the person relying on the deceptive statement is gullible and imprudent. (44) These circuits argue that the ordinary prudence or reasonable person standard does not act as a "shield which a defendant may use to avoid a conviction." (45) 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."' (46) Under this view, the reasonable person requirement is instructive in helping the jury determine if the defendant had fraudulent intent, but not as a mechanism for the court to avoid finding a scheme to defraud.

    2. Intent to Defraud

      The second element the government must prove for a mail or wire fraud conviction is a defendant's intent to defraud. (47) Intent targets "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." (48) Intent to deceive has been distinguished from "puffing," or mere exaggeration of the qualities, opportunities, or value of an article. (49) However, statements in advertising that go beyond "puffing" can be indicative of intent to defraud when the advertised product falls substantially short of the way the defendant represented it. (50) 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." (51)

      The government often meets its burden to prove intent to defraud by using circumstantial evidence; (52) "a liberal policy has developed to allow the government to introduce evidence that even peripherally bears on the question of intent," (53) Similarly, the defendant can also use circumstantial evidence...

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