Court narrows scope of federal wire fraud statutes

OPINION ANALYSIS

For decades, the Supreme Court has steadily narrowed the scope of the federal criminal wire fraud statutes, and Thursday’s decision in Ciminelli v. United States is no exception. The court held that the federal criminal wire fraud statutes do not incorporate a “right to control” theory of fraud. The court referenced both federalism and overcriminalization concerns in narrowing the scope of the wire fraud statutes, pushing federal prosecutors to be more precise in articulating fraud cases against suspicious state contractor activity. As Justice Samuel Alito’s concurrence explains, though, the precise outcome for Louis Ciminelli himself or others accused of fraud is less clear.

Some forms of fraud are clear and straightforward – for example, when an individual sells a non-existent product or service, as the buyer has suffered an easily measurable loss. Other potential frauds, as in this case, are more difficult. Ciminelli secretly worked with state insiders to ensure that his firm would be first in line to negotiate for state-funded projects, and the negotiations led to an otherwise successful $750 million development project. Federal prosecutors charged Ciminelli with wire fraud using a “right to control” theory of loss: The state had the right to control its funds and thus to administer a fair and honest bidding process. The U.S. Court of Appeals for the 2nd Circuit was an outlier in upholding this right to control theory, and on appeal to the Supreme Court, even the government conceded that this theory was flawed. As the court previously held in Kelly v. United States, prosecutors must prove how alleged fraudsters deprive victims of money or property.

For Ciminelli, a remaining question was whether the government had offered sufficient proof that the state suffered quantifiable loss in awarding the $750 million development project. Justice Clarence Thomas’s unanimous opinion expressly declined to address this factual question. Alito concurred, listing other procedural issues that similarly remain unresolved. It will be up to lower courts to decide how to resolve Ciminelli’s situation, knowing only that the “right to control” theory is unavailable.

Because the 2nd Circuit’s right to control theory was an outlier, today’s decision brings the 2nd Circuit in line with the rest of the country. Future potential state contractors must remain vigilant in their bidding processes, as federal prosecution for criminal wire fraud remains a possibility. Offering proof that the state received a factually good deal in negotiations remains a viable defense argument, and the Supreme Court has been consistent in not allowing prosecutors to take shortcuts past that fundamental factual question.