On May 22, 2025, the Supreme Court issued a unanimous decision broadening applicability of the federal wire fraud statute. In Kousisis v. United States, the Court held that a defendant may be convicted of wire fraud for inducing a victim to enter a transaction under materially false pretenses, even if the defendant did not seek to cause the victim economic loss. This decision represents a sharp pivot from the Court's recent holdings that have narrowed the scope of the fraud statutes and reined in the federal government's more aggressive theories of fraud.
Kousisis v. United States: Overview
Kousisis involved two government contracts awarded by the Pennsylvania Department of Transportation ("PennDOT") to Alpha Painting and Construction Co. and its manager, Stamatios Kousisis (together, the "defendants"). Kousisis v. United States, No. 23-909, 605 U.S. __ (2025). Where they were required to subcontract a percentage of the total contract to a disadvantaged business enterprise (DBE), the defendants falsely represented that they would obtain paint supplies from Markias, Inc., a certified DBE. In reality, Markias served only as a pass-through entity for the actual paint suppliers, who were not DBE-certified.
Although they completed the contract to PennDOT's satisfaction and received over $20 million in gross profit, the defendants were charged with wire fraud and conspiracy to commit wire fraud under 18 U.S.C. §§ 1343 and 1349. The prosecution advanced a fraudulent-inducement theory, arguing that the defendants had induced PennDOT to award the contracts through materially false pretenses regarding DBE participation. See § 1343 (requiring a "scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses"). In response, the defendants argued that, because PennDOT received the full economic benefit of its bargain, there was no scheme to defraud it of "money or property" as required by § 1343.
Affirming the convictions, the Supreme Court endorsed the prosecution's fraudulent-inducement theory, reasoning that the defendants satisfied § 1343 by devising a "scheme" to "obtain" the PennDOT contract by falsely certifying compliance with the DBE requirement. Noting that a "thing is no less 'obtained' simply because something else is simultaneously given in return," the Court held that § 1343 does not require proof that the defendant sought to cause the victim economic loss.
The Court distinguished its holding from prior decisions limiting the scope of federal fraud statutes to "traditional property interests," see Ciminelli v. United States, 598 U.S. 306 (2023), emphasizing that the fraudulent-inducement theory does not criminalize mere interference with intangible rights, but rather schemes targeting money or property.
Implications of Kousisis
Kousisis departed from the Court's recent trend – expanding rather than cutting back the scope of federal fraud prosecutions. The Court's reasoning in distinguishing Ciminelli, and its endorsement of the fraudulent-inducement theory, has opened the door to federal fraud prosecutions based on schemes that do not involve economic loss to the victim, particularly in the context of government contracting (especially government procurement requirements) and compliance certifications.
However, in rejecting the defendants' contention that the endorsement of the fraudulent-inducement theory would render every intentional misrepresentation actionable under the federal wire fraud statute, the Court reiterated that the materiality of the misrepresentation is an essential element and a limiting principle. Although the Kousisis Court did not resolve the precise contours of the materiality element (as it was uncontested in the case), Justice Thomas in his concurrence expressed skepticism of the DBE requirement's materiality. Thus, future litigation is likely to focus on what constitutes a material misrepresentation, especially in cases involving regulatory or contractual requirements that may not go to the core of the parties' bargain. It further remains to be seen whether recent constitutional challenges to DBE requirements on Equal Protection grounds, see, e.g., Nuziard v. Minority Bus. Dev. Agency, 721 F.Supp.3d 431 (N.D. Tex. 2024), will affect the materiality analysis in fraud convictions.
Takeaways
Moving forward, the fact that defendants delivered their end of the bargain will no longer be a defense to fraud prosecution. Materiality remains an important limitation on the breadth of the criminal and civil fraud statutes. The Supreme Court has repeatedly emphasized its view that "materiality" is a high bar, but lower courts have not always held plaintiffs to a high standard. Litigants should be prepared to utilize discovery and other litigation tools to aggressively challenge allegations of materiality and should continue to argue that materiality is a tough element to satisfy.
Government contractors and other regulated entities should be aware that misrepresentations regarding compliance with material contract terms may expose them to liability under the federal fraud statutes, regardless of whether the government suffers economic loss or is otherwise satisfied with performance. Although the materiality requirement remains an important limiting principle, contractors should ensure that all material representations and certifications of compliance are not false.
As always, we are here to help you navigate through the implications of these developments.
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