Summary
This Supreme Court decision addresses whether a defendant can be convicted of federal wire fraud under the fraudulent-inducement theory without proving that the victim suffered net pecuniary loss. The Court held that inducing a victim to enter into a transaction through materially false pretenses satisfies the money-or-property requirement of 18 U.S.C. § 1343, regardless of whether the defendant intended to cause economic harm. Relying on statutory text and common-law history, the Court affirmed the convictions of petitioners who used a pass-through entity to fraudulently obtain government painting contracts.
Topics
Practice areas
Questions Presented
- Whether a defendant may be convicted of federal wire fraud under a fraudulent-inducement theory when the defendant induces a victim to enter a transaction by materially false pretenses but does not seek to cause the victim net pecuniary loss.
- Whether 18 U.S.C. § 1343 requires economic loss in addition to deception and an intent to obtain the victim's money or property.
- Whether the fraudulent-inducement theory is inconsistent with the requirement that federal fraud schemes target traditional money or property interests.
Holdings
- A defendant who induces a victim to enter into a transaction under materially false pretenses may be convicted of federal wire fraud even if the defendant did not seek to cause the victim economic loss.
- Materiality of the falsehood is an element, and therefore a limit, of federal fraud statutes; a conviction under a fraudulent-inducement theory cannot be sustained without proof of materiality.
- The fraudulent-inducement theory applies only when money or property is an object of the scheme; it does not reach schemes targeting governmental regulatory power, intangible interests unconnected to traditional property rights, or mere information under the rejected right-to-control theory.
Key quotations
“A defendant who induces a victim to enter into a transaction under materially false pretenses may be convicted of federal fraud even if the defendant did not seek to cause the victim economic loss.” (605 U.S. at 121)
“In short, the wire fraud statute is agnostic about economic loss.” (605 U.S. at 124)
“For now, it is enough to reiterate “that materiality of falsehood is an element of”—and thus a limit on—the federal fraud statutes.” (605 U.S. at 132)
“Unlike the right-to-control theory, fraudulent inducement does not treat “mere information as the protected interest.”” (605 U.S. at 134)
Factual background
Pennsylvania's Department of Transportation awarded petitioners contracts for bridge and station restoration projects that required participation by a disadvantaged business enterprise. Petitioners falsely represented that Alpha would obtain paint supplies from Markias, Inc., a qualifying disadvantaged business, while arranging for Markias to act only as a pass-through entity and submitting false certifications. PennDOT received satisfactory painting work and paid the contracts, but petitioners obtained tens of millions of dollars that they would not have received absent the misrepresentations.
Procedural history
The Government charged petitioners under 18 U.S.C. §§ 1343 and 1349 based on a fraudulent-inducement theory. The jury returned convictions, and the District Court denied petitioners' motions for judgment of acquittal. The Third Circuit affirmed, holding that obtaining PennDOT's money was the object of the fraudulent scheme even though PennDOT received satisfactory painting work. The Supreme Court affirmed the Third Circuit.