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Article Excerpt
I. INTRODUCTION
II. ELEMENTS OF THE OFFENSE A. Scheme to Defraud by Means of a Material Deception 1. Scheme to Defraud 2. Material Deception B. Intent to Defraud C. Use of the Mails, Wires, or Both in Furtherance of a Scheme to Defraud 1. Causing the Mails, Wires, or Both to Be Used 2. The "In Furtherance" Requirement D. Loss of Money, Property, or Deprivation of Honest Services 1. Loss of Money or Tangible Property 2. Loss of Intangible Property 3. Deprivation of Honest Services III. DEFENSES A. Good Faith B. Statute of Limitations IV. SENTENCING A. Sentencing, Generally B. Enhanced Penalties for Telemarketing Fraud
I. INTRODUCTION
The federal mail (1) and wire (2) fraud statutes are powerful tools for prosecutors. (3) Among the statutory weapons available to the government to prosecute individuals, the mail and wire fraud statutes have been used to prosecute a wide range of conduct. (4) The statutes have been used often as a "first line of defense," or "stopgap" device, which permits prosecution of new forms of fraud until Congress enacts particularized legislation to combat the new fraud. (5) Consequently, the mail and wire fraud statutes have been referred to as a prosecutor's "secret weapon." (6)
Congress enacted the mail fraud statute with the initial purpose of securing the integrity of the United States Postal Service ("USPS"). (7) Similarly, the wire fraud statute was enacted to respond to the need to protect against schemes that began to utilize wires, specifically radio and television. Today, the mail (8) and wire (9) fraud statutes have been expanded to include a number of modes of communication such as facsimile, telex, modem and Internet transmissions. In addition, the statutes provide federal jurisdiction over a broad array of frauds, (10) covering "not only the full range of consumer frauds, stock frauds, land frauds, bank frauds, insurance frauds, and commodity frauds, but [also] ... such areas as blackmail, counterfeiting, election fraud, and bribery." (11) Moreover, prosecutors use these statutes to prosecute money laundering and Racketeer Influenced and Corrupt Organizations Act ("RICO") violations. (12)
Subsequent Congressional action has both broadened the scope of the mail and wire fraud statutes and enhanced the criminal penalties for offenses under these statutes. In response to new schemes that bypassed the USPS by using private carriers, Congress amended the mail fraud statute in 1994 to cover mailings delivered by private interstate commercial carriers. (13) In addition, Congress criminalized telemarketing fraud, (14) and enhanced the criminal penalties for any mail or wire fraud scheme that specifically targets senior citizens. (15) Recently, Congress passed the Sarbanes Oxley Act of 2002, which quadrupled the maximum punishment for both mail and wire fraud offenses from five to twenty years imprisonment. (16)
This Article provides a brief overview of the prosecution of offenses under the federal mail and wire fraud statutes. Because the character, language, and scope of the mail and wire fraud statutes are similar, legal analysis and case law on mail fraud are equally applicable to wire fraud. (17) Likewise, legal analysis and case law on wire fraud can be applied to instances of mail fraud. (18)
Section II of this Article lists and analyzes the elements of a mail or Wire fraud offense. Section III examines the available defenses. Finally, Section IV addresses sentencing issues that relate to convictions under the mail and wire fraud statutes.
II. ELEMENTS OF THE OFFENSE
For more than a century, mail and wire fraud jurisprudence has evolved through both congressional action and court decision. Currently, to be convicted of a mail or wire fraud offense, the government must show beyond a reasonable doubt that the defendant perpetuated: (i) a scheme to defraud that includes a material deception; (ii) with the intent to defraud; (iii) while using the mails, private commercial carriers, and/or wires in furtherance of that scheme; (iv) that did result or would have resulted in the loss of money or property or the deprivation of honest services. (19) Parts A through D of this Section provide an overview of these elements.
