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LAW OFFICE OF JUSTIN SCHWARTZ

1723 W. Devon Ave. #607882 Chicago, IL 60660

847.687.5477 justinschwartzesq@gmail.com

MAIL AND WIRE FRAUD, Part I

I. Introduction

• 18 U.S.C. §§ 1341 (mail fraud) & 1342 (wire fraud)

• 1346 (“Honest Services”) (Part II)

"To federal prosecutors of white collar crime, the mail

fraud statute is our Stradivarius, our Colt .45, our Louisville

Slugger, our Cuisinart--and our true love. We may flirt with

RICO, show off with 10b-5, and call the conspiracy law

'darling,' but we always come home to the virtues of 18

U.S.C. 1341, with its simplicity, adaptability, and

comfortable familiarity."

-- Judge Jed. S. Rakoff, The Federal Mail Fraud Statute

(Part I), 18 Duq. L. Rev. 771, 771 (1980)

• Broad, vague and inclusive statutes in a limited

arsenal.

• Stopgap until Congress says something more specific

(Justice Burger).

• Familiar, long well-established jurisprudence, fewer

novel issues than more recent statutes

• Foundational: Predicates for other crimes like RICO,

basis for forfeiture, sentence enhancements (proof by

preponderance)

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• Simple and easy to prove.

A. The Statutes

1. MAIL FRAUD, § 1341.

Whoever, . . . devise[s] [1] any scheme or artifice to

defraud, [2] or for obtaining money or property by

means of false pretenses. [3] or attempting so to do, [4]

for the purpose of executing such a scheme places in . . .

[the] mail. . . or, … deliver[s]. [5]. . by any private or

commercial interstate carrier… or knowingly causes

[such delivery or mailing], [6] shall be [fined or

imprisoned] not more than 20 years, [or if it affects a

financial institution, 30 years].

2. WIRE FRAUD, § 1343

Whoever, . . . devise[s] [1] any scheme or artifice to

defraud, [2] or for obtaining money or property by means

of false pretenses. [3] transmits or causes to be

transmitted by means or wire, radio, or television [read

to include electronic communications), [4] in interstate

or foreign commerce, [5] any writings, sounds, pictures,

or signals [6] for the purpose of executing such a scheme or

artifice [7] shall be [fined or imprisoned] not more than 20

years, [or if it affects a financial institution, 30 years.]

3. Penalties increased from 5 years to 20/30 in late 80s,

early 2000s.

4. The Elements

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a. Devises scheme or artifice to defraud, or

b. To obtain money or property by false pretenses

c. Use of mails or commercial interstate carrier, or

d. Use of wires or electronic communication

e. In furtherance of scheme, or

f. Attempts to do the same (Mail Fraud only)

Short version, from the U.S. Attorney’s Manual:

a. Devising or intending to devise a scheme to defraud

(or to perform specified fraudulent acts), and

b. use of the mail (or wires) for the purpose of executing,

or attempting to execute, the scheme (or specified

fraudulent acts).

B. Jurisdictional Points

c. Mail fraud, the Postal Clause. U.S. Const. Art. I, Sec.

8, Cl. 7

d. Private commercial carriers (UPS, FedEx, DHL), the

Commerce Clause. Art. I, Sec. 8, Cl. 3, interstate or

foreign commerce (added 1994). No constitutional

textual power to create or regulate these.

e. Likewise with wire fraud (added 1952).

C. Key Cases on the Elements.

1`. Mailing or Wiring in Furtherance: Schmuck. v. United

States, 489 U.S. 705 (1989)

a. Note D’s unfortunate name.

b. Scheme to defraud: sell used cars with odometers

rolled back to dealers.

