mail & wire fraud elements - 18 usc 1341-1343 federal criminal law - us district courts - united...

8/9/2019 Mail & Wire Fraud Elements - 18 USC 1341-1343 Federal Criminal Law - US District Courts - United States Attorney

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8:1. Federal mail and wire fraud statutes, 1 White Collar Crime 8:1 (2d ed.)

2012 Thomson Reuters. No claim to original U.S. Government Works. 1

1 White Collar Crime 8:1 (2d ed.)

White Collar CrimeDatabase updated June 2011

Joel Androphy

Chapter 8. Substantive Law: Mail Fraud, Wire FraudI. Fraud Statutes

References

8:1. Federal mail and wire fraud statutes

Wests Key Number Digest

Wests Key Number Digest, Postal Service 35(1)

Wests Key Number Digest, Telecommunications 1014(1)

A.L.R. Library

Federal Criminal Prosecutions Under Wire Fraud Statute (18 U.S.C.A. 1343) for Use of Blue Box orSimilar Device Permitting User to Make Long-Distance Telephone Calls Not Reflected on Companys

Billing Records, 34 A.L.R. Fed. 278

Law Reviews and Other Periodicals

Disgorgement in 13 Enforcement, Wire Fraud Charges and Compliance Under FCPA Provisions, 15 No.

5 Bus. Crimes Bull. 7 (January, 2008)

Additional References

Corporate Counsels Guide to White-Collar Crime 2:2

The federal mail fraud statute1is a powerful tool employed by prosecutors against a litany of crimes.2The statutehas undergone considerable changes as both the Supreme Court3and Congress4have sought to redefine it.

The mail fraud statute provides in pertinent part:

Whoever, having devised or intending to devise any scheme or artifice to defraud for the purpose

of executing such a scheme or artifice or attempting to do so, [uses or causes the mails to be used],shall be fined under this title or imprisoned not more than 20 years, or both. If the violation affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned notmore than 30 years, or both.5

The wire fraud statute similarly provides:

Whoever, having devised or intending to devise any scheme or artifice to defraud for the purposeof executing such scheme or artifice, [uses or causes the wires to be used in interstate or foreign


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commerce], shall be fined under this title or imprisoned not more than 20 years, or both. If theviolation affects a financial institution, such person shall be fined not more than $1,000,000 orimprisoned not more than 30 years, or both.6

It is important to note, however, that a mailing or wire performed by a government agent solely for the purpose ofmanufacturing federal jurisdiction will not support a mail or wire fraud prosecution.7Additionally, the SupremeCourt has limited the applicability of the fraud statutes in some respects.

For example, in Cleveland v. United States, the Court held that the mail fraud statute does not reach fraud inobtaining a statute or municipal license because a license is not property in the government regulatorshands.8

The Court reasoned that the original impetus behind the mail fraud statute was to protect the people fromschemes to deprive them of their money or property [e]quating the issuance of licenses or permits withdeprivation of property would subject to federal mail fraud prosecution a wide range of conduct traditionallyregulated by state and local authorities.9As a result, the Court held that absent a clear Congressional mandate, it

would not read the statute to place conduct traditionally policed by the States under federal control.10

Westlaw. 2011 Thomson Reuters. No Claim to Orig. U.S. Govt. Works.

Footnotes1 18 U.S.C.A. 1341.

2 In 2004, the Justice Department decided to take a more aggressive approach in prosecuting fraud under theinternal revenue laws. The Tax Division may now use mail fraud or wire fraud charges against anindividual who used the mails or wires either to file multiple fraudulent tax returns seeking tax refunds orto promote fraudulent tax schemes.

3 McNally v. U.S., 483 U.S. 350, 107 S. Ct. 2875, 97 L. Ed. 2d 292, R.I.C.O. Bus. Disp. Guide (CCH) P

6663 (1987)superseded by statute as stated in Skilling v. United States, __ U.S. __, 130 S. Ct. 2896, 2907,177 L. Ed. 2d 619 (2010) (holding 1341does not sanction the use of the intangible rights theory formail fraud convictions).

4 In response to the Supreme Courts decision in McNally, Congress added a definition of scheme orartifice to defraud in 1988, providing that such term includes a scheme or artifice to deprive another ofthe intangible right of honest services. 18 U.S.C.A. 1346; see McNally v. U.S., 483 U.S. 350, 107 S. Ct.2875, 97 L. Ed. 2d 292, R.I.C.O. Bus. Disp. Guide (CCH) P 6663 (1987)superseded by statute as stated inSkilling v. United States, __ U.S. __, 130 S. Ct. 2896, 2907, 177 L. Ed. 2d 619 (2010).

5 18 U.S.C.A. 1341.

6 18 U.S.C.A. 1343.

7 SeeU.S. v. Coates, 949 F.2d 104, 106 (4th Cir. 1991).

8 Cleveland v. U.S., 531 U.S. 12, 20, 121 S. Ct. 365, 148 L. Ed. 2d 221, R.I.C.O. Bus. Disp. Guide (CCH) P9970 (2000).

9 Cleveland v. U.S., 531 U.S. 12, 1824, 121 S. Ct. 365, 148 L. Ed. 2d 221, R.I.C.O. Bus. Disp. Guide(CCH) P 9970 (2000).


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10 Cleveland v. U.S., 531 U.S. 12, 27, 121 S. Ct. 365, 148 L. Ed. 2d 221, R.I.C.O. Bus. Disp. Guide (CCH) P9970 (2000).

End of Document 2012 Thomson Reuters. No claim to original U.S.Government Works.


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8:2. Elements of mail and wire fraud, 1 White Collar Crime 8:2 (2d ed.)