In addition to these four elements, the wire fraud statute, 18 U.S.C. [section] 1343, also requires proof that the communication at issue crossed state lines. (20) This interstate requirement applies only to the wire fraud statute because, in passing the statute, Congress relied solely on its Commerce Clause (21) power for constitutional authority. (22) In contrast, Congress has exclusive jurisdiction over the USPS (23) and thus, had an independent source of constitutional authority for the mail fraud statute. (24) Courts also have determined that congressional jurisdiction extends to a mailing sent through a private commercial carrier that deals in interstate business, even when the particular mailing does not actually travel interstate. (25)
Each use of the mail or wires constitutes a separate offense and therefore, can be a separate count in an indictment. (26) In addition, mail and wire fraud charges can be used in conjunction with other offenses or more specific fraud offenses, such as insider trading and bank fraud. (27) An allegation of vicarious criminal liability, however, cannot sustain an indictment under the mail and wire fraud statutes. (28) Each person must willfully participate in a fraudulent scheme that includes foreseeable use of the mails, wires, or both. (29)
A. Scheme to Defraud by Means of a Material Deception
Proof that the defendant engaged in a scheme to defraud is a common requirement under both the mail and wire fraud statutes. (30) Both the mail fraud statute and the wire fraud statute, however, do not define what constitutes a scheme to defraud and the legislative history with respect to this issue is sparse. (31) While courts have generally found the scope of the federal fraud statutes to be broad, modern courts have varied on whether to limit the scheme to defraud to a more narrow interpretation. (32)
1. Scheme to Defraud
In general, a scheme to defraud involves depriving a person "of something of value by trick, deceit, chicane, or overreaching." (33) It has been described as "a departure from fundamental honesty, moral uprightness, and candid dealings in the general life of the community.'" (34) Some courts find a scheme to defraud upon proof of conduct intended or reasonably calculated to deceive ordinary people. (35) Importantly, the government need not show that the scheme was successful for the conduct to constitute a scheme to defraud under the mail and wire fraud statutes. (36)
2. Material Deception
The Supreme Court in Neder v. United States (37) held that the government must prove that the deceptive conduct underlying the scheme to defraud was material. (38) In Neder, the Court acknowledged that the mail and wire fraud statutes make no mention of a materiality requirement; however, it found that Congress intended to adopt the common law requirement that a deception, in order to constitute fraud, must be material. (39)
Although the Neder Court referenced the Restatement (Second) of Torts in defining materiality, (40) circuit courts have diverged on the appropriate standard for determining whether deceptive conduct was material. For example, some circuits hold that for a misrepresentation to be material, it has to be a statement on which a reasonable person would rely. (41) This interpretation follows from a commitment to interpreting "federal criminal statutes ... narrowly." (42) To illustrate, in United States v. Brown, the Eleventh Circuit reversed the convictions of four former housing development executives who had been convicted of defrauding homebuyers by selling homes at prices above the market rate. (43) The Eleventh Circuit held that the development executives' conduct did not constitute a "scheme to defraud" because no "person of ordinary prudence" would have relied on the developers' statements about the market value of the properties. (44) The court reasoned that because market values and other housing information are publicly and "readily available" to potential homebuyers, the defendants did not materially deceive or defraud the consumers. (45)
Other circuits have taken a different approach, finding material deception under the ordinary prudence or reasonable person standard even when the person relying on the deceptive statement is gullible and imprudent. (46) These circuits argue that the ordinary prudence or reasonable person standard should not be a "shield which a defendant may use to avoid a conviction." (47) As one circuit noted, "we refuse to accept the notion that 'the legality of a defendant's conduct would depend on his fortuitous choice of a gullible victim." (48) Under this view, the ordinary prudence or reasonable person standard is merely a "tool" that the jury may use to determine if the defendant had fraudulent intent but cannot be used to preclude a finding of a scheme to defraud. (49)
B. Intent to Defraud
