LAW638 White Collar Crime

WEEK 6
MAIL AND WIRE FRAUD
Mail Fraud / Wire Fraud
Elements
Mailing / Wire
Innocent mailing
Variance
Materiality
Scheme to Defraud
Intent to Defraud
Money or Property
Honest Services
Intangible Rights
Conflict of interest
Bribes and kickbacks

Federal White Collar Crime p 419 - 502

Why are mail and wire fraud statutes so popular?
o Inchoate offences – these statutes apply to fraudulent schemes that have
not necessarily come to fruition or caused any loss
o Simple offences – proscribe use of the mails or wires (including faxes,
telephone calls, e-mails, etc) to further fraudulent activity
o Tool against public corruption
o Use of the mail fraud statutes against high-ranking public officials
Mail Fraud Elements
o Scheme to defraud
o Mailing of a letter, etc, for the purpose of executing the scheme
Wire Fraud Elements
o Scheme to defraud
o Use of interstate wire communications in furtherance of the scheme
Class Discussion: Submitting reports to the federal commission knowing that it
is not true. Used credit cards totalling $582,000 caused interstate wired
communication to occur. Client violated the election laws, by taking money
donated for election campaign and spending it on anything but it:
o Scheme: Money for false pretenses – repetition
o Mail – interstate common carrier / interstate wire communication
(telephone; they amended the statutes such that wireless phones are
wired) / mail
o Knowingly
o Intent to Defraud – Significant element. Done as a matter of business,
pursuant to counsel‟s advice or govt‟s instruction could negate this intent
to defraud
o Materiality
o Why charge under mail fraud? Easiest for imprisonment!
o Rule 11 C Agreement – the Government and D enter an agreement that he
is going to plea guilty. The judge will bind himself to the upper range of
the agreement

Innocent Mailing:

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o Stole someone‟s credit card, and every night he would stop at the hotel
and use the credit card. The hotel would take his credit card invoice and
mail it to the bank and pay him. Not a mail fraud
o School board members use credit cards to buy gas and would pay for the
gas by paying the credit card statements
o Elements:
Mailing Required by Law (e.g. income tax returns)
Scheme is complete – I have got my goods
Note that the odds of succeeding on this defence are very slim
18 USC § 1341
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, or to sell, dispose of, loan, exchange, alter, give away,
distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious
coin, obligation, security, or other article, or anything represented to be or intimated
or held out to be such counterfeit or spurious article, for the purpose of executing
such scheme or artifice or attempting so to do, places in any post office or authorized
depository for mail matter, any matter or thing whatever to be sent or delivered by
the Postal Service, or deposits or causes to be deposited any matter or thing whatever
to be sent or delivered by any private or commercial interstate carrier, or takes or
receives therefrom, any such matter or thing, or knowingly causes to be delivered by
mail or such carrier according to the direction thereon, or at the place at which it is
directed to be delivered by the person to whom it is addressed, any such matter or
thing, shall be fined under this title or imprisoned not more than 20 years, or both. If
the violation occurs in relation to, or involving any benefit authorized, transported,
transmitted, transferred, disbursed, or paid in connection with, a presidentially
declared major disaster or emergency (as those terms are defined in section 102 of the
Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5122)), or
affects a financial institution, such person shall be fined not more than $1,000,000 or
imprisoned not more than 30 years, or both.
7th Circuit Instruction: 18 USC § 1341 & 1343 – Mail/Wire/Carrier Fraud Elements
[The indictment charges the defendant[s] with; Count[s] __ of the indictment
charge[s] the defendant[s] with] [mail] [wire] [carrier] fraud. In order for you to find
[a; the] defendant guilty of this charge, the government must prove each of the [four]
following elements beyond a reasonable doubt:

1. That the defendant knowingly [devised] [or] [participated in] a scheme [to
defraud], as described in Count[s] ___; (are all the words there – where’s
knowingly?) and

2. That the defendant did so with the intent to defraud; and

3. The scheme to defraud involved a materially false or fraudulent pretense,

representation, or promise; (the word material isn’t there) and

4. That for the purpose of carrying out the scheme or attempting to do so, the
defendant [used [or caused the use of]] [the United States Mails] [a private or
commercial interstate carrier] [caused interstate wire communications to take place]
in the manner charged in the particular count.

