Supreme Court And 1st Circuit Significantly Curtail Scope Of Federal Property Fraud Statutes

• Published date: 31 May 2023
• Subject Matter: Criminal Law, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Akin Gump Strauss Hauer & Feld LLP
• Author: Mr Peter I. Altman, Michael Asaro, James J. Benjamin Jr., Paul W. Butler, Charles F. Connolly, Anne M. Evans, Katherine Rachel Goldstein, Claudius B. Modesti, Parvin Daphne Moyne, Pratik Shah, Sean Michael Nolan and Jennifer J. Yu

Key Points

• In two landmark decisions, the Supreme Court and the 1st Circuit significantly pared back the scope of the federal mail and wire fraud statutes.
• In Ciminelli v. United States, a political corruption case, the Supreme Court unanimously rejected the 2nd Circuit's "right-to-control" theory as a basis for a wire fraud conviction.
• In United States v. Abdelaziz, one of the "Varsity Blues" college admissions cases, the 1st Circuit rejected the government's honest services fraud theory and its property fraud theory that the defendants' fraudulent scheme deprived universities of the "property" of their admissions slots.
• Both cases will have broad implications for mail and wire fraud prosecutions and signal a significant reorientation of federal property fraud law that should have the effect of reining in fraud prosecutions based on intangible harms.

Ciminelli Background

The federal wire fraud statute criminalizes "scheme[s] or artifice[s] to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises." 18 U.S.C. ' 1343. More than 35 years ago, the U.S. Supreme Court held that the federal fraud statutes are "limited in scope to the protection of property rights." McNally v. United States, 483 U.S. 350, 360 (1987). But in the years that followed, the "right-to-control" theory that emerged in the U.S. Court of Appeals for the 2nd Circuit expanded the reach of the wire fraud statute beyond traditional property interests. Under the right-to-control theory, a wire fraud conviction could be premised on a scheme to deprive a victim of "potentially valuable economic information" that is "necessary to make discretionary economic decisions." United States v. Percoco, 13 F.4th 158, 170 (2d Cir. 2021).

The events leading to the prosecution in Ciminelli date back to 2012, when then-New York Governor Andrew Cuomo announced the "Buffalo Billion" initiative to invest $1 billion in tax revenue to develop the greater Buffalo area. Alain Kaloyeros of the State University of New York (SUNY) was in charge of proposing economic development projects through a SUNY-affiliated nonprofit called Fort Schuyler Management Corporation. Kaloyeros used his control over Fort Schuyler to conspire with the owner of an upstate New York construction company, Louis Ciminelli, to skew the proposal process and ensure that a proposal submitted by Ciminelli's company was preferred over its competitors. At the end of the procurement process, Ciminelli's company was awarded a $750 million contract.

After an investigation, Kaloyeros, Ciminelli and several others were charged with wire fraud for their roles in the Buffalo Billion bid-rigging scheme. At trial, the court instructed the jury that "property" includes intangible interests, including the right to control the use of one's assets, and that depriving another of potentially...