Does Federal Mail or Wire Fraud Require Financial Loss?
Federal mail and wire fraud charges require a scheme directed at obtaining money or traditional property. But the government does not necessarily have to prove that the alleged victim ultimately suffered a net economic loss.
The distinction became especially important after the Supreme Court’s decisions in Ciminelli v. United States and Kousisis v. United States.
If you are under investigation for mail fraud, wire fraud, government contract fraud, or fraudulent inducement, contact federal criminal defense attorney Michael J. Petro before speaking with federal agents or prosecutors.
The Federal Mail and Wire Fraud Statutes
Mail fraud is prohibited by 18 U.S.C. § 1341. Wire fraud is prohibited by 18 U.S.C. § 1343.
The offenses have similar elements. The government generally must prove:
• The defendant knowingly participated in a scheme to defraud.
• The scheme was directed at obtaining money or property.
• The scheme involved a material false statement, fraudulent representation, promise, or deceptive omission.
• The defendant acted with the required intent to defraud.
• The United States mail or an interstate wire communication was used to advance the scheme.
Wire communications may include telephone calls, emails, electronic transfers, text messages, internet communications, or other interstate transmissions.
Money or Property Must Be an Object of the Scheme
Federal fraud statutes do not criminalize every lie, breach of contract, regulatory violation, or unethical business practice.
The prosecution must prove that traditional money or property was an object of the alleged fraud.
This may include a scheme to obtain:
• Cash.
• Contract payments.
• Bank funds.
• Tangible property.
• Confidential business information with property characteristics.
• Government payments.
• Other traditionally recognized property interests.
Obtaining the victim’s money or property must be an objective of the alleged scheme, not merely an incidental consequence.
Net Economic Loss Is Not Always Required
A victim does not necessarily have to end the transaction financially worse off for federal fraud to occur.
In Kousisis v. United States, the Supreme Court held that a person who induces a victim to enter a transaction through materially false representations may commit federal fraud even without intending to cause net economic loss.
A defendant may obtain the victim’s money through deception while providing valuable goods or services in return.
The absence of net loss may remain important to sentencing, restitution, forfeiture, materiality, and trial strategy. But it does not automatically defeat criminal liability.
What Happened in Kousisis?
The Pennsylvania Department of Transportation awarded two painting contracts to Alpha Painting and Construction Company.
The contracts required participation by a disadvantaged business enterprise. During the bidding process, Alpha represented that it would purchase millions of dollars in paint supplies from a qualifying disadvantaged business.
According to the government, that company served only as a pass through. It processed invoices and payments but did not perform the commercially useful function required by the program.
Alpha completed the painting work to the government’s satisfaction and earned a substantial profit. The defendants argued that PennDOT received the full economic value of the construction work and therefore suffered no net pecuniary loss.
The Supreme Court rejected the argument that federal wire fraud always requires intended economic loss.
Fraudulent Inducement After Kousisis
A fraudulent inducement theory applies when a defendant allegedly uses a material misrepresentation to cause the victim to enter a transaction involving money or property.
The Supreme Court concluded that the statutory text does not require the defendant to seek net economic harm.
Under this theory, the prosecution may argue:
• The defendant made a material false representation.
• The representation induced the victim to award a contract or make a payment.
• The defendant obtained the victim’s money.
• The victim would not have entered the transaction if the truth were known.
The fact that the defendant provided something valuable in return does not necessarily prevent conviction.
Materiality Remains an Essential Limitation
Kousisis does not make every inaccurate statement in a business transaction a federal crime.
The alleged falsehood must be material. A representation is generally material when it has a natural tendency to influence or is capable of influencing the victim’s decision.
Relevant questions include:
• Did the representation concern an express condition of payment?
• Would the victim have entered the transaction if the truth were known?
• Did the victim routinely enforce the requirement?
• Was the requirement described as essential or material?
• Did the misrepresentation affect price, quality, eligibility, or performance?
• Was the statement merely incidental to the bargain?
