In 2023, the U.S. Supreme Court addressed the scope of the federal criminal wire fraud statute used to prosecute a defendant for rigging a bid for a publicly funded contract. Ciminelli v. United States overturned the decision of the U.S. Second Circuit Court of Appeals, which relied on a broad “right to control” theory of fraud. While prosecutions may be more difficult now because of this ruling, state contractors and other parties should still be concerned about the wire fraud law.
Federal Wire Fraud
Federal law prohibits the use of interstate wires for “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.” 18 U. S. C. §1343. How this was interpreted before the Supreme Court decision varied across the country. Many federal courts required a showing that the fraud resulted in the loss of tangible property rights. However, the Second Circuit and some other courts held that property rights also included the loss of an intangible “right to control” the use of one’s assets, significantly broadening when a defendant could be prosecuted for wire fraud. The Ciminelli case determined whether the right-to-control theory was appropriate to use.
Ciminelli v. United States
In Ciminelli, the defendant was convicted of wire fraud for conspiring with state insiders to be the preferred bidder on the $750 million “Buffalo Billions” development project in New York. Prosecutors claimed Ciminelli schemed to withhold key information relevant to the selection of a contractor for the project, resulting in harm to the intangible property right to control the use of one’s assets. Essentially, the defendant’s actions prevented a fair decision on a contractor.
The Court rejected the right-to-control theory, holding that the statute only protects traditional property interests and not “the right to valuable economic information needed to make discretionary economic decisions.”
While the Court overturned the rationale for the conviction, the majority felt there were still unresolved issues. The case was remanded to the lower court to determine whether there was sufficient proof that the state suffered a tangible loss in awarding the project to Ciminelli.
Impact of Ciminelli
The Court narrowed the use of the wire fraud statute. However, some courts in the U.S. have already rejected the right-to-control theory, so the decision will have little impact on those jurisdictions. However, the Second Circuit has eliminated the theory as a basis for prosecution, requiring that the state now show the loss of tangible property rights.
The decision may also impact other types of fraud claims where a defendant didn’t directly obtain money from a victim but instead merely withheld information or allowed others to do so.
Federal criminal wire fraud cases are often complicated, so having highly experienced legal counsel to represent your interests is critical. If you need assistance, contact us for a consultation.