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c. Mailings: the dealer’s mailing of the title registration

to the Wisconsin DMV. Schmuck does not do these

mailings, nor exactly cause them to be performed.

d. Whether mailings are “in furtherance” of scheme.

i. Schmuck argues that mailing didn’t affirmatively

assist the scheme, which was complete when he

got the money from the dealings. The mailings

came after

ii. Relies on Kann, 323 U.S. 88 (1944), Parr, 363

370 (1960), Maze, 441 U.DS. 395 (1974)

iii. E.g., Use of roommate’s stolen credit card

to pay for motels in Maze not “in furtherance”

because Maze had obtained the services before

the mailings.

iv. Schmuck argued that to be “in furtherance,”

mailings must affirmatively assist fraud, and

cannot be, as his were, counterproductive,

leading to uncovering of fraud

v. Mailings here innocent, routine mailings.

Happened after fraud came to fruition, when D

already obtained the money. That’s OK, See

Parr.

e. SCOTUS Majority (Justice Blackmun) says:

i. Innocent, honest mailings can be part of scheme

if essential to it. And the mailings in Maze were

not?

ii. The difference: in Maze, Kann, Parr, mailings

just “post-fraud accounting,” fraudster indifferent

who bore loss. Schmuck not. Really?

iii. Counterproductive mailings may be part of

scheme “as conceived by executor.”

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i. Were the mailings “part of scheme as D

conceived it”? Probably didn’t think about

it, and if he had, might have realized, as

argued here, they were counterproductive

ii. Distinguish Maze: scheme had “reached

fruition” when mailings occurred. But

hadn’t Schmuck’s?

f. Maze, Kann, Parr, still good law? (Not overturned).

Don’t get cited much since Schmuck.

g. Periera, 347 U.S. 1 (1954) (mailings); Weiss, 551

F.3d 666 (2008) (wirings). Reasonable foreseeability

of mailings or witings rather than actual knowledge or

intent that these will occur.

i. Rakoff’s worry, see above. Civil standard

adopted in criminal context.

ii. Forbidden act is to devise, intend to devise, or

attempt to devise, scheme to defraud, etc. Is

“conception” part of mens rea? Actus reus? Not

analyzed as far as I can tell.

iii. In one sense answers Rakoff, in another,

makes nonsense of “reasonable foreseeability,” a

bad mental state.

h. Subsequent mailings “in furtherance of scheme” when

they “lull” victims into false sense of security,

postpone complaint and investigation (Maze).

Mailings in Schmuck subsequent and not lulling

i. Dissent in Schmuck (Scalia+3)

i. Original purpose of 1872 statute: “Prevent Post

Office from being used to carry frauds into

effect.” Durland, 161 U.S. 306 (1896), Schmuck

dissent.

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ii. MF Statute not “a general federal remedy against

fraudulent conduct.” There is no general federal

fraud statute. But now it seems to be just that

2. Materiality, Yes; Reliance and Damages, No.

a. Note that these standard elements of common law or

state fraud statutes are missing from statutory

language of M&WF.

b. Common law fraud. Restatement of Torts (Second) §

525, et seq.

A false statement of material Fact

Defendant’s knowledge that the statement

was false

Defendant’s intent that the statement induce

plaintiff to act;

Plaintiff’s reliance on the truth of statement

Damages proximately caused by reliance.

c. Neder v. United States, 527 U.S. 1 (1999)

i. Holding: Materiality is an element of M&WF,

Reliance is not.

ii. Facts, complex scheme to defraud lenders in real

estate transaction. Jury instructions did not

include materiality, 11th Cir, had said OK,

because not in statute. Bzzt, wrong.

iii. “Materiality”: R. (2d) of Torts § 538, means

would matter to a reasonable person (objective)

and D knows it matters to V (subjective)

“And” or “or”? Brown, 79 F.3d 1550 (11th Cir,

1996) (if you’d had to be a complete idiot to be

deceived; in this case, snowbirds buying Fla. real

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estate as retirement homes without inspecting it).

Largely distinguished or rejected in other Circuits.

iv. Canons of Construction: more rules of thumb

than rules of law; if one is cynical, and excuse

to find “authority” for a desired result.

The prosecution relies on the canon that plain

language trumps? “When the words of a statute are

unambiguous,. . `judicial inquiry is complete.”

Conn’t Nat'l Bank v. Germain, 503 U.S. 249 (1992)

“Material” not in plain language of § 1341?