Joel Androphy


References

8:2. Elements of mail and wire fraud




Treatises and Practice Aids

Villa, Banking Crimes 7:4 to 7:15


Clark, Ninth Circuit: Wire Fraud Conviction Need Not Include Showing of Conduct Violating Other

Statute or Regulation, 17 No. 7 Bus. Crimes Bull. 5 (March, 2010)Additional References


The elements of mail and wire fraud are identical.1 They are: (1) devising or intending to devise a scheme orartifice to defraud another by means of a material misrepresentation, with (2) the intent to defraud through (3) the

use of mail or interstate wires.2


Footnotes1 18 U.S.C.A. 1341.

See also 18 U.S.C.A. 1343; U.S. v. Pasquantino, 305 F.3d 291 (4th Cir. 2002), on rehg en banc, 336F.3d 321 (4th Cir. 2003), judgment affd, 544 U.S. 349, 125 S. Ct. 1766, 161 L. Ed. 2d 619, 96 A.F.T.R.2d2005-5392, 4 A.L.R. Fed. 2d 747 (2005) ( 1343 is not applicable to schemes to defraud foreigngovernments of their revenues).

Carpenter v. U.S., 484 U.S. 19, 24, 108 S. Ct. 316, 98 L. Ed. 2d 275, 14 Media L. Rep. (BNA) 1853, 5

U.S.P.Q.2d 1059, Fed. Sec. L. Rep. (CCH) P 93423, R.I.C.O. Bus. Disp. Guide (CCH) P 6785 (1987).See alsoU.S. v. Jackson, 346 F.3d 22 (2d Cir. 2003), adhered to on rehg, 362 F.3d 160 (2d Cir. 2004),cert. granted, judgment vacated on other grounds, 543 U.S. 1097, 125 S. Ct. 1109, 160 L. Ed. 2d 988

(2005) (affirming wire fraud conviction based on defendants fraudulent use of victims credit card


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8:2. Elements of mail and wire fraud, 1 White Collar Crime 8:2 (2d ed.)


information).

2 Neder v. U.S., 527 U.S. 1, 119 S. Ct. 1827, 144 L. Ed. 2d 35, 99-1 U.S. Tax Cas. (CCH) P 50586, 83

A.F.T.R.2d 99-2668 (1999) (holding that while materiality of falsehood is an element of the federal mail

fraud, wire fraud, and bank fraud statutes, the harmless error rule can salvage a conviction without proof ofmateriality); U.S. v. Fernandez, 282 F.3d 500 (7th Cir. 2002) (holding that although indictment failed toexpressly allege materiality element of mail fraud offense, allegations as a whole encompassed concept of

materiality; therefore, indictment was not defective).



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8:3. Elements of mail and wire fraudIntent to defraud, 1 White Collar Crime 8:3...




Joel Androphy


References

8:3. Elements of mail and wire fraudIntent to defraud






Forms

Am. Jur. Pleading and Practice Forms Annotated, Telecommunications 149.16



Proof of a specific intent to defraud is required under both the mail and wire fraud statutes.1It is hornbook law

that a good faith belief by the defendant that his representation or promises are true necessarily negates fraudulentintent and is, therefore, a defense to mail fraud.2

Note, however, than an expert witness may not testify that the defendant had the intent or state of mind necessaryto commit the crime because the defendants intent is an ultimate fact issue that must be decided by the jury. 3

However, an expert may testify as to whether the defendant engaged in a scheme. For example, in United States v.

Winkle, the Sixth Circuit held that an experts testimony that the defendant carried out a check-kiting scheme wasproperly admitted over the defendants objection.4The court stated that the testimony helped the jury understand

a complex check-kiting scheme, and because the expert did not take a position on the defendants intent, the

testimony was properly admitted.5

In United States v. Keller,6 the Fifth Circuit held that the requisite intent to defraud exists if the defendant actsknowingly and with the specific intent to deceive, ordinarily for the purpose of causing some financial loss toanother or bringing about some financial gain to himself.7

Similarly, in United States v. Czubinski,8 the First Circuit held that the government failed to prove that an IRS


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agent committed wire fraud by accessing confidential information. In so holding, the court reasoned that on orderto establish the intent requirement, either some articulable harm must befall the holder of the information as a

result of the defendants activities, or some use must be intended by the person accessing the information, whether

or not this use is profitable in the economic sense.9

If the alleged victim receives what he bargains for, establishing intent to defraud may be problematic. In United

States v. Novak, the Second Circuit held that a lead union operator who demanded kickbacks from union

members in order to submit their timesheets could not be convicted of mail fraud because the union membersreceived exactly what they bargained for, which was not enough to satisfy the intent to defraud element in the

mail fraud statute.10

It is important to note, however, that it is not necessary to prove that the victim was actually defrauded, so long as

the defendant intended him to be defrauded and the scheme had the potential to defraud an ordinary person.11


Footnotes

1 Specific intent to defraud, however, need not be charged in the indictment. U.S. v. Brown, 459 F.3d 509,519 (5th Cir. 2006); U.S. v. Brown, 147 F.3d 477, 483, 50 Fed. R. Evid. Serv. 165, 1998 FED App. 0179P

(6th Cir. 1998); U.S. v. Cosentino, 869 F.2d 301, 30708 (7th Cir. 1989).

2 Durland v. U S, 161 U.S. 306, 31314, 16 S. Ct. 508, 40 L. Ed. 709 (1896); U.S. v. Rabinowitz, 327 F.2d62, 7677 (6th Cir. 1964).

