cuit’s longstanding “right to control” theory of fraud as a basis for liability under the federal wirefraud statute, could have ramifications for DOJ’s approach using the similarly structured bank fraud statute.The Ciminelli DecisionCiminelli dealt with a scheme involving state government lobbyists and a New York construction company owned by Louis Ciminelli (“Ciminelli”), who together worked to ensure that the company received preferential treatment from New York’s “Buffalo Billion” initiative, an investment program administered through a nonprofit affiliated with the State University of New York (“SUNY”) that aimed to invest a billion dollars in upstate development projects. Essentially, Ciminelli’s company allegedly paid to ensure that the lobbyists would tailor any requests for proposal (“RFPs”) issued by the program to Ciminelli’s company’s candidacy, and guarantee it preferred status for development funds.The individuals involved were indicted on 18 counts, including wire fraud (18 U.S.C. § 1343). The wire fraud statute reads in relevant part:Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises[.]For comparison, importantly, the bank fraud statute (18 U.S.C. § 1344) reads:Whoever knowingly executes, or attempts to execute, a scheme or artifice-(1) To defraud a financial institution; or(2) To obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises[.]When prosecuting the case, DOJ relied on the “right to control” theory of fraud enshrined in Second Circuit precedent – allowing a prosecutor to establish wire fraud “by showing that the defendant schemed to deprive a victim of potentially valuable economic information necessary to make discretionary economic decisions.” Consistent wi

With the Justices largely in agreement across the board, the Court today issued five opinions. One of them provides a usefully definitive view of the limited nature of the so-called “dormant Commerce Clause.” Two of them are criminal law cases in which all the Justices were united in reversing the Second Circuit and taking a textually literal, constricting view favorable to defendants as to what constitutes wire fraud and related theft of honest services. Another decision favors a non-citizen fighting removal from the United States, and yet another upholds the sovereign immunity of U.S. territorial governments and their agencies.The wire fraud case isCiminelli v. United States.In a unanimous opinion written by Justice Thomas, the Court considered the case of a former New York State official who was convicted of violating the federal wire fraud statute, 18 U. S. C. §1343, in connection with an alleged bid-rigging scheme to obtain state-funded development projects associated with the “Buffalo Billion initiative.” The government relied solely on—and the trial court so instructed the jury that convicted Ciminelli—upon Second Circuit precedent that allowed the government to establish wire fraud by showing that the defendant schemed to deprive a victim of potentially valuable economic information necessary to make discretionary economic decisions. Thus, “the District Court instructed the jury that the term ’property’ in §1343 ‘includes intangible interests such as the right to control the use of one’s assets,’ which could be harmed by depriving [a contracting authority] of ’potentially valuable economic information.’” Given that the conviction was based on the application ofclear Second Circuit precedent, it was no surprise that the Court of Appeals affirmed.What might surprise some is that both conservative and liberal justices united in applying in a sta

cuit significantly pared back the scope of the federal mail and wire fraud statutes.In Ciminelli v. United States, a political corruption case, the Supreme Court unanimously rejected the 2nd Circuit’s “right-to-control” theory as a basis for a wire fraud conviction.In United States v. Abdelaziz, one of the “Varsity Blues” college admissions cases, the 1st Circuit rejected the government’s honest services fraud theory and its property fraud theory that the defendants’ fraudulent scheme deprived universities of the “property” of their admissions slots.Both cases will have broad implications for mail and wire fraud prosecutions and signal a significant reorientation of federal property fraud law that should have the effect of reining in fraud prosecutions based on intangible harms.Ciminelli BackgroundThe federal wire fraud statute criminalizes “scheme[s] or artifice[s] to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.” 18 U.S.C. § 1343. More than 35 years ago, the U.S. Supreme Court held that the federal fraud statutes are “limited in scope to the protection of property rights.” McNally v. United States, 483 U.S. 350, 360 (1987). But in the years that followed, the “right-to-control” theory that emerged in the U.S. Court of Appeals for the 2nd Circuit expanded the reach of the wire fraud statute beyond traditional property interests. Under the right-to-control theory, a wire fraud conviction could be premised on a scheme to deprive a victim of “potentially valuable economic information” that is “necessary to make discretionary economic decisions.” United States v. Percoco, 13 F.4th 158, 170 (2d Cir. 2021).The events leading to the prosecution in Ciminelli date back to 2012, when then-New York Governor Andrew Cuomo announced the “Buffalo Billion” initiative to invest $1 billion in tax revenue to develop the greater Buffalo area. Alain Kaloyeros of the State University of New York (SUNY) was in charge of proposing eco