SCOTUS (Rehnquist): relies on canon that Congress

means “to incorporate the established (common-law)

meanings of the terms,” unless the statute says otherwise,

for, materiality, part of CL fraud.

v. Reliance and damages (prepare for cynicism):

Not part of statutory language, so “plainly” not

an element. (Dictum here, btw)

Why materiality but not reliance. On its face,

M&WF are inchoate offenses, completed when

scheme is devised and mailing or wiring completed.

Reliance inconsistent with this, immateriality

inconsistent with nothing in the statute.

In fact, reliance so much not required that that

intended victims don’t even have to receive fraudulent

communications.

See Bridge v. Phoenix Bond & Indemnity, 553

U.S. 2008 (Thomas, for unanimous court) (Civil RICO

case, where M&WF were predicates); requires

damages, but not as part of the predicates pattern of

racketeering activity). Cites dictum in Neder.

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vi. So it’s not wholly arbitrary; there are principles

at work here.

D. Reprise:

1. Elements of Mail & Wire Fraud

a. Devises scheme or artifice to defraud, or

b. To obtain money or property by false pretenses

c. Use of mails or commercial interstate carrier or wires

in ISFC

d. In furtherance of scheme, or

e. Attempts to devise scheme and use mail (but not

wires) in furtherance

2. Points to Remember

a. M&WF now DO require materiality (because of canon

of construction that Congress intends to incorporate

CL meaning in legally freighted terms)

b. M&WF do NOT require reliance (because inchoate)

c. M&W F do not require damages (because inchoate)

E. Intent to Defraud—Intent to Defraud or to Harm?

1. Mens Rea for M&WF, intent to defraud

a. NB, not in statute.

b. Circuit split: statute prohibits devising scheme to

defraud, etc. “Devising” would appear to have to be

intentional. Need the required intent be to cause harm

(pecuniary or other) to the victim?

c. Harmless lies: Regent Office Supply, 421 U.S. 1174

(2d Cir. 1970).

Office supply salesman lie their way past

secretaries to get to buyers, but give fine goods at

competitive prices. Court rules, merely an innocent

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scheme to deceive; ultimate targets of deceit were not

harmed, so not defrauded.

No harm or injury was actually shown to have

been contemplated. “The purpose of the scheme must

be to injure.”

d. Harms because of lies: Rowe, 56 F.2d 747 (2d Cir.

1932) (Learned Hand):

A man is none the less cheated out of his property,

when he is induced to part with it by fraud, because

he gets a quid pro quo of equal value. It may be

impossible to measure his loss by the gross scales

available to a court, but he has suffered a wrong; he

has lost his chance to bargain with the facts before

him. That is the evil against which the statute is

directed.

i. Land buyers in Rowe actually cheated out of

money in exchange for worthless land because of

lies, according to Regent court; if, so Hand’s

statement is dictum. (Court did not measure

victim’s monetary losses.)

ii. Still raises the question of whether “losing the

chance to bargain with the facts before” one

because of lies is fraud if one gets a fair deal.

Seventh and 10th Cir. agree with Hand. Hamilton,

499 U.S. 734 (7th Cir. 2007); Chavis, 461 F.3rd

1201 (10th Cir. 2006).

iii. Question whether Regent court imposed a harm

or a materiality requirement: Rowe was correct,

because the misrepresented facts were “material

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to the bargain,” given that victims didn’t get a

fair deal. These may overlap in proof.

2. Circuits split on “intent to harm” as part of scheme to

defraud.

a. Where object of fraud is money or property, “intent to

harm is the essence of a scheme to defraud,” Ervasti,

201 F.3d 1029 (8d Cir. 2000); accord 2d Cir., 5th Cir.;

6th Cir.; 10th Cir.; Treadwell, 539 F.3d 990 (9th Cir.

2010) (harm need not be pecuniary).

b. But see Kendrick, 221 F.3rd 19 (1st Cir. 2000) (bank

fraud context, but citing Neder, so probably

generalizable): “Common law fraud requires an intent

to induce action based on reliance on D’s

misrepresentation, [but] no “additional ‘intent to

harm’ requirement.” (Actual harm in CL Fraud and

intent to harm are distinct; no actual harm is required)

c. Intent to harm: loss to victim or gain to self? Leahy,

464 F.3d 773,786 (7th Cir. 2006). In Regent, this

would seem to produce a different outcome, since the

lying salesmen benefited even though the deceived

buyers were not harmed.

