In Control: Supreme Court Reigns-In Second Circuit Fraud Theories

• Jurisdiction: United States,Federal
• Law Firm: Crowell & Moring
• Subject Matter: Government, Public Sector, Litigation, Mediation & Arbitration, Criminal Law, Government Contracts, Procurement & PPP, Trials & Appeals & Compensation, White Collar Crime, Anti-Corruption & Fraud
• Author: Mr Agustin D. Orozco, Nimi Aviad and David Griffith
• Published date: 25 May 2023

In Ciminelli v. US, 598 U. S. __ (2023), the Supreme Court decided that the "right to control" theory'long used by prosecutors in the Second Circuit'can no longer be used to support wire fraud convictions. The Court overturned the conviction of Louis Ciminelli, a participant in a scheme to rig bids for New York state-funded projects, known as the "Buffalo Billion" initiative. As part of the scheme, requests for proposals were strategically drafted to give preferential treatment to Ciminelli's company. At trial, the government argued that Ciminelli and his co-defendants were guilty of wire fraud under the right-to-control theory because they deprived the entity responsible for awarding the state-funded projects of certain information necessary to make an informed decision about the bid awards. The Second Circuit affirmed the conviction and the government's use of the right-to-control theory.

Writing on behalf of a unanimous court, Justice Clarence Thomas held that the wire fraud statue only reaches traditional property interests and the right to valuable economic information needed to make discretionary economic decisions'known as the "right to control"'is not a traditional property interest. The right-to-control theory, therefore, "cannot form the basis for a conviction under the federal fraud statutes."

Percoco v. US, 598 U. S. ___ (2023) dealt with the scope of honest services fraud, traditionally reserved for public employees accepting a bribe or kickback that did not necessarily result in a financial loss for the government employer, but did deprive the government of the right to receive honest services. Joseph Percoco'a former aide to New York Governor, Andrew Cuomo, left his government position temporarily and assumed a private role as the Governor's campaign manager. During this period, he accepted $35,000 in payments from a real-estate developer in exchange for using his influence to persuade a state agency to drop a funding requirement applicable to the developer.

Based on the Second Circuit's decision in US v. Margiotta, 688 F.2d 108 (2d Cir. 1981), the trial court instructed the jury that Percoco, despite being a private citizen at the time of the alleged bribes, owed a duty of honest services if: 1) he dominated and controlled any governmental business; and 2) people working in the government relied on him because of a special relationship he had with the government.

The Supreme Court held that the instructions were improper because the...