3 U.S. v. Winkle, 477 F.3d 407, 416, 72 Fed. R. Evid. Serv. 592, 2007 FED App. 0070P (6th Cir. 2007).



6 U.S. v. Keller, 14 F.3d 1051, 1056 (5th Cir. 1994).

7 U.S. v. Keller, 14 F.3d 1051, 1056 (5th Cir. 1994). SeeU.S. v. Gray, 367 F.3d 1263, 1268 (11th Cir. 2004)

(stating that the mail fraud statute requires proof that the defendants scheme to defraud involved the use of

material, false representations or promises).

8 U.S. v. Czubinski, 106 F.3d 1069, 107475, 97-2 U.S. Tax Cas. (CCH) P 50622, 79 A.F.T.R.2d 97-1664(1st Cir. 1997).

9 U.S. v. Czubinski, 106 F.3d 1069, 107475, 97-2 U.S. Tax Cas. (CCH) P 50622, 79 A.F.T.R.2d 97-1664

(1st Cir. 1997).

10 U.S. v. Novak, 443 F.3d 150, 159, 152 Lab. Cas. (CCH) P 10640 (2d Cir. 2006), subsequent determination,

188 Fed. Appx. 9 (2d Cir. 2006).

11 U.S. v. Schaffer, 599 F.2d 678, 67980 (5th Cir. 1979); U.S. v. Stouffer, 986 F.2d 916, 922 (5th Cir. 1993).

End of Document 2012 Thomson Reuters. No claim to original U.S.

Government Works.


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8:4. Elements of mail and wire fraudScheme or..., 1 White Collar Crime...




Joel Androphy


References

8:4. Elements of mail and wire fraudScheme or artifice to defraud




A.L.R. Library

What Constitutes Causing Mail to Be Delivered for Purpose of Executing Scheme Prohibited by MailFraud Statute (18 U.S.C.A. 1341), 9 A.L.R. Fed. 893



Because the courts have not established a clear definition of what actually constitutes a scheme or artifice todefraud, the issue has been the subject of a great deal of litigation.1A scheme to defraud does not have to be

fraudulent on its face; rather, it just must be reasonably calculated to deceive. 2The fact that a particular scheme isimpracticable or ultimately unsuccessful is not necessarily inconsistent with it being a fraudulent scheme.3

Rather, the essence of fraud is that the victim is persuaded to believe that which is not so. 4

In Pasquantino v. United States, the Supreme Court held that a scheme to defraud a foreign government of taxrevenue violates the federal wire fraud statute.5The defendants were convicted of smuggling discounted alcoholfrom the United States into Canada without paying Canadian excise taxes.6 The Court concluded that the

uncollected tax revenue qualified as property because it constituted a valuable entitlement.7The Court also

held that the defendants schemed to defraud the Canadian government within the meaning of the statute because

they concealed and failed to disclose the imported liquor to the Canadian authorities and on customs forms.8

The Court rejected the defendants argument that the convictions were barred by the common law revenue rule,

which prohibits courts from enforcing tax obligations of foreign countries.9In rejecting this argument, the Courtconcluded that the defendants convictions were permitted under the wire fraud statute because they did not

represent an attempt by the government to collect a foreign tax liability; rather, the Government was doingnothing more than prosecuting domestic criminal conduct.10

At the core of the judicially defined scheme to defraud is the notion of a fiduciary trust owed to another and a


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subsequent breach of that trust.11 Jurisdictions, however, differ in their analysis of whether the violation of afiduciary duty constitutes a violation of the mail or wire fraud statutes.

For example, in United States v. Little,12 the Fifth Circuit held that a kickback scheme violated a fiduciary

trust, even though no actual monetary loss was involved. The court found that the defendants willingness to sellhis product for the state-set priceless the kickback amountconstituted a property loss and therefore a

violation of a fiduciary trust and the mail fraud statute. Other courts, however, have determined that violations

of fiduciary duties were insufficient to trigger liability under the fraud statutes.13


Footnotes1 See U.S. v. Leahy, 464 F.3d 773, 790, 71 Fed. R. Evid. Serv. 479 (7th Cir. 2006) (scheme to defraud

existed where a private contractor misrepresented itself as a minority-owned or woman-owned business in

order to obtain a government despite the fact that the city suffered no monetary loss or pecuniary harmbecause the contract was fully performed at the agreed price).

But seeU.S. v. Lake, 472 F.3d 1247, 1255 (10th Cir. 2007)(holding mandatory reports filed with the SECwere not transmitted as part of any unlawful scheme because the government failed to show that there was

anything misleading in the reports and their submission was required by law). See also U.S. v. Green, 592

F.3d 1057, 1064, 252 Ed. Law Rep. 608 (9th Cir. 2010) (holding that, to prove a scheme to defraud, thegovernment is not required to prove that the defendants conduct was otherwise illegal; therefore, thegovernment is not required to prove that the defendants conduct violated a specific statute or regulation).

2 U.S. v. Bruce, 488 F.2d 1224, 1229, Fed. Sec. L. Rep. (CCH) P 94335 (5th Cir. 1973) .

3 U.S. v. Church, 888 F.2d 20, 24 (5th Cir. 1989).

4 U.S. v. Church, 888 F.2d 20, 24 (5th Cir. 1989). For a discussion of unreasonable reliance on the part of

the victim, see Section 8.7 infra.

5 Pasquantino v. U.S., 544 U.S. 349, 125 S. Ct. 1766, 1771, 161 L. Ed. 2d 619, 96 A.F.T.R.2d 2005-5392, 4A.L.R. Fed. 2d 747 (2005). For further discussion of this case, see G.J. Terwilliger III, United States v.

Pasquantino, NATL L.J., Nov. 7, 2005, at 16.

6 Pasquantino v. U.S., 544 U.S. 349, 125 S. Ct. 1766, 1770, 161 L. Ed. 2d 619, 96 A.F.T.R.2d 2005-5392, 4

A.L.R. Fed. 2d 747 (2005).