• Did the victim continue paying after learning the truth?
A trivial, irrelevant, or immaterial misstatement should not support a federal fraud conviction.
Ciminelli Rejected the Right to Control Theory
In Ciminelli v. United States, the Supreme Court rejected the right to control theory of wire fraud.
Under that theory, prosecutors argued that a victim was deprived of property when deceptive conduct denied the victim economically valuable information needed to make an informed decision.
The Supreme Court unanimously rejected that theory because an abstract right to complete and accurate information is not traditional property.
The government cannot establish wire fraud merely by proving that deception interfered with the victim’s ability to make an informed economic decision.
How Kousisis Differs From Ciminelli
The decisions address different issues.
Ciminelli requires money or traditional property to be an object of the scheme. The deprivation of information or control over a decision is not enough.
Kousisis holds that once a defendant uses material deception to obtain the victim’s money or property, the prosecution does not also have to prove that the defendant intended to leave the victim with a net financial loss.
The current rule can be summarized as follows:
• Money or traditional property must be an object of the scheme.
• Deception must be material.
• The defendant must act with the required fraudulent intent.
• The government need not always prove intended net economic loss.
Regulatory Interests Are Not Automatically Property
A government agency’s interest in enforcing regulations, maintaining honest administration, or controlling public policy is not automatically money or property.
The Supreme Court has repeatedly limited the federal fraud statutes when prosecutors attempted to criminalize schemes directed principally at governmental regulatory authority.
For example, interference with:
• A licensing decision.
• Regulatory control.
• Political decision making.
• Honest government administration.
• The allocation of official power.
may not constitute property fraud unless the scheme is genuinely directed at obtaining money or traditional property.
The government cannot convert every regulatory violation into mail or wire fraud merely because government employees or resources were involved.
Public Contract Fraud After Kousisis
Public contracting cases may present a stronger property theory because the defendant allegedly seeks government contract payments.
Potential allegations may involve:
• Disadvantaged business participation.
• Minority owned business certifications.
• Women owned business certifications.
• Small business eligibility.
• Domestic sourcing requirements.
• Prevailing wage certifications.
• Product quality or specifications.
• Subcontractor participation.
• False billing or inflated invoices.
The defense should determine whether the disputed representation was material to the government’s payment decision and whether the defendant knowingly intended to obtain money through deception.
United States v. Fenzl
In United States v. Fenzl, No. 11-2459, the government alleged a scheme involving a City of Chicago contract for repairing and refurbishing refuse containers.
The indictment alleged that Steven Fenzl arranged sham bids and submitted false documents during the bidding process. It also alleged false certifications concerning participation by minority and women owned businesses.
Fenzl argued that the mail and wire fraud allegations should be dismissed because the indictment did not allege that the City suffered pecuniary harm.
The court declined to dismiss the charges. It concluded that ultimate pecuniary harm was not an independent element of traditional mail or wire fraud.
That conclusion is generally consistent with Kousisis, but the modern analysis must still ask whether obtaining the City’s money or property was an object of the scheme and whether the alleged misrepresentations were material.
Intent to Defraud Is Still Required
A false statement does not automatically prove an intent to defraud.
The government must prove the defendant knowingly joined or devised the fraudulent scheme with the required criminal intent.
Evidence relevant to intent may include:
• The defendant’s understanding of the requirement.
• Advice received from attorneys, accountants, or contracting personnel.
• Ambiguous contract language.
• Industry practices.
• Efforts to disclose the arrangement.
• Attempts to correct inaccurate statements.
• Internal communications.
• Concealment or destruction of records.
• Personal financial benefit.
Negligence, mistake, misunderstanding, or poor contract performance is not the same as intentional fraud.
A Breach of Contract Is Not Automatically Wire Fraud
Federal criminal law should not convert ordinary contractual disputes into fraud prosecutions.
A company may fail to perform precisely as promised because of:
• Negligence.
• Changed circumstances.