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If you find from your consideration of all the evidence that the government has
proved each of these elements beyond a reasonable doubt [as to the charge you are
considering], then you should find the defendant guilty [of that charge].

If, on the other hand, you find from your consideration of all the evidence that the
government has failed to prove any one of these elements beyond a reasonable doubt
[as to the charge you are considering], then you should find the defendant not guilty
[of that charge].
The Mailing or Wiring in Furtherance Element
Schmuck v United States
489 US 705 (1989)
Facts Schmuck was charged with devising and executing a scheme to
defraud Wisconsin retail automobile customers who based their
decisions to purchase certain automobiles at least in part on the low-
mileage readings provided by the tampered odometers
Had employed a man known only as “Fred” to turn back the
odometers on about 150 different cars. Marketed these cars to a
number of dealers, several of whom he dealt with on a consistent
basis over a period of about 15 years (There was an ongoing
fraudulent venture!)
Mail fraud: To complete the resale of each automobile, the dealer
who purchased it from Schmuck would submit a title-application
form to the Wisconsin Department of Transportation on behalf of his
retail customer. The receipt of a Wisconsin title was a prerequisite
for completing the resale; without it, the dealer could not transfer
title to the customer and the customer could not obtain Wisconsin
tags
Holding Although the registration-form mailings may not have contributed
directly to the duping of either the retail dealers or the customers,
they were necessary to the passage of title, which in turn was
essential to the perpetuation of Schmuck‟s scheme.
A mailing that is “incident to an essential part of the scheme”
satisfies the mailing element of the mail fraud offence
Dissenting For though the Government chose to charge a defrauding of retail
customers (to whom the innocent dealers resold the cars), it is
obvious that regardless of who the ultimate victim of the fraud may
have been, the fraud was complete with respect to each car when
petitioner pocketed the dealer‟s money. As far as each particular
transaction was concerned, it was as inconsequential to him whether
the dealer resold the car as it was inconsequential to D in Maze
whether the defrauded merchant ever forwarded the charges to the
credit company.
Notes You can show that it is a mail fraud if you can prove that it is an
ongoing scheme, or alternatively, use the “lulling” theory (i.e. lull
the victims into a false sense of security, postpone their ultimate
complaint to the authorities, and therefore make the apprehension
of the defendants less likely than if no mailings had taken place)
The mailing only needs to be foreseeable – natural, probable chain of
events, that would otherwise further the scheme
Problem: Mail fraud – not mail and fraud!

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In MSI 16 counts – 16 invoices were paid. The defendant caused to be

mailed to the State of Illinois these 16 invoices
The defendants wanted the money so bad, they walked over to the
Comptroller‟s Office to hand deliver the invoice.
Variance: The indictment alleged X acts and the proof showed hand
delivered!
o Fatal Variance: D cannot possibly be prepared for trial,
cannot possibly have mounted the defence because it was
such a complete surprise
Prosecution: We didn‟t have to prove that was the only mailing. The
proof was that the defendant mailed the cheques for the invoices.
Thus, being able to show constructive mailing is fine
Scheme to Defraud Element
(i) Materiality and Reliance
Neder v United States
527 US 1 (1999)
Facts Neder argued that one of the elements – materiality – is not met
If there were statutes that touch and concern the same topic, the
definitions must be in material (i.e. mail fraud, bank fraud, securities
fraud)
Holding Under the rule that Congress intends to incorporate the well-settled
meaning of the common-law terms it uses, we cannot infer from the
absence of an express reference to materiality that Congress
intended to drop that element from the fraud statutes. On the
contrary, we must presume that Congress intended to incorporate
materiality “‟unless the statute otherwise dictates‟”
The Government is correct that the fraud statutes did not
incorporate all the elements of common-law fraud. The common-
law requirements of “justifiable reliance” and “damages” plainly
have no place in the federal fraud statutes. By prohibiting the
“scheme to defraud”, rather than the completed fraud, the elements
of reliance and damages would clearly be inconsistent with the
statutes Congress enacted. But while the language of the fraud
statutes is incompatible with these requirements, the Government
has failed to show that this language is inconsistent with a
materiality requirement
Notes Reflection of the complete mess that the mail fraud statute is in!
The issue of materiality could be directed towards D‟s intent, rather
than the act. He could be a brilliant criminal, but still a criminal!
Bridge v Phoenix Bond & Indemnity Co.
553 US 639 (2008)
Holding Petitioners were accused of fraudulently obtaining a
disproportionate share of liens by violating the Single, Simultaneous
Bidder Rule (I can‟t have 10 bidders at the sale and bid for the same
thing, and was assigned the same property!) at the auctions held
from 2002 to 2005. According to respondents, petitioner Sabre
Group LLC and its principal Barrett Rochman arranged for related
firms to bid on Sabre Group‟s behalf and directed them to file false
attestations that they complied with the Single, Simultaneous Bidder
Rule.