7 Pasquantino v. U.S., 544 U.S. 349, 125 S. Ct. 1766, 177172, 161 L. Ed. 2d 619, 96 A.F.T.R.2d

2005-5392, 4 A.L.R. Fed. 2d 747 (2005). See also U.S. v. Ali, 620 F.3d 1062, 106768 (9th Cir. 2010)

(holding that potential profits constitute money or property).

8 Pasquantino v. U.S., 544 U.S. 349, 125 S. Ct. 1766, 1773, 161 L. Ed. 2d 619, 96 A.F.T.R.2d 2005-5392, 4

A.L.R. Fed. 2d 747 (2005).


2005-5392, 4 A.L.R. Fed. 2d 747 (2005).


2005-5392, 4 A.L.R. Fed. 2d 747 (2005).


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11 U.S. v. Capozzi, 883 F.2d 608, 616, 28 Fed. R. Evid. Serv. 898 (8th Cir. 1989); U.S. v. Martin, 195 F.3d

961 (7th Cir. 1999) (recognizing that the fraud element of mail fraud may be predicated on breaches of

fiduciary duties created by federal law, and is not limited to breaches of state-law fiduciary duties). But see

U.S. v. Sancho, 957 F. Supp. 39, 4243 (S.D. N.Y. 1997), affd, 157 F.3d 918 (2d Cir. 1998)(overruled onother grounds by, U.S. v. Rybicki, 354 F.3d 124 (2d Cir. 2003)) (holding that the plain language of 1343and 1346 does not limit culpability to cases involving fiduciaries).

12 U.S. v. Little, 889 F.2d 1367, 1368 (5th Cir. 1989).

13 U.S. v. Ochs, 842 F.2d 515, 25 Fed. R. Evid. Serv. 238 (1st Cir. 1988)(holding that a breach of fiduciaryduty is not sufficient property deprivation to constitute mail fraud); U.S. v. Zauber, 857 F.2d 137 (3d Cir.

1988)(rejecting constructive trust as basis for mail fraud conviction); U.S. v. Slay, 858 F.2d 1310 (8th Cir.

1988) (stating that withholding information from a governmental entity is insufficient to uphold a mail

fraud conviction); U.S. v. Lance, 848 F.2d 1497 (10th Cir. 1988) (paying kickbacks does not violate theproperty requirement); U.S. v. Conover, 845 F.2d 266 (11th Cir. 1988)(breach of fiduciary duty does not

violate the mail fraud statute).

But seeU.S. v. Hedaithy, 392 F.3d 580, 595 (3d Cir. 2004)(holding that a scheme in which imposters took

standardized tests and sent results to schools purportedly as defendants own scores deprived theeducational testing company of two property interests: confidential business information and tangible score

reports).


Government Works.


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8:5. Elements of mail and wire fraudUse of mail or..., 1 White Collar Crime...




Joel Androphy


References

8:5. Elements of mail and wire fraudUse of mail or wires to execute scheme to defraud




A.L.R. Library

Federal Criminal Prosecutions Under Wire Fraud Statute (18 U.S.C.A. 1343) for Use of Blue Box orSimilar Device Permitting User to Make Long-Distance Telephone Calls Not Reflected on Companys

Billing Records, 34 A.L.R. Fed. 278


Clark, Fax Sent by Victim Sufficient to Establish Wire Fraud, 17 No. 7 Bus. Crimes Bull. 5 (March, 2010)


Corporate Counsels Guide to White-Collar Crime 2:4 to 2:7

In a wire fraud case, the government must prove the use of interstate wire communications in furtherance of the

scheme to defraud.1 It is not necessary, however, to prove that the defendant himself personally performed thefraudulent wire transfer in order to satisfy the element of causing a wire transmission in furtherance of thefraudulent scheme.2 Rather, this element can be satisfied by showing that the defendant acted with knowledge

that a wire transfer would follow in the ordinary course of business or that such use could reasonable be

foreseen.3

For example, in United States v. Turner, the defendant, Cecil Turner, conspired with three janitors to defraud the

state by collecting inflated salaries based on falsified attendance logs.3.10Turner argued that the direct deposit of

his inflated paychecks did not constitute a use of interstate wires because the use of such wires was a regularpart of his employment, and therefore not in furtherance of a fraudulent scheme.3.20

The court, however, concluded that routine or innocent wire transfers can form the basis of a wire fraudconviction if they are part of the execution of the scheme.3.30Because the money or property connected to the

janitors schemeunearned salarieswere received via wire transmission by way of fraud, the court held that the

defendant used interstate wires.3.40


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The Second Circuit has held that the wire fraud statute applies to foreign communications made in the furtheranceof a scheme to defraud. The court reasoned that Congress specifically amended the statute in 1956 to insert the

words foreign commerce in reaction to a failed prosecution of a defendant who made calls from Mexico to the

United States in furtherance of a scheme to defraud and who was able to successfully argue that the statute did not

apply to foreign communications.4In so holding, the court stated:

There would seem to be no logical reason for holding that Congress intended to punish those who

cause the violation of a law regulating and protecting foreign commerce only when they act withinthe borders of the United States or that Congress is powerless to protect foreign commerce and those

who engage in foreign commerce from intentionally injurious acts, simply because those acts occuroutside our borders. We therefore believe that Congress clearly intended conduct such as [foreigncommunications] to be within the reach of our criminal laws.5

In a mail fraud case, the government must prove that the United States mails were used to further the fraudulentscheme.6 Because the jurisdictional basis of the mail fraud statute derives from the Postal Power, it is notnecessary for the prosecution to prove the existence of an interstate mailing.7The mail fraud statute covers all

items passing through the United States mails, even if intrastate.8However, the connection between the allegedfraud and the use of the mails must be real and proximate, not merely abstract or remote, in order for a convictionfor mail fraud to stand.9

