If you get what you paid for, can you still cry fraud? The Supreme Court answered that question in Kousisis v. United States, unanimously holding that the federal wire fraud statute, 18 U.S.C. § 1343, does not require a scheme to cause financial loss. Writing for the Court, Justice Barrett affirmed that intent to harm is not a necessary element of wire fraud, thereby significantly expanding the statute's reach.
As discussed in Dykema's January 2025 issue, this case arose from a Pennsylvania Department of Transportation (PDOT) contract for Philadelphia-area construction projects. The petitioners are government contractors who won two PDOT contracts that were contingent on subcontracting a portion of the work to businesses certified as "socially and economically disadvantaged." As part of the bidding process, the petitioners falsely claimed they would purchase paint supplies from a certified disadvantaged business enterprise (DBE). In reality,the purported DBE operated as a pass-through entity, merely invoicing for supplies actually provided by a non-DBE, with a 2.25% markup.
Federal prosecutors charged the petitioners with conspiracy to commit wire fraud, multiple counts of wire fraud, and making false statements to a federal agency. A jury convicted them on all counts except two wire fraud charges. The petitioners appealed, arguing that PDOT received the goods and services it contracted for and thus suffered no economic harm. The Third Circuit affirmed the convictions, and the Supreme Court granted certiorari to resolve the split among the circuits regarding whether economic loss is a required element of wire fraud.
A Textual Reading of the Wire Fraud Statute
The Court's decision turned on the statutory language. Section 1343 criminalizes schemes to "obtain money or property by means of false or fraudulent pretenses." But it does not mention a requirement of financial harm. The Court found this omission significant. According to Justice Barrett, "[o]ne can obtain property by deceit even if the victim ultimately receives something of equivalent value."
Rejecting petitioners' reliance on the common-law definition of fraud, the Court noted the historical variability of that term and declined to read a financial harm requirement into the statute. The key inquiry, the Court explained, is whether the scheme involves obtaining property through materially false representations—regardless of whether the victim suffered a loss.
Materiality as a Limiting Principle
While the decision broadens the reach of wire fraud prosecutions, the Court emphasized that the materiality requirement remains a critical constraint. A misrepresentation must be "capable of influencing" the decision of the person to whom it is addressed. In practical terms, the false statement must be significant enough to induce the transaction. This, the Court reasoned, prevents trivial misstatements from rising to the level of federal wire fraud.
Concurring Opinions
- Justice Thomas concurred in the judgment but questioned whether the misrepresentation in this case was, in fact, material—an issue the parties did not dispute.
- Justice Gorsuch agreed that financial harm is not required, but disagreed with the majority's view that the injury requirement is satisfied solely because the victim would not have parted with property but for the misrepresentation.
- Justice Sotomayor also concurred in the judgment but objected to the broader implications of the majority's reasoning, expressing concern about future prosecutorial overreach.
Takeaways
- Wire Fraud Expanded: The Court held that an economic loss is not required under 18 U.S.C. § 1343. This decision empowers federal prosecutors to bring wire fraud charges even when the victim received something of equal value but not what was promised.
- Materiality Remains a Check: The decision reinforces that the misrepresentation must still be material. While this offers some limitation, future litigation—particularly in light of Justice Thomas's concurrence—may further define the contours of materiality in wire fraud cases.
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