Fraud Cases

The Federal Docket

SCOTUS Issues Two Opinions Limiting the Scope of Federal Fraud Statutes

This month, the Supreme Court issued two noteworthy opinions limiting the scope of federal fraud statutes, specifically those that prohibit “honest services fraud.” Under 18 USC 1346, a “scheme or artifice to defraud includes a scheme or artifice to deprive another of the intangible right of honest services.”

In Ciminelli v. United States, the Court unanimously invalidated the conviction of a construction company owner who had engaged in bid rigging for government contracts, which deprived the government of “potentially valuable economic information necessary to make discretionary economic decisions.” As a result, the trial court instructed the jury that “property” as defined under the fraud statute, included “intangible interests such as the right to control the use of one’s assets.”

The Court held that this was error, as the right to such intangible but “valuable economic information” was not a “traditional property interest” protected by the statute. The Court’s holding will likely be used to challenge future fraud prosecutions involving intangible losses.

In Percoco v. United States, the Court invalidated another defendant’s conviction, this time that of a former official in the Governor’s office in New York who, while on hiatus from his official role to assist in the governor’s campaign, accepted money to advise a real estate development company in its dealings with a state agency. Specifically, Percoco had lobbied internally to urge other officials to ease certain work requirements for the company, which received government funding.

The Court held that the trial court erred in instructing the jury that it could convict Percoco of honest services fraud, even while not serving as a public official, if it found that he “dominated and controlled any government business” and that “people working in the government actually relied on him because of a special relationship he had with the government.” The Court held these instructions were too vague and swept too broadly. However, the Court rejected the defendant’s argument that a private citizen cannot be convicted of depriving the public of honest services, reserving the question whether some private citizens could have the “necessary fiduciary duty to the public.”

Sentencing Commission Releases Comprehensive Report on “Organizational Sentencing Guidelines”

Last month, the U.S. Sentencing Commission published a new report titled “The Organizational Sentencing Guidelines: Thirty Years of Innovation and Influence,” summarizing hte history and development of Chapter 8 of the U.S. Guidelines, which apply to defendant-corporations and other defendant-entities.

United States v. Hoskins (2d Cir. August 2022)

The Second Circuit affirmed a district court’s order acquitting a defendant of violations of the Foreign Corrupt Practices Act, holding that the defendant, who worked for a U.K. subsidiary of a U.S. company involved in bribing Indonesian officials, was not an “agent” or employee” of the U.S. company under common law. The Court also held that the defendant’s speedy trial rights were not violated by a 6-year delay and that the trial court did not err in instructing the jury on withdrawal from a conspiracy and proving venue in a case involving money transfers through multiple states.

Congress Extends Statute of Limitations for PPP and EIDL Loan Fraud Charges to Ten Years

Earlier this month, President Biden signed legislation extending the statute of limitations for federal prosecutions against individuals and businesses accused of fraudulently obtaining COVID-19 relief funds, specifically through the PPP and EIDL loan programs. The PPP and Bank Fraud Enforcement Harmonization Act and the COVID-19 EIDL Fraud Statute of Limitations Act extended the statute of limitations to ten years, up from five years.

United States v. Morris (8th Cir. July 2022)

The Eighth Circuit reversed a district court’s order of restitution in a smuggling and postage counterfeiting case. The Court held that only losses caused by specific conduct that forms the basis of a conviction can be included in a restitution order, and since the defendant’s conviction was based only on his forgery of stamps and not a broader conspiracy, scheme, or pattern, the restitution should have been limited to losses caused by the forgery.

United States v. Elbaz ( 4th Cir. June 2022)

The Fourth Circuit affirmed a defendant’s wire fraud conviction where the defendant had orchestrated a fraudulent multimillion dollar investment scheme from Israel. The Court held that the wire fraud statute does not apply extraterritorially but that the defendant was properly charged because she used American wires to further her scheme. While affirming her conviction, the Court vacated the restitution order since it went beyond domestic victims of the defendant’s wire fraud.

United States v. Spirito (4th Cir. May 2022)

The Fourth Circuit affirmed a defendant’s conviction for several fraud offenses but reversed his conviction for federal program fraud under 18 USC 666. At issue was whether Section 666 “criminalizes multiple conversions of less than $5,000, if the government must point to conversions that took place over more than one year to reach the $5,000 statutory minimum.” The Court held that Section 666 “requires each transaction used to reach the aggregate $5,000 requirement to occur within the same one-year period.”

United States v. Garbacz (8th Cir. April 2022)

The Eighth Circuit reversed some, but not all, of a defendant’s convictions for multiple counts of wire fraud where, after depositing embezzled funds from his church, the defendant-priest made several payments from that account using those funds. The Court upheld the defendant’s convictions based on the deposits since they furthered the scheme but reversed those based on the payments, since those payments did not help further or conceal the offense.

United States v. Lonich (9th Cir. January 2022)

The Ninth Circuit vacated defendants’ sentences for fraud, which had been enhanced by 20 levels under USSG 2B1.1 based on the loss resulting from the closure of a bank due to defendants’ offenses. The Court held that, where an enhancement has “an extremely disproportionate effect on the sentence,” the underlying facts must be shown by “clear and convincing evidence.” Here, it was not clear and convincing that defendants had caused the bank to collapse.

DOJ Appoints a “Director for COVID-19 Fraud Enforcement”

On March 10, 2022, the Department of Justice issued a press release announcing the appointment of a “Director for COVID-19 Fraud Enforcement,” a position that would head the DOJ’s criminal and civil enforcement actions relating to COVID-19 relief fraud. To date, the DOJ reports over $8 billion in alleged fraud, including PPP and EIDL loan fraud and unemployment insurance fraud….

Regarding PPP and EIDL loan fraud, the DOJ announced that “approximately 500 defendants have been charged in over 340 cases with alleged intended losses of over $700 million.” The DOJ also claims to have seized over $1 billion in EIDL loan fraud proceeds. Regarding unemployment insurance fraud, the DOJ announced that “over 430 defendants have been charged and arrested for federal offenses related to UI fraud.”

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