Although the government is required to show that particular documents were sent through the United States mails

and not by hand delivery by the bidder or its agent, or delivered via messenger or courier, the government doesnot need to show that any of the defendants themselves mailed anything.10Rather, the government must showonly that the defendants caused mailings in furtherance of the scheme to defraud.11

The in furtherance requirement under the mail fraud statute is satisfied by proving that the defendant acted

with knowledge that the use of the mails will follow in the ordinary course of business, or where he could

reasonably foresee that the use of the mail would result. It is not necessary to prove the accused actually

intended the mail to be used.12

While the general rule is that mailings subsequent to the fruition of the scheme do not trigger liability under the

mail fraud statute because they do not fulfill the in furtherance requirement, there are exceptions to this rule.For example, if the mails are used as a means of concealment so that further frauds that are part of the schememay be perpetrated, then such mailings satisfy the in furtherance requirement.13This kind of mailing is called a

lulling letter because it is designed to lull the victims into a false sense of security, postpone their ultimatecomplaint to the authorities, and therefore make the apprehension of the defendant less likely than if no mailings

had taken place.14

In light of the Supreme Courts decision in Schmuck v. United States, the relationship between the mailing and

the scheme must undergo a subjective examination to address whether the mailing is part of the execution of the

scheme as conceived by the perpetrator at the time [of the mailing], regardless of whether the mailing later,through hindsight, may prove to have been counterproductive and return to haunt the perpetrator of the fraud.15Essentially, this case has greatly broadened the reach of the mail fraud statute in that innocent mailings can supply

the use of the mail element for mail fraud.16

The accused, Wayne T. Schmuck, was a used car wholesaler in Wisconsin who, after purchasing a used car,

would roll back odometers and resell to unwitting retailers.17Because of their supposedly low mileage, the pricesof these cars were fraudulently inflated. This fraudulent price inflation was passed on to consumers who had no

idea that their cars had been driven many more miles than their odometers indicated. Importantly, to complete the


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resale, the retailer had to submit title applications to the Wisconsin Department of Transportation on behalf of hiscustomers; this step of the process supplied the use of the mail requirement for each of the mail fraud counts

against Schmuck.18

In affirming his conviction, the Court reasoned that although Schmuck himself never mailed anything infurtherance of his scheme and the registration forms that were mailed did not directly contribute to the duping of

either the retailers or the individual customers, these mailings were necessary to the passage of title, which in

turn was essential to the perpetuation of Schmucks scheme.19 As the Supreme Court noted, a rational jurycould have concluded that the success of Schmucks venture depended upon his continued harmonious relations

with, and good reputation among, retail dealers, which in turn required the smooth flow of cars from the dealers totheir Wisconsin customers.20

In a strongly worded dissent, Justice Scalia condemned the majority opinion for not following precedent with

respect to the scope of the in furtherance requirement. Scalia asserted that the statute does not reach everyfraudulent scheme, but rather only those in which the use of mails is a part of the execution of the fraud.21 Inother words, he wrote, it is mail fraud, not mail and fraud, that incurs liability.22

Scalia asserted that both United States v. Maze23 and Kann v. United States24 hold that, in cases where thescheme has reached its fruition, subsequent mailings immaterial to the scheme do not trigger the statute. Scaliathen argued that these two cases were on point because Schmucks scheme had reached its fruition when he sold

the cars to the wholesalers; the subsequent mailings were immaterial to Schmuck since he had already received

his money.25

The Schmuck ruling seems to indicate that a mailing which furthers the scheme, whether that mailing aids or

actually hinders the scheme, will trigger the mail fraud statute; in other words, the mailing need only be related tothe scheme. As the Court concluded in Schmuck, [t]he mail fraud statute includes no guarantee that the use of the

mails for the purpose of executing a fraudulent scheme will be risk free. Those who use the mails to defraud

proceed at their peril.26


Footnotes1 U.S. v. Prince, 214 F.3d 740, 748, 2000 FED App. 0186P (6th Cir. 2000).

2 U.S. v. Adcock, 534 F.3d 635, 640 (7th Cir. 2008). U.S. v. Griffith, 17 F.3d 865, 40 Fed. R. Evid. Serv.565, 1994 FED App. 0067P (6th Cir. 1994) (citing U.S. v. Campbell, 845 F.2d 1374, 25 Fed. R. Evid.

Serv. 960 (6th Cir. 1988)).

3 U.S. v. Adcock, 534 F.3d 635, 640 (7th Cir. 2008).

3.10 U.S. v. Turner, 551 F.3d 657, 660 (7th Cir. 2008), cert. denied, 129 S. Ct. 2748, 174 L. Ed. 2d 249 (2009).




4 U.S. v. Kim, 246 F.3d 186, 189 (2d Cir. 2001) (citing U.S. v. Braverman, 376 F.2d 249, 251 (2d Cir.

1967)); but see U.S. v. Radziszewski, 474 F.3d 480, 485 (7th Cir. 2007), as amended on denial of rehg,


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(May 14, 2007) (defendants intention to repay fraudulently obtained funds does not support a good faithdefense to mail and wire fraud because the crime of fraud is complete when the funds are obtained under

false pretenses).

