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Mail and wire fraud 101 part 2 (elements in common)

This is the second of a two part discussion of mail and wire fraud. As noted in part 1 (jurisdictional elements), mail fraud (18 U.S.C. § 1341) and wire fraud (§ 1343) have essentially the same elements, except for the jurisdictional elements. Mail fraud involves mailing, and wire fraud requires a wire transmission that passes in interstate commerce.

Elements common to §§ 1341 and 1343 crimes are that:

  1. The defendant knowingly devised or participated in a scheme to defraud someone by using false or fraudulent pretenses, representations, or promises
  2. The false or fraudulent pretenses, representations, or promises were about a material fact
  3. The defendant intended to defraud someone

In most cases, a "scheme to defraud" means a plan or course of action intended to deceive or cheat someone out of money or property using false or fraudulent pretenses, representations, or promises. A separate statute, 18 U.S.C. § 1346, authorizes prosecutions where the scheme is intended to "deprive another of the intangible right of honest services." "Honest services" prosecutions must involve the payment of bribes or kickbacks. Skilling v. United States, 561 U.S. 358 (2010).

Proof of materiality is not a statutory requirement, but is required by Neder v. United States, 527 U.S. 1, 25 (1999). A "material fact" is "an important fact that a reasonable person would use to decide whether to do or not do something. A fact is "material" if it has the capacity or natural tendency to influence a person's decision. It doesn't matter whether the decision-maker actually relied on the statement or knew or should have known that the statement was false." Pattern Crim. Jury Instr. 11th Cir. OI O50.1 (2019).

To act with "intent to defraud" means "to act knowingly and with the specific intent use false or fraudulent pretenses, representations, or promises to cause loss or injury. Proving intent to deceive alone, without the intent to cause loss or injury, is not sufficient to prove intent to defraud." Id.

Although neither statute includes the words "omission" or "concealment," cases interpreting the statutes hold that omissions or concealment of material information may constitute money or property fraud, without proof of a duty to disclose the information pursuant to a specific statute or regulation. Fed. Crim. Jury Instr. 7th Cir. 18 U.S.C. §§ 1341 & 1343 Definition of Scheme to Defraud (2018). "Some cases state the proposition in a way that suggests that an omission-based fraud scheme must include an act of concealment." Id.

"Property" includes tangible and intangible property. Carpenter v. United States, 484 U.S. 19 (1987). It does not, however, necessarily include state and municipal licenses; "the thing obtained must be property in the hands of the victim." Cleveland v. United States, 531 U.S. 12, 15 (2000).

Circuits are split as to whether the fraud must be capable of deceiving persons based on a subjective ("however gullible") or objective ("person of ordinary prudence") standard. The Sixth Circuit adopts the objective standard. Pattern Crim. Jury Instr. 6th Cir. 10.01 Comment (2019). In other circuits, proof that the defendant intends to deceive the ignorant or gullible by preying on their infirmities is sufficient. See Pattern Crim. Jury Instr. 11th Cir. OI O50.1 Comment (2019). See also the extended discussion of this issue in United States v. Svete, 556 F.3d 1157 (11th Cir. 2009).

The Ninth Circuit takes the view in mortgage lending prosecutions that "lender negligence in verifying loan application information, or even intentional disregard of the information, is not a defense to fraud, and so evidence of such negligence or intentional disregard is inadmissible as a defense against charges of mortgage fraud." Model Crim. Jury Instr. 9th Cir. 8.124 (2019). In these cases, a lender's request for specific information in a loan application makes the information objectively material as a matter of law "regardless of the lenders' policies or practices with respect to use of that information." Id. "Evidence of general lending standards in the mortgage industry, however, is admissible to disprove materiality." Id.

The Seventh Circuit Court of Appeals has cautioned against extending the mail and wire fraud statutes to a person's "lack of candor about the negotiating positions of parties to a business deal." United States v. Weimert, 819 F.3d 351, 354 (7th Cir. 2016).

(9/10/19)

 
 
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