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Having thus fraudulently obtained the opportunity to participate in

the auction, the related firm collusively bid on the same properties
at a 0% rate. As a result, when the county allocated liens on a
rotating basis, it treated the related firms as independent entities,
allowing them collectively to acquire a greater number of liens than
would have been granted to a single bidder acting alone. The related
firms then purchased the liens and transferred the certificates of
purchase to Sabre Group.
In this way, respondents allege, petitioners deprived them and other
bidders of their fair shares of liens and the attendant financial
benefits
Holding If petitioners‟ proposed requirement of first-party reliance seems to
come out of nowhere, there is a reason: Nothing on the face of the
relevant statutory provisions imposes such a requirement. Using
the mail to execute or attempt to execute a scheme to defraud is
indictable as mail fraud, and hence a predicate act of racketeering
under RICO, even if no one relied on any misrepresentation
Notes Q: It is a RICO case, a patent of mail fraud, which is the definition of
mail fraud. Should the interpretation rule be the same for both
criminal and civil cases? What if the RICO statute says that it should
be construed in reference to the remedies?
A: Possibly they were able to use the rule of remedy, but the case would
still come out the same way it had resulted. To the extent the RICO
statute requires some form of reliance, it may be indirect reliance, and
clearly reliance is not an element of mail fraud.
(ii) Intent to Defraud: Intent to Injure?
United States v Regent Office Supply Co.
421 F.2d 1174 (2d Cir. 1970)
Facts The client called all the secretaries of these major firms, informing
that they had leftover stationeries and needed to be disposed of.
Issue Does solicitation of a purchase by means of false representations not
directed to the quality, adequacy or price of goods to be sold, or
otherwise to the nature of the bargain, constitute a “scheme to
defraud” or “obtaining money by false pretenses” within the
prohibition of 18 USC 1341?
Holding While the prosecution must show that some harm or injury was
contemplated by the scheme, it need not show that direct, tangible
economic loss resulted to the scheme‟s intended victims
Notes Isn‟t this a materiality case, in sheep‟s clothings? Isn‟t it the little
white lie to get the foot into the door?
United States v Siegel
717 F.2d 9 (2d Cir. 1983)
Issue The fraudulent scheme underlying Ds‟ convictions involved
unrecorded cash sales of Mego merchandise which had either been
closed out and marked down for clearance or returned because of
damage or defect.
Abrams conducted some cash transactions himself. Siegel also dealt
in cash transactions, supervising cash sales through a retail store of
imported shirts worth over $30,000. Other cash transactions were
conducted with the aid of William Stuckey, who was manager of