5 U.S. v. Kim, 246 F.3d 186, 189 (2d Cir. 2001) (citing U.S. v. Braverman, 376 F.2d 249, 251 (2d Cir.1967)).

6 SeeU.S. v. Hatch, 926 F.2d 387, 392, 32 Fed. R. Evid. Serv. 556 (5th Cir. 1991) . Note that the governmentmay be able to prove use of the mails circumstantially, or through a witness who testifies that a specific

item would have been mailed as a matter of routine or custom. U.S. v. Scott, 668 F.2d 384, 388, 9 Fed. R.Evid. Serv. 899 (8th Cir. 1981); but see U.S. v. Massey, 827 F.2d 995, 999 (5th Cir. 1987) (use ofcircumstantial evidence to prove a mailing does not relieve the government of its burden of establishing the

elements of the offense charged beyond a mere likelihood or probability or by more than mere

speculation); U.S. v. United Skates of America, Inc., 727 F. Supp. 430, 431 (N.D. Ill. 1989) ([W]hile

circumstantial evidence and the inferences drawn therefrom may certainly be sufficient to support a findingon a particular element of an offense, mere suspicion or speculation cannot be the basis for the creation of

logical inferences.).

7 U.S. v. Elliott, 89 F.3d 1360, 1364 (8th Cir. 1996).

8 U.S. v. Elliott, 89 F.3d 1360, 1364 (8th Cir. 1996).

9 SeeU.S. v. Hopkins, 357 F.2d 14, 16 (6th Cir. 1966).

10 U.S. v. Tencer, 107 F.3d 1120, 1125 (5th Cir. 1997).

11 U.S. v. Tencer, 107 F.3d 1120, 1125 (5th Cir. 1997).

12 U.S. v. Fermin Castillo, 829 F.2d 1194, 1198 (1st Cir. 1987). But seeU.S. v. Smith, 934 F.2d 270 (11thCir. 1991)(rejected by, U.S. v. Pimental, 380 F.3d 575 (1st Cir. 2004)) (holding that defendant cannot be

convicted of mail fraud based on mailing between insurance companys offices to approve his paymentdraft because it was not reasonably foreseeable to defendant that company would mail draft.). Examples ofmailings which are not in furtherance of a scheme are routine mailings made without the presence of a

fraudulent scheme, and mailings which occur after the completion of the scheme. See Parr v. U.S., 363

U.S. 370, 80 S. Ct. 1171, 4 L. Ed. 2d 1277 (1960); U.S. v. Maze, 414 U.S. 395, 94 S. Ct. 645, 38 L. Ed. 2d603 (1974).

13 Kann v. U.S., 323 U.S. 88, 9495, 65 S. Ct. 148, 89 L. Ed. 88, 157 A.L.R. 406 (1944) .

14 U.S. v. Maze, 414 U.S. 395, 403, 94 S. Ct. 645, 38 L. Ed. 2d 603 (1974) . See also,U.S. v. Evans, 473 F.3d

1115, 1123 (11th Cir. 2006)(holding that a fax transmission from the victim to the defendant confirming ameeting to discuss the status of the victims account fell within the lulling doctrine because it was part andparcel of the scheme to delay detection of the fraud by lulling [the victim] into believing that the parties

difficulties would be worked out).

15 Schmuck v. U.S., 489 U.S. 705, 715, 109 S. Ct. 1443, 103 L. Ed. 2d 734 (1989) .

16 Schmuck v. U.S., 489 U.S. 705, 109 S. Ct. 1443, 103 L. Ed. 2d 734 (1989) ; seeU.S. v. Arledge, 553 F.3d

881 (5th Cir. 2008), cert. denied, 129 S. Ct. 2028, 173 L. Ed. 2d 1088 (2009)(holding that the mailing of


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legitimate claims to recover from a class action settlement fund satisfied the use of mails requirementbecause those claims served to facilitate the submission of other fraudulent claims).




20 Schmuck v. U.S., 489 U.S. 705, 71112, 109 S. Ct. 1443, 103 L. Ed. 2d 734 (1989).

21 Schmuck v. U.S., 489 U.S. 705, 723, 109 S. Ct. 1443, 103 L. Ed. 2d 734 (1989)(citing Kann v. U.S., 323

U.S. 88, 95, 65 S. Ct. 148, 89 L. Ed. 88, 157 A.L.R. 406 (1944) .


23 U.S. v. Maze, 414 U.S. 395, 94 S. Ct. 645, 38 L. Ed. 2d 603 (1974) .

24 Kann v. U.S., 323 U.S. 88, 95, 65 S. Ct. 148, 89 L. Ed. 88, 157 A.L.R. 406 (1944) .

25 Schmuck v. U.S., 489 U.S. 705, 723, 109 S. Ct. 1443, 103 L. Ed. 2d 734 (1989). See alsoU.S. v. Evans,148 F.3d 477 (5th Cir. 1998).




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8:6. Elements of mail and wire fraudMateriality, 1 White Collar Crime 8:6 (2d ed.)




Joel Androphy


References

8:6. Elements of mail and wire fraudMateriality






In order for your client to be convicted of mail or wire fraud, the government must prove that your client made a

material misrepresentation or omission and had the intent to deprive his customers of property (money) or honest

services.1

Case law provides several bases to attack the conclusion that the statements (or omissions) made in

communications rise to the level of being criminally material or reflect the requisite intent, and thus are fraudulentwithin the meaning of the mail and wire fraud statutes.

In Neder v. United States, the United States Supreme Court held that materiality of falsehood is an element ofmail and wire fraud.2The Court cited the definition found in the Second Restatement of Torts, which states that a

matter is material if:

(a) a reasonable man would attach importance to its existence or nonexistence in determining hischoice of action in the transaction in question; or

(b) the maker of the representation knows or has reason to know that its recipient regards or is likelyto regard the matter as important in determining his choice of action, although a reasonable man

would not so regard it.3In 2003, a circuit court articulated theNederrequirement as follows: [I]t is

clear that as an element of the scheme to defraud requirement, the government must prove that thedefendant said something materially false.4

In United States v. DeSantis, the court affirmed a mail fraud conviction despite the defendants challenge to themateriality of his statements.5Without discussion, the court concluded that reasonable minds could differ whether

the defendants statementsthat his commissions were only 10% when they were actually 20%were material.