lines in 2019, the Varsity Blues college admissions scandal yielded bribery charges against more than 50 individuals—including numerous affluent and powerful parents seeking to obtain admission for their children to some of the country’s most prestigious institutions, including Harvard, Stanford, and USC—as well as multiple books and a Netflix movie.While many of the parents elected to plead guilty, Gamal Abdelaziz and John Wilson went to trial. Charged with conspiracy to commit federal programs bribery and conspiracy to commit mail and wire fraud on both honest services fraud and property fraud theories, the jury convicted them on both counts. Defendant Wilson was also charged with, and convicted of, substantive counts of federal programs bribery, and with filing a false tax return.1 Last week, the U.S. Court of Appeals for the First Circuit threw out their bribery convictions in their entirety.2The First Circuit’s DecisionThe Court overturned the convictions under 18 U.S.C. §§ 1341, 1343, and 1346 for honest services fraud and property fraud, and for conspiracy under 18 U.S.C. § 666, on the following grounds:The Court vacated the honest services fraud theory convictions under § 1346, finding that its requirements cannot be met where a bribe is paid to the party purportedly deprived of honest services in the alleged bribery scheme.3 In reaching this determination, the Court described the history of the mail and wire fraud statutes and considered the defendants’ argument that the conduct charged did not involve the core honest services doctrine described in Skilling v. United States, 561 U.S. 358 (2010), which “involved fraudulent schemes to deprive another of honest services through bribes or kickbacks supplied by a third party who had not been deceived.”4 The Court also emphasized the narrow meaning of bribery for purposes of honest services fraud embodied in Skilling, rejecting the government’s attempt to incorporate into the statute broader language from § 666 or ot

In United States v. Blaszczak,the Second Circuit recently remanded a criminal conviction concerning the misappropriation of confidential information to the District Court in light of the Supreme Court’s decision in Kelly v. United States, which held that a scheme to alter “a regulatory choice is not one to appropriate the government’s property” for purposes of the wire fraud statute. The Second Circuit previously affirmed convictions against defendants David Blaszczak, Theodore Huber, Robert Olan, and Christopher Worrall for conversion of government property, 18 U.S.C. § 641, and wire fraud, 18 U.S.C. § 1343, as well as convictions against Blaszczak, Huber, and Olan of Title 18 securities fraud, 18 U.S.C. § 1348, and related conspiracy charges under 18 U.S.C. §§ 371, 1349. The convictions all stemmed from a scheme that involved misappropriating confidential information from the Centers for Medicare & Medicaid Services (“CMS”), at which certain defendants previously worked.On remand, the defendants argued, and the Government agreed, that the CMS information at issue “does not constitute ‘property’ or a ‘thing of value’ within the meaning” of the relevant statues after Kelly, such that the convictions on the substantive counts should be reversed and dismissed. The Second Circuit agreed. The Government sought affirmance on the remaining conspiracy convictions, but the Second Circuit vacated those convictions and remanded for further proceedings because the verdicts did “not reveal whether the jury found that the charged defendants conspired to engage in alleged conduct other than that which

. Blaszczak(“Blaszczak II”), reconsidering the contours of Title 18 insider trading liability. While the decision does not come as a surprise, it does have potentially far-reaching ramifications for the government’s ability to make use of Title 18 to prosecute fraud and theft charges.Factual and Procedural BackgroundThe Blaszczak prosecution involved allegations that a political intelligence consultant received nonpublic information from the Centers for Medicare & Medicaid Services (“CMS”), a government agency, concerning planned changes to Medicare reimbursement rates for particular drugs. The consultant then shared that information with two clients, who allegedly traded in securities of companies that would be affected by CMS’s forthcoming changes.In an eighteen-count indictment, the government charged the defendants with securities fraud under Section 15 U.S.C. § 78j(b) & 78ff (the “Title 15” counts); a seldom-used theory of securities fraud under 18 U.S.C. § 1348; wire fraud under 18 U.S.C. § 1343 (the “Title 18” counts); conversion of government property under 18 U.S.C. §§ 641 & 2; and several conspiracy charges. At trial, the jury acquitted the defendants of all of the Title 15 counts, but convicted them of some of the Title 18 counts.The defendants appealed, and the Second Circuit initially affirmed the convictions in Blaszczak I, becoming one of the first appellate courts to address the scope of Title 18 insider trading liability. In doing so, it held that: (i) confidential information taken from CMS is the government’s “property” for purposes of the Title 18 statutes at issue; and (ii) unlike Title 15 jurisprudence, which requires the government to prove that the person providing the confidential information received a personal benefit, Title 18 jurisprudence does not currently impose a personal benefit requirement.Upon further appeal, the U.S. Supreme Court remanded the case for reconsideration in light of Kelly v. United States, which it had recently decided. Kellyinvolv