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Mego‟s Long Island warehouse and who became a principal witness

for govt. At the direction of Abraham and Siegel, Stuckey sold Mego
merchandise to various street peddlers and merchants for cash. The
“off the books” sales together generated in excess of $10,000 in cash
Even though the cash sales were not recorded on Mego‟s books,
Siegel and Abrams told Mego‟s auditors that there were no
unrecorded assets. In addition, no information about the cash sales
were divulged to Mego‟s stockholders
Notes Fraud alleged here was non-disclosure of a fiduciary breach by one
under a duty to disclose
Holding In affirming defendants‟ convictions on the wife fraud counts, we in
no way wish to encourage the type of indictment prosecuted here.
Twenty counts were brought against five defendants, all but two of
whom were acquitted of all charges. Siegel and Abrams, although
convicted of the wire fraud charges (which might more properly
have been redressed in a shareholder‟s derivative suit or in a state
criminal prosecution), were acquitted on several other
counts…While we applaud the government‟s concentration on
unrecorded cash sales, a particularly common form of criminal
activity, we nevertheless urge the government to think carefully
before instituting other massive prosecutions having such slender
foundations as this one.
Dissenting What the majority does is infinitely worse, for it holds that the wire
fraud statute creates a federal law of fiduciary obligations. There is
no pretense that the source of the fiduciary duty at issue in this case
was anything but federal law. There is no reference in the majority
opinion to state law or even to Mego‟s state of incorporation. The
jury simply was told that it was up to it to decide whether, as part of
the obligation “to act in the best interest of the corporation”, the
defendants were under a duty to disclose the off-book transactions
to shareholders.
The “material” information not disclosed to shareholders in the
instant case is a series of transactions of roughly $11,000 annually
over nine years, a wholly trivial sum in light of Mego‟s sales. In
holding that these transactions “would be important to a Mego
shareholder”, the majority simply closes its eyes to investment
realities, for there is not a shred of evidence that such a sum would
affect share price in the slightest.
Notes This is a corporation. Whether executives of a corporation own some
duty to the shareholders, this is an issue concerning state law, not a
federal crime!
Permissible Objects of a Scheme to Defraud
Mail and wire fraud prosecutions may be founded upon a defendant‟s fraudulent
attempts to deprive others of:
o Intangible property (such as confidential business information or a
business‟s right to control its assets)
o Intangible non-property rights, such a right to “honest services”
Elements of these crimes are:
o A scheme or artifice to defraud; and
o A mailing or interstate wiring in furtherance of the scheme

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In public corruption cases, the government did not have to prove that the
governmental entity or citizenry “victimised” by this concealment lost money or
property – it was sufficient that the defendant deprived his victims of their “right
to his honest services” through his concealment of breaches of his duty
(i) Property
McNally v United States
483 US 350 (1987)
Facts The Wombwell Insurance Company agreed with Hunt that in
exchange for a continued agency relationship it would share any
resulting commissions in excess of $50,000 a year with other
insurance agencies specified by him
From 1975 to 1979, Wombwell funnelled $851,000 in commissions to
21 separate insurance agencies designated by Hunt. Among the
recipients of these payments were Seton Investments Inc, a company
controlled by Hunt and petitioner Gray and nominally owned and
operated by petitioner McNally
Gray and Hunt established Seton for the sole purpose of sharing in
the commissions distributed by Wombwell
Mail fraud count was based on the mailing of a commission check to
Wombwell by the insurance company from which it had secured
coverage for the State
Principal theory: Petitioners‟ participation in a self-dealing patronage
scheme defrauded the citizens and govt of Kentucky of certain
“intangible rights”, such as the right to have the Commonwealth‟s
affairs conducted honestly
Issue Whether the jury charge permitted a conviction for conduct not
within the scope of the mail fraud statute
Holding After 1909, therefore, the mail fraud statute criminalised schemes or
artifices “to defraud” or “for obtaining money or property by means
of false or fraudulent pretenses, representations or promises”.
Because the two phrases identifying the proscribed schemes appear
in the disjunctive, it is arguable that they are to be construed
independently and that the money-or-property requirement of the
latter phrase does not limit schemes to defraud to those aimed
causing deprivation of money or property. This is the approach that
has been taken by each of the Courts of Appeals that has addressed
the issue: schemes to defraud include those designed to deprive
individuals, the people, or the government of intangible rights, such
as the right to have public officials perform their duties honestly.
It was not charged that in the absence of the alleged scheme the
Commonwealth would have paid a lower premium or secured
better insurance. Hunt and Gray received part of the commissions
but those commissions were not the Commonwealth‟s money. Nor
was the jury charged that to convict it must find that the
Commonwealth was deprived of control over how its money was
spent
Notes How can the court ignore 50 years of holding? The ballot box! Not
the criminal courts. Congress should address this – not the courts
Conflict of interests? The falsehood is the lack of transparency
involved within the whole scheme. In honest services, these men

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should have disclosed what was going on (conflict of interests).

