Supreme Court perhaps poised to curtail reach of federal fraud statutes yet again

The Supreme Court heard oral argument yesterday in Kousisis v. US, which presented this question to the Justices as articulated in the petitioner's brief: "Whether a scheme to induce a transaction in property through deception, but which contemplates no harm to any property interest, constitutes a scheme to defraud under the federal wire fraud statute, 18 U.S.C. § 1343."  Though I have not listened to the full oral argument yet, this Washington Post account suggests Kousisis could become another case in which SCOTUS reigns in federal fraud prosecutions:

The Supreme Court on Monday appeared divided over whether to uphold the conviction of a government contractor found guilty of defrauding a state transportation program intended to promote diversity, with several conservative justices again expressing concern over how federal prosecutors combat white-collar fraud.

Chief Justice John G. Roberts Jr. suggested that such crimes were better handled by state prosecutors. Justice Neil M. Gorsuch worried that the federal government’s approach was so broad it could allow, hypothetically, for the prosecution of a babysitter for misleading an employer about how she planned to spend her wages. The court’s eventual ruling in the contracting case could affect how federal prosecutors pursue other fraud cases.

The justices were reviewing the case of Alpha Painting & Construction and a project manager, Stamatios Kousisis, who was convicted of fraud in 2018 and sentenced to 70 months in prison for obtaining a multimillion-dollar contract under false pretenses.  The company won a contract with the Pennsylvania Department of Transportation to make repairs in Philadelphia to a Schuylkill River bridge and to the 30th Street Train Station that was contingent on the company teaming up with a disadvantaged business for a small percentage of the work to increase diversity in contracting. But according to court filings and the defendant’s admissions, the minority contractor did not do any work on the projects or supply materials. Instead, the minority firm acted as a pass-through.  The company submitted fake documentation to the government as part of the scheme, the filings state.

Among the questions for the justices in the case known as Kousisis v. U.S. is whether the company’s deceit rises to the level of wire fraud and just how broadly prosecutors can use that criminal statute to obtain a fraud conviction....

The Supreme Court has repeatedly expressed skepticism of federal prosecutions for too broadly applying criminal statutes to combat public corruption and other white-collar crimes. Last year, the court unanimously overturned the fraud conviction of business executive Louis Ciminelli and others who relied on inside information to win a $750 million development contract as part of former New York governor Andrew M. Cuomo (D)’s Buffalo Billion revitalization project. In 2020, a unanimous court overturned the convictions of two allies of former New Jersey governor Chris Christie (R) who plotted to cause traffic snarls in a town leading to the George Washington Bridge to punish one of the governor’s rivals.

Justice Samuel A. Alito Jr. suggested Monday that those rulings had sent a signal that “the court really doesn’t like the federalization of white-collar prosecutions and wants that to be done in state court and is really hostile to this whole enterprise.” Roberts echoed those concerns when he said “a lot of these things could be dealt with under state law, and you don’t have to federalize every jot and tittle in a large contract? And that it’s a matter of concern that we’ve expressed in many precedents.”

Deputy solicitor general Eric J. Feigin said Congress intentionally crafted the statute to give prosecutors latitude to pursue fraud cases. “It wrote them broadly because frauds are very inventive. There are any number of ways you can defraud people,” Feigin said. He warned that reversing the conviction in this case would make it harder for the government to go after those who defraud programs aimed at helping veterans or charity groups.

During the discussion of the babysitter hypothetical on Monday, Gorsuch and Justice Brett M. Kavanaugh got the government’s lawyer to concede that under its theory, a babysitter could be prosecuted for fraud if she knew she got the job after telling the family she would use the money for college tuition, but instead blew it all on a trip to Cancún.

While Feigin acknowledged the hypothetical babysitter could be charged, he added, “I think the sentencing guidelines would be pretty low.”

“That’s comforting,” Gorsuch quipped.