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Materiality, the court explained, is a fact question for the jury.6

In United States v. Daniel, the court concluded that a reasonable jury could find that the defendants

misrepresentations were material when the defendant lied to his company to obtain loans for personal reasons by

stating that the loans were for company investment purposes.7The court reasoned that the false statements werearguably material because the defendant knew the statements were false, and the statements would have affected a

reasonable persons actions in the situation.8

Danielserves as an interesting example of how courts may frame the issue of intent under the mail and wire fraud

statutes by blending intent with the concept of materiality. To convict a defendant of wire fraud the governmentmust prove specific intent, which means not only that a defendant must knowingly make a materialmisrepresentation or knowingly omit a material fact, but also that the misrepresentation or omission must have the

purpose of inducing the victim of the fraud to part with property or undertake some action that he would not

otherwise do absent the misrepresentation or omission.9

In its analysis following this rule, the court framed the issue as follows: The question here is whether Daniel

made his representations intending to get Century to loan him money that it would not have otherwise loanedhim.10The answer was yes.11

The question of materiality (or intent) comes down to two alternative burdens. Under the first alternative, the

purpose of the statement or omission must be to induce the victim of the fraud to part with property. Under the

second alternative, the question is whether the misrepresentation or omission would influence someone toundertake some action that he would not otherwise do if it were not for the misrepresentation or omission.12

The second alternative would probably be an easier burden to meet. At first blush, it has a certain but for logicto it. But for the omission or misrepresentation, the buyer would not have made a purchase; thus, it is material.There is an enormous risk, however, in applying such logic to arms length sales transactions because anything

said or not said becomes material; it risks materializing everything about a sales transaction.

Any consumer would like to know more about the kind of deal he is getting, so just about anything is going toseem material to the consumer when money is changing hands. To combat such a result, many circuits havetempered the reach on arms length transactions by focusing on intent to defraud or requiring reasonable reliance

by the consumer, as discussed below.


Footnotes1 Note that it is no defense that the defendant had an honest belief that the scheme would work. Such a belief

does not negate the falsity of misrepresentations or knowledge that statements were false when made. U.S.

v. Alexander, 743 F.2d 472, 478, Bankr. L. Rep. (CCH) P 70011 (7th Cir. 1984).

2 Neder v. U.S., 527 U.S. 1, 119 S. Ct. 1827, 1840, 144 L. Ed. 2d 35, 99-1 U.S. Tax Cas. (CCH) 50586, 83A.F.T.R.2d 99-2668 (1999).

3 Neder v. U.S., 527 U.S. 1, 119 S. Ct. 1827, 1840, 144 L. Ed. 2d 35, 99-1 U.S. Tax Cas. (CCH) 50586, 83A.F.T.R.2d 99-2668 (1999) (quoting Restatement (Second) of Torts 538 (1977)). U.S. v. Daniel, 329

F.3d 480, 486, 2003 FED App. 0153P (6th Cir. 2003)(material misrepresentations or omissions are thosethat might affect a reasonable persons actions in a situation); U.S. v. Rybicki, 354 F.3d 124, 145 (2d Cir.2003) (en banc) (holding that misrepresentation or omission at issue is material when that

misinformation or omission would naturally tend to lead or is capable of leading a reasonable employer to


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change its conduct).

4 U.S. v. Daniel, 329 F.3d 480, 486, 2003 FED App. 0153P (6th Cir. 2003).

5 U.S. v. DeSantis, 134 F.3d 760, Fed. Sec. L. Rep. (CCH) 90120, 48 Fed. R. Evid. Serv. 807, 1998 FEDApp. 0018P (6th Cir. 1998).

6 U.S. v. DeSantis, 134 F.3d 760, 764, Fed. Sec. L. Rep. (CCH) 90120, 48 Fed. R. Evid. Serv. 807, 1998FED App. 0018P (6th Cir. 1998). See alsoU.S. v. Cornish, 68 Fed. Appx. 557, 559 (6th Cir. 2003)(stating

there was sufficient evidence that defendants deceit was material because defendant induced victimcompany to actually purchase an account receivable from him based on his misrepresentations).






12 See U.S. v. Gray, 96 F.3d 769, 77576, 112 Ed. Law Rep. 637 (5th Cir. 1996).


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8:7. Elements of mail and wire fraudUnreasonable reliance, 1 White Collar Crime ...




Joel Androphy


References

8:7. Elements of mail and wire fraudUnreasonable reliance




Historically, [i]n order to establish a scheme to defraud, an essential element of mail fraud, there must be proof

of fraudulent misrepresentations or omissions reasonably calculated to deceive persons of ordinary prudence and

comprehension.1

In recent years, the requirement of showing that the scheme would deceive a person of ordinary prudence has

generally been superseded by a less strict standard.2 Some circuits, however, have adopted the rule in their

jurisdictional case law.3

The circuits that have the rule rarelyexercise it in favor of a defendant. United States v. Brownis the only majorcriminal case in which the court absolved the defendants by finding unreasonable reliance by the alleged victim offraud, and it has been subsequently overruled on point by the Eleventh Circuit. 4 In Svete, the Eleventh Circuit

overruled Brown and held that the offense of mail fraud does not require proof of a scheme to deceive a person of

ordinary prudence.5

In overruling Brown, the Eleventh Circuit noted the overwhelming criticism of the Brown decision by both courts

and scholars alike.6Specifically, the court noted that the decision had been disagreed with by every other court

that had addressed the issue, and that the decision was inconsistent with the plain language of the mail fraudstatute, which prohibits any scheme or artifice to defraud.7