In what way does the failure to disclose conflict of interests be
material (an important element that is capable of influencing the
decision to be made)? The other decision-makers would want to
know. The failure to disclose deprives them of the full facts
(ii) Intangible Property
Carpenter v United States
484 US 19 (1987)
Facts The official policy and practice at the Wall Street Journal was that
prior to the publication of the daily column, “Heard on the Street”,
the contents of the column were the Journal‟s confidential info
In spite of this rule, with which Winans (a reporter) was familiar, he
entered into a scheme with Peter Brant and petitioner Felis, both
connected with the Kidder Peabody brokerage firm in NYC, to give
them advance info as to the timing and contents of the scheme
This permitted Brant and Felis and another conspirator, David
Clark, a client of Brant, to buy or sell based on the probable impact
of the column on the market. Profits were to be shared. The
conspirators agreed that the scheme would not affect the journalistic
purity of the “Heard” column
Holding “Property” held protected by the mail fraud statute in McNally was
not confined to “tangible” property such as cash or securities.
Here, the object of the scheme was to take the Journal‟s confidential
business information – the publication schedule and contents of the
“Heard” column – and its intangible nature does not make it any
less “property” protected by the mail and wire fraud statutes.
McNally did not limit the scope of s 1341 to tangible as distinguished
from intangible property rights
The confidential information was generated from the business, and
the business had a right to decide how to use it prior to disclosing it
to the public
Notes Confidential information has been held as a specie of properties in
many states
(iii) “Honest Services”: Section 1346
Skilling v United States
US 130 S. Ct. 2896 (2010)
Charge Conspiracy
o Deprive money or property
o Securities
o Honest services
Holding They are presumed constitutional…but 1346 is enacted to what they
said in McNally
In view of this history, there is no doubt that Congress intended s
1346 to reach at least bribes and kickbacks. Reaching the statute to
proscribe a wider range of offensive conduct, we acknowledge,
would raise the due process concerns underlying the vagueness
doctrine. To preserve the statute without transgressing
constitutional limitations, we now hold that s 1346 criminalises only
the bribe-and-kickback core of the pre-McNally case law (What is the
logic here? We held in McNally that breach of fiduciary duties were

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not covered by the mail fraud statute. What Congress was saying
that they want the courts to extend to breach of fiduciary duty that
involved a conflict of interests)
Void-for-vagueness doctrine addresses concerns about (1) fair notice
and 92) arbitrary and discriminatory prosecutions. A prohibition on
fraudulently depriving another of one‟s honest services by accepting
bribes or kickbacks does not present a problem on either score
Notes All nine members of the Court concerted that s 1346 is vague; they
disagree on the appropriate remedy – whether to restrict the scope
of the statute or to strike it as unconstitutional
Once Congress responded with s 1346, it waited another 22 years to
resolve the many circuit splits surrounding that statute, only to find
that the many people convicted of honest services fraud not based
on bribery or kickbacks were also legally innocent
The Court took the Skilling, Black and Weyhrauch cases to decide
three issues, although it ultimately failed to address them:
o Whether the govt must prove that it was reasonably
foreseeable that the honest services scheme could cause some
economic or pecuniary harm to victims in private sector
cases
o Whether the duty to disclose, the violation of which
constitutes the “fraud”, must arise under state law in a
public sector case
o Whether D must intend to obtain private gain from the
victim to whom honest services are owed
United States v Blackmon
839 F.2d 900 (2d Cir. 1988)
Facts Indictment alleged an elaborate scheme to defraud 6 victims in
NYC. Scheme is a variation of a street confidence game known as
the “pigeon drop” – game involved persuading wealthy old women
that they had “found” cash earmarked for Iran or the PLO, and then
convincing the women to withdraw their own money from banks in
an amount equivalent to their “share” of the found cash, convert
them to foreign currency, give it to the appellants for high-return
foreign investment

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