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Ciminelli One Year Later: The Evolving Reach of the Wire Fraud Statute
Tuesday, June 11, 2024

The federal wire fraud statute, 18 U.S.C. § 1343, is one of the commonly used statutes in federal white-collar criminal cases. In our digital age, nearly any significant fraud or scheme could probably be charged as a wire fraud. But even expansive statutes have limits, as the Supreme Court held last year in an important case (Ciminelli v. United States) that cabined prosecutors most aggressive theories under the wire fraud statute. One year later, courts are still wrestling with the implications.

The Wire Fraud Statute

Enacted in 1952, the federal wire fraud statute was originally conceived to combat false advertising on radio and television. But the statute’s broad language allowed it — much like its older, equally malleable sister statute, mail fraud — to apply to a wide array of crimes. In short, nearly any scheme that was executed by an interstate communication (or “wire”) could constitute a wire fraud.

The more technical legal elements of a wire fraud are:

  • The defendant voluntarily and intentionally devised or participated in a scheme to defraud.
  • The defendant acted with the intent to defraud.
  • An interstate wire communication was used to facilitate or execute the scheme.

What Exactly Is a “Scheme to Defraud?”

“Scheme to defraud” is not defined by the statute, and courts have generally interpreted it broadly. That expansive trend ultimately resulted in prosecutors using wire fraud to combat corruption, reasoning that the “fraud” was the deprivation of the intangible right to honest services. Indeed, after an early court decision (McNally v. United States) rejected that theory, Congress in the late 1980s added a new provision — 18 U.S.C. § 1346 — to define “scheme to defraud” to include schemes to deprive another of the right to honest services.

Since then, honest-services fraud has been the subject of considerable interpretation, most notably in 2010, when the Supreme Court decided United States v. Skilling. In Skilling the Court limited such frauds to those involving “offenders who, in violation of a fiduciary duty, participate[] in bribery or kickback schemes.” The Court found that broader interpretations of so-called honest services were too vague to withstand constitutional challenges.

Ciminelli v. United States – No More “Right to Control” Theory

In 2023, the Supreme Court issued its most recent decision in the area. In Ciminelli v. United States, 598 U.S. 306 (2023), developer Louis Ciminelli was convicted of wire fraud based on a scheme to rig the state bidding process on a $750 million project. Following circuit precedent, prosecutors argued successfully that the defendant schemed to deprive a victim (the nonprofit entity tasked with negotiating with developers on the project) of potentially valuable economic information. In essence, prosecutors claimed that Ciminelli schemed to deny the nonprofit of the information relevant to its selection of the contractor for the government project.

The Supreme Court reversed. The Court found that the “right to control” theory went too far and was inconsistent with the text of the wire (and mail) fraud statutes. Rather, those fraud statutes are limited to traditional property interests.

Post-Ciminelli — What Are the Limits on Wire Fraud?

Now a year after Cimnelli, what are the limits of wire fraud? It is still hard to say, but one recent district court case offers potential hints.

In March 2024, in United States v. Constantinescu, the U.S. District Court for the Southern District of Texas dismissed an indictment charging the defendants with multiple counts of securities fraud and related conspiracy charges for failure to state an offense. While Constantinescu was a securities fraud case, the Court relied heavily on wire fraud precedent.

There, the defendants allegedly used Twitter and Discord to execute a pump-and-dump scheme. The defendants allegedly posted false and misleading information about certain securities on social media causing their many social media followers to purchase those securities, thereby inflating their prices. The defendants then secretly offloaded their shares of those securities and secured profits for themselves. 

The district court concluded that the indictment did “not allege a scheme to defraud consistent with the Supreme Court’s holding in Ciminelli[,]” because the object of the alleged scheme did not involve depriving the victims (defendants’ social media followers who made trading decisions based on the false and misleading information defendants posted online) of traditional property rights. That the defendants did not obtain money or property directly from the victims — and that the victims instead “surrendered their property to the stock market” — was key to the court’s analysis.

Implications and Conclusion

The wire fraud statute will certainly remain one of the trustiest tools of federal prosecutors. And despite the Supreme Court’s continued curtailment of honest-services fraud, it is likely for prosecutors to continue to push the boundaries in high-profile corruption cases.

But the limits in Ciminelli and Constantinescu do raise questions about wire fraud’s application where money and “traditional property rights” are not obviously implicated by the alleged fraud. Among others, one such line of cases may be those involving the administrators of online platforms who allow members to publish goods as available for purchase. Towards the end of last year and into 2024, reports of Telegram channels dedicated to the sale of stolen checks have become prevalent both in press releases by the federal government and in stories by prominent news sources. In the typical case, the administrator is alleged to have provided a platform for advertising stolen goods, like checks, to a purchaser. But if the administrator herself has not deprived anyone of money or property, while other statutes like conspiracy may apply, it is not clear post-Ciminelli that federal wire fraud would reach that conduct.

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