The high court ruled that the relevant federal fraud law does not require the government to suffer financial harm.
The U.S. Supreme Court unanimously upheld the federal conviction of a government contractor for defrauding a Pennsylvania state transportation program even though there was no financial loss.
The justices held that the defendants committed fraud by accepting the project funds and not honoring a requirement that a so-called disadvantaged business be involved in the project. A disadvantaged business is typically one owned or controlled by individuals deemed to be socially or economically disadvantaged, such as women or racial minorities.
Stamatios Kousisis and Alpha Painting and Construction Co., an industrial-painting company he assisted in managing, won two government contracts for large painting projects in Philadelphia, the Supreme Court opinion said.
Both contracts required that a disadvantaged business be involved in the project. Alpha told the Pennsylvania Department of Transportation (PennDOT) that it would secure materials from a qualifying supplier that was a disadvantaged business, but it failed to do so.
“Alpha and Kousisis submitted multiple false certifications to cover up their scheme. So although Alpha’s paint work met expectations, its adherence to the disadvantaged business requirement did not,” the opinion said.
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Alpha and Kousisis were charged with wire fraud. The federal government claimed that they used fraud in convincing PennDOT to give them the painting contracts, the opinion said.
Barrett wrote that, “Under the fraudulent-inducement theory, a defendant commits federal fraud whenever he uses a material misstatement to trick a victim into a contract that requires handing over her money or property—regardless of whether the fraudster, who often provides something in return” intends to cause the victim to experience a financial loss.
“We must decide whether this theory is consistent with [section] 1343 [of the federal wire fraud statute], which reaches only those schemes that target traditional money or property interests,” the opinion said. “It is, so we affirm.
“The wire fraud statute is agnostic about economic loss. The statute does not so much as mention loss, let alone require it. Instead, a defendant violates [section] 1343 by scheming to ‘obtain’ the victim’s ‘money or property,’ regardless of whether he seeks to leave the victim economically worse off,” the opinion said.
Justice Sonia Sotomayor filed a concurring opinion, saying the Supreme Court was right to reject the request by Kousisis and Alpha “to graft an economic-loss requirement onto the federal wire fraud statute.”
“When a defendant tricks a victim out of their money by promising one thing and delivering something materially different, it is no defense to say that the delivered items are of equal economic value,” Sotomayor wrote.
The Supreme Court affirmed the judgment of the U.S. Court of Appeals for the Third Circuit, which upheld the convictions.
Property fraud statutes require that there be “harm [to] a traditional property interest. And our position is no such harm occurs if … somebody pays money in exchange for something and gets the full economic value of that bargain,” Fisher said.
The government, on the other hand, asked the Supreme Court “to chart a different path” by finding that “a property interest is … harmed in a property fraud case whenever somebody gives money pursuant to a fraudulent misrepresentation.”
This view violates legal precedent and is inconsistent “with the historical origins of fraud,” the lawyer said.
“The government’s theory knows no bounds,” Fisher said. “Every day across the country, people use white lies, puffery, and other fraudulent promises to induce people to enter into transactions. But, if there’s no harm that occurs in those transactions, there is no fraud.”