• Supply problems.
• Ambiguous contract terms.
• Disagreement about compliance.
• Poor performance.
• Unforeseen costs.
• Subcontractor misconduct.
The prosecution must prove more than nonperformance. It must establish a knowing scheme involving material deception and the intent required by the fraud statutes.
Evidence that the defendant intended to perform when the promise was made may undermine a claim of fraudulent inducement.
Must the Scheme Succeed?
No. Mail and wire fraud generally punish the scheme and use of the mail or wires, even when the intended fraud is unsuccessful.
The government does not necessarily have to prove that:
• The victim relied successfully on every statement.
• The defendant obtained all the money sought.
• The victim suffered an actual loss.
• The scheme reached completion.
However, failure, lack of reliance, or absence of loss may weaken the government’s evidence of materiality and intent.
The Mailing or Wire Must Further the Scheme
The government must connect the charged mailing or wire communication to the execution or advancement of the alleged scheme.
The defendant does not always have to personally send the communication. A communication caused by the defendant or reasonably foreseeable in the ordinary course of the scheme may be sufficient.
Defense counsel should examine whether the charged communication:
• Occurred before the scheme was complete.
• Helped obtain or retain money or property.
• Concealed the alleged fraud.
• Was merely incidental.
• Occurred after the scheme had ended.
• Was reasonably foreseeable to the defendant.
The federal jurisdictional element should not be assumed merely because email, banking, or mail was involved somewhere in the parties’ relationship.
Honest Services Fraud Is Different
Section 1346 defines a scheme to defraud to include certain schemes depriving another of the intangible right of honest services.
After Skilling v. United States, honest services fraud is generally limited to bribery and kickback schemes.
A prosecution involving public corruption or an employee’s breach of duty may therefore involve a different theory from traditional money or property fraud.
The indictment and jury instructions should identify which theory the government is pursuing.
Financial Loss at Sentencing
The absence of net economic loss may not defeat the conviction, but it can have a major effect on sentencing.
Federal fraud sentences frequently depend on a disputed loss calculation. Defense counsel should distinguish:
• Actual loss.
• Intended loss.
• Gross contract payments.
• Legitimate services provided.
• Credits against loss.
• Profit obtained by the defendant.
• Government administrative costs.
The amount paid under a contract is not automatically the correct sentencing loss. The defendant may be entitled to credit for legitimate goods or services provided.
Restitution Requires Actual Loss
Restitution ordinarily compensates a victim for actual loss caused by the offense.
A fraud conviction does not automatically establish that every contract payment must be repaid as restitution.
When the victim received valuable goods or services, the court may need to determine:
• The value received.
• The difference between what was promised and delivered.
• Whether replacement or remediation costs exist.
• Whether claimed losses were directly caused by the offense.
• Whether the victim suffered any compensable net loss.
Restitution, sentencing loss, and the elements of the offense are separate legal questions.
Forfeiture Is Also Different
Criminal forfeiture focuses on proceeds traceable to the offense rather than solely on the victim’s economic loss.
The government may seek forfeiture even when restitution is limited or the victim received value.
Defense counsel should challenge whether the property sought represents actual proceeds of the offense and whether the government’s calculation improperly includes legitimate earnings or untainted funds.
Challenging a Mail or Wire Fraud Charge
A defense analysis should ask:
• Did the alleged scheme target money or traditional property?
• Was the alleged statement false?
• Was it material?
• Did the defendant know it was false?
• Did the defendant act with intent to defraud?
• Was the dispute actually contractual or regulatory?
• Did the government rely on the rejected right to control theory?
• Was the mailing or wire communication in furtherance of the scheme?
• Did the jury receive accurate instructions after Ciminelli and Kousisis?
• Does the alleged loss account for value provided?
Michael J. Petro represents clients facing federal fraud charges in Tampa and Chicago, and if the government is investigating a mail fraud, wire fraud, or government contracting case, contact federal criminal defense attorney Michael J. Petro.