The second element the government must prove for a mail or wire fraud conviction is a defendant's intent to defraud. (50) Intent targets "a willful act by the defendant with the specific intent to deceive or cheat, usually for the purpose of getting financial gain for one's self or causing financial loss to another." (51) Intent to deceive has been distinguished from "puffing," or mere exaggeration of the qualities, opportunities, or value of an article. (52) Statements in advertising that go beyond "puffing," however, can be indicative of intent to defraud when the advertised product falls substantially short of the way the defendant represented it. (53) To determine whether a particular representation goes beyond puffery, courts rely on the presence or absence of good faith on the part of the "puffer." (54)
The government often meets its burden to prove intent to defraud by using circumstantial evidence; (55) "a liberal policy has developed to allow the government to introduce evidence that even peripherally bears on the question of intent." (56) Similarly, the defendant also can use circumstantial evidence to show that he or she did not have the requisite intent. (57)
Intent may be inferred from evidence indicating that the defendant attempted to conceal activity (58) or from the defendant's misrepresentations. (59) In some cases, the defendant's knowledge of a false statement will constitute intent to defraud. (60) Although not necessary to establish intent to defraud, (61) the government may introduce evidence of a victim's actual financial loss as proof of the defendant's intent. (62) Moreover, absent substantial prejudice, evidence of prior offenses and later bad acts are admissible to infer intent. (63)
Intent to defraud may be inferred from the defendant's knowledge of illegal activity. (64) Alternatively, proof that the defendant lacked such knowledge can negate intent. (65) Even if the defendant lacked knowledge of illegal activity, however, the intent requirement can be satisfied by proof of a reckless disregard for the truth of one's representations (66) or a conscious avoidance of information that is crucial to the truthfulness of one's representations (67)
C. Use of the Mails, Wires, or Both in Furtherance of a Scheme to Defraud
The third element the government must prove for a mail or wire fraud conviction consists of two parts: (i) the defendant used, or caused to be used, the U.S. mails, any private or commercial interstate carrier, and/or interstate or intrastate wires (ii) in furtherance of, or for the purpose of, executing the scheme to defraud. (68)
1. Causing the Mails, Wires, or Both to Be Used
A person causes the mails to be used when he or she acts "with knowledge that the use of the mails will follow in the ordinary course of business" or where the mailing was reasonably foreseeable. (69) The government need not show that a defendant personally mailed or received mail to prove that the defendant caused the mails to be used. (70) In some instances, it also is not necessary for the defendant to have contemplated that a mailing would occur. (71) This is because intent is required only as a part of the "scheme to defraud" element but not of the "causing the mails and/or wires to be used" element. (72)
In Pereira v. United States, (73) the Supreme Court expressly rejected the argument that the defendant has to be aware, or specifically intend, for the mails to be used in order to satisfy this element of the statute. The Court held that it was sufficient that the mails were used in the "ordinary course of business" or "where such use can be reasonably foreseen." (74) Use of the mails may be proven by direct evidence, such as the envelope in which the mailing was sent, (75) or through circumstantial evidence. (76) Proof of a violation of the wire fraud statute requires either actual knowledge or reasonable foreseeability of the interstate nature of the wire communication. (77)
2. The "In Furtherance" Requirement
In addition to requiring the use of mails and/or wires, the mail and wire fraud statutes require that the mailing or wire transmission be for the purpose of executing the scheme, (78) typically stated as "in furtherance" of the scheme. (79) For mails and wire transmissions to meet the "in furtherance" requirement, they have to be sufficiently related to the scheme to defraud. Specifically, the mailings and/or wire transmissions have to be "part of the execution of the scheme as conceived by the perpetrator." (80) Generally, this requirement is easily satisfied, (81) requiring only that the mailing be "incident to an essential part of the scheme," (82) and not necessarily helpful to the schemer. The mailing or wire transmission does not need to be "part of the execution of the fraud [nor] an essential element of the scheme.... It is sufficient for the mailing to be incident to an essential part of the scheme ... or a step in the plot." (83) Proof that the mailings or wire transmissions facilitated concealment of...
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