The defense of unreasonable reliance was similarly rejected in United States v. Maxwell.8 In Maxwell, thedefendant challenged a wire fraud conviction on the grounds that no reasonable person would have believed her

misrepresentations. The court held that the issue of unreasonable belief by the victim is irrelevant; instead, the

only relevant issue is whether there is a plan, scheme, or artifice intended to defraud.9

The movement away from requiring reasonable reliance stems from the concern that such a requirement unfairly

penalizes victims while rewarding defendants for targeting nave individuals. As Judge Posner commented in

reaction to the Brown decision, it is hard to believe [that the holding in Brown] was intended to be understood


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literally, for if it were it would invite con men to prey on people of below-average judgment or intelligence, whoare anyway the biggest targets of such criminals and hence the people most needful of the laws protection.10

Additionally, as the Tenth Circuit noted in United States v. Drake, the focus of the fraud analysis is supposed to

be on the violatornot the victim.11


Footnotes1 Blount Financial Services, Inc. v. Walter E. Heller and Co., 819 F.2d 151, 153, R.I.C.O. Bus. Disp. Guide

(CCH) 6633, 1987-1 Trade Cas. (CCH) 67580 (6th Cir. 1987)(citing U.S. v. Van Dyke, 605 F.2d 220,

225, 4 Fed. R. Evid. Serv. 1160 (6th Cir. 1979)).

2 See, e.g., U.S. v. Rosby, 454 F.3d 670, 674 (7th Cir. 2006); U.S. v. Ciccone, 219 F.3d 1078, 1083 (9th Cir.

2000) (rejecting defendants argument that the government had to prove the scheme was reasonably

calculated to deceive an ordinary, prudent person because it is immaterial whether only the most gulliblewould have been deceived by the scheme);

U.S. v. Coffman, 94 F.3d 330, 334 (7th Cir. 1996) (rejecting the rule generally but reasoning that areasonable person analysis may be appropriate: (1) as circumstantial evidence of the issue of intent where

defendant claims he did not intend to deceive anyone and there is little available evidence as to intent; or

(2) in cases that involve the indistinct border between real fraud and sharp dealing, such as distinguishingbetween the small lies of puffery and elaborate fraudulent schemes); U.S. v. Maxwell, 920 F.2d 1028, 1038(D.C. Cir. 1990)(rejecting the rule); U.S. v. Brien, 617 F.2d 299, 311 (1st Cir. 1980)(rejecting the rule).

3 See, e.g., U.S. v. Goodman, 984 F.2d 235, 237 (8th Cir. 1993) (citing the rule); U.S. v. Bruce, 488 F.2d1224, 1229, Fed. Sec. L. Rep. (CCH) 94335 (5th Cir. 1973)(citing the rule). But seeU.S. v. Davis, 226

F.3d 346, 358359 (5th Cir. 2000) (concluding that the trial court did not err by giving jury instructionsstating that the navet of the victim did not excuse criminal liability because defendants argument that amaterial misrepresentation is only material if a reasonable person would rely on it overlooked the two

alternative definitions for materiality inNeder v. U.S., 527 U.S. 1, 119 S. Ct. 1827, 144 L. Ed. 2d 35, 99-1U.S. Tax Cas. (CCH) 50586, 83 A.F.T.R.2d 99-2668 (1999), reasoning that one of them does not requirereasonable reliance if the maker knew or had reason to know his victim would rely). Cf.U.S. v. Boyd, 2Fed. Appx. 86 (2d Cir. 2001)(collecting cases from the circuits that disavow the rule but not deciding the

issue); U.S. v. Falkowitz, 214 F. Supp. 2d 365, 376377 (S.D. N.Y. 2002)(discussing the applicability of

the rule in criminal fraud, arguing that it is a part of civil fraud but not all circuits have imported it intotheir criminal law fraud and giving reasons why it should not be applied to criminal fraud).

The rule has only appeared once in an opinion in a criminal case in the Sixth Circuit. See U.S. v. VanDyke, 605 F.2d 220, 225, 4 Fed. R. Evid. Serv. 1160 (6th Cir. 1979)(citing the rule and finding reasonable

reliance on false statements by jewelry franchise conman who advertised the start-up franchise program in

magazines). See also,U.S. v. Frost, 125 F.3d 346, 372, 1997 FED App. 0274P (6th Cir. 1997) (although

the rule is not discussed, the case illustrates a jury instruction that has the rule in it).

4 U.S. v. Brown, 79 F.3d 1550, 1558 (11th Cir. 1996)(overruled by, U.S. v. Svete, 556 F.3d 1157 (11th Cir.

2009)).

5 U.S. v. Svete, 556 F.3d 1157, 1160 (11th Cir. 2009)(en banc).

6 U.S. v. Svete, 556 F.3d 1157, 116768 (11th Cir. 2009)(en banc).


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7 U.S. v. Svete, 556 F.3d 1157, 116768 (11th Cir. 2009)(en banc) (emphasis in original).

8 U.S. v. Maxwell, 920 F.2d 1028, 1036 (D.C. Cir. 1990).

9 SeeU.S. v. Taylor, 832 F.2d 1187, 1192 (10th Cir. 1987).

10 U.S. v. Svete, 556 F.3d 1157, 116768 (11th Cir. 2009)(en banc) (quoting U.S. v. Coffman, 94 F.3d 330,

334 (7th Cir. 1996)(Posner, J.)).

11 U.S. v. Drake, 932 F.2d 861, 86364, 33 Fed. R. Evid. Serv. 64 (10th Cir. 1991).


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