indictment and the court, in refusing to dismiss the DOJ’s wire fraud claim, ruled that the Government’s wire fraud claim does not require the presence of a “security.”As we’ve previously related in a prior post about the case, Chastain, a former product manager at OpenSea, wasindictedin New York in June 2022 for his NFT profit scheme. As part of his role, Chastain was responsible for selecting NFTs to be featured on OpenSea’s homepage; OpenSea kept these special NFT selections confidential until they went live, as a main page listing often translated to a jump in prices for the featured NFTs and others by the same creator. During a period from June 2021 to September 2021, Chastain pre-purchased these to-be-featured NFTs (or others by the same creator) and then sold them at substantial profit. To conceal the alleged fraud, the DOJ claimed Chastain conducted these transactions using anonymous digital cryptocurrency wallets and OpenSea accounts. The DOJ asserted one count of wire fraud (18 U.S.C. § 1343) and one count of money laundering (18 U.S.C. § 1956(a)(1)(B)(i)) against Chastain.Subsequently, Chastain moved to dismiss the indictment, contending, among other things, that: (1) the wire fraud count should be dismissed because the information that he allegedly misappropriated was not “property” within the meaning of the statute (a position supported by one amicus brief filed in the case); (2) the money laundering count was deficient because the Government failed to allege sufficiently two elements of the crime (namely, the concealment and financial transaction elements) and sought to criminalize the mere movement of money; and (3) the wire fraud count was insufficiently pleaded because an “insider trading” wire fraud charge requires the presence of a trading in securities or commodities.The court refused to dismiss the indictment (citing the high standard for dismissal at the Rule 12(b) stage), and characterized Chastain’s points as “about the sufficiency of the evidence, not the a

Blaszczak, in turn, allegedly tipped three partners of a healthcare-focused hedge fund, which profitably traded on the information between 2009 and 2013.The government charged Blaszczak, a CMS employee, and two of the hedge fund partners with Title 15 securities fraud under Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, as well as securities fraud under 18 U.S.C. § 1348, a separate and seldom-used statute added to Title 18 by the Sarbanes-Oxley Act of 2002. (The U.S. Department of Justice (DOJ) can prosecute insider trading criminally under both the Exchange Act and Section 1348, while the SEC is limited to civil insider trading enforcement under the Exchange Act.) It also charged them with wire fraud under 18 U.S.C. § 1343. Sections 1343 and 1348 make it a crime to obtain fraudulently “any money or property” through interstate wires or in connection with a security, respectively.

a citizen who failed to report his overseas bank accounts.The Court’s holdings across these three cases signal to the government, attorneys, and individuals alike that the Court will not tolerate expansive interpretations of federal statutes and regulations. Individuals should have reasonable notice of what encompasses a federal offense and, if such notice is not apparent, the DOJ should limit its charging decisions accordingly.StatusSecond Circuit reversed.IssueWhether the U.S. Court of Appeals for the Second Circuit’s “right to control” theory of fraud—which treats the deprivation of complete and accurate information bearing on a person’s economic decision as a species of property fraud—states a valid basis for liability under the federal wire fraud statute.CommentaryThe Supreme Court unanimously reversed the conviction of Louis Ciminelli, holding that the Second Circuit’s “right-to-control” theory does not describe a “valid basis for liability under the federal wire fraud statute,” 18 U.S.C. §1343. Cimienlli’s conviction was predicated on the theory that Cimenilli’s company deprived Fort Schuyler Management Corporation—a company tasked with implementing then-New York Governor Andrew Cuomo’s “Buffalo Billion” plan—of “potentially valuable economic information that it would consider valuable in deciding how to use its assets.”The Court rejected the “right-to-control” theory as a valid basis to support a § 1343 conviction, holding that the federal fraud statutes “do not vest a general power in ‘the Federal Government . . . to enforce (its view of integrity in broad swaths of state and local policymaking.’” Rather, the Court reiterated that under its holding in McNally v. United States, the federal fraud statutes are “limited in scope to the protection of [traditional] property rights,” which do not include the so-called “right to control.” In fact, the Court wrote, the government conceded in its briefing to the Court that the right-to-control theory risks “expanding the federal fr

harm could be established if the nonprofit was “deprived of potentially valuable economic information that it would consider valuable in deciding how to use its assets.”Ciminelli was convicted, and he appealed on the basis that the right to control one’s assets is not “property” for purposes of the wire fraud statute. The government defended the conviction only on the right-to-control theory, and the Second Circuit affirmed the conviction, holding that by rigging the bidding process to favor Ciminelli’s company, Ciminelli and his co-conspirators deprived the nonprofit of “potentially valuable economic information.”Justice Thomas’ OpinionAt oral argument before the Supreme Court, the justices seemed to coalesce around the conclusion that the right-to-control theory was invalid. So it is no surprise that the decision of the court, written by Justice Clarence Thomas, was unanimous, reversing the Second Circuit.The Court began with an analysis of the criminal fraud statutes, particularly 18 U.S.C. § 1343, the wire fraud statute applied to Ciminelli. Citing Supreme Court precedent, Justice Thomas emphasized that the “money or property” requirement in section 1343 – i.e., a “scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises” – was limited by the “common understanding” of the words “to defraud” when the statute was enacted. That is, it referenced “wronging one in his property rights.” Thus, the federal fraud statutes “protect property rights only,” and money or property must be “an object of the[ ] fraud.”The text, structure and history of federal fraud statutes undermined the viability of the right-to-control theory. Justice Thomas wrote that the fact that Congress later criminalized honest services fraud to protect “the intangible right of honest services” distinguished the other federal fraud statutes, reflecting “reverberating silence” about other “intangible interests” under those statutes. By it