F. Summary

1. Mail/Wire Fraud: Scheme or Artifice to Defraud or to

obtain money or property by false pretense + mailing,

wiring

2. Jurisdiction: Postal Clause, Commerce Clause (WF,

Commercial Carriers)

3. Materiality, Yes, CL Meaning preserved

4. Reliance, Damages ,No: M&WF is inchoate

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5. Most Circuits require intent to harm, not just deceit.

Nature of harm is up for debate. Needn’t be pecuniary.

Need it involve loss to victim?

Justin Schwartz

Law Office of Justin Schwartz

1723 W. Devon Ave. #607882

Chicago, IL 60660

Phone: 847-687-5477

Fax: 847-261-0187

email:justinschwartzesq@gmail.com Website: http://www.justinschwartzesq.net

URL: google.com/+JustinSchwartzEsq

Read my writing and research at SSRN:

http://hq.ssrn.com/submissions/MyPapers.cfm?partid=8504

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LAW OFFICE OF JUSTIN SCHWARTZ

1723 W. Devon Ave. #607882 Chicago, IL 60660

847.687.5477 justinschwartzesq@gmail.com

MAIL & WIRE FRAUD II:

HONEST SERVICES AFTER SKILLING:

I. History, Elements, Background, Current

Controversies A. Mail and Wire Fraud -- §§1341 & 1343: Main Poi

1. Devises scheme or artifice to defraud, or

2. To obtain money or property by false pretenses

3. Use of mails or commercial interstate carrier, or

4. Use of wires or electronic communication

5. In furtherance of scheme, or

6. Attempts to do the same (Mail Fraud only)

7. Requires Materiality, but not

8. Reliance or Actual Harm (inchoate offense)

9. Requires (most Circuits) intent to harm, meaning

debated.

B. The Intangible Right to HONEST SERVICES

1. Objects of schemes to defraud may involve several

kinds:

a. Money and Property

b. Intangible Property (e.g., confidential business

information or trade secrets)

c. Intangible Non-Property Rights (“Honest Services”)

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In the 1970s, “honest services mail; (and wire) fraud”

(HSMF) metastasized from an rare outlier theory to the

federal prosecutors’ main weapon again public and private

corruption and even more, against self-dealing and shady

conduct. In 2010, the Supreme Court cut back on the

Honest Services theory in the Skilling case (Jeff Skilling,

former CEO of Enron), restricting it to misconduct

involving bribery and kickbacks.

2. Prehistory of HSMF

a. Early cases and the public-private distinction

i. Sushman v. U.S., 117 F.2d 110 (5th Cir. 1941)

(upholding MF conviction of Louisiana officials

for misappropriating fees) (Public)

ii. Proctor & Gamble, 47 F. Supp. 676 (D. Mass.

1942) (bribes for trade secrets, depriving

competitor of “honest and loyal services” of

employees) (private)

iii. Resurrected in George, 477 F.2d 508 (7th

Cir. 1973) (Zenith case) by Matthias Lydon, now

at Winston & Strawn Chicago, then 29 year old

AUSA, in prosecution of Zenith employee for

kickbacks in cabinet sales to Zenith; doubted by

then U.S. Attorney (now 7th Circuit judge)

William Bauer, pushed by then Chief Deputy

AUSA (later Governor) William Thompson.

iv. Bauer was prophetically skeptical: ““Do you mean to

tell me if a guy sends a love letter to his mistress he’s

defrauded his wife of his loyal services?” (Ask her.

But it’s not a crime, although adultery was and is a

crime in Illinois).

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v. The Floodgates Open: HSMF Runs Wild

i. The Kerner Case, Isaacs, 364 F. Supp. 895 (N.D.

Ill. 1972) aff'd, 493 F.2d 1124 (7th Cir. 1974)

(conviction of 7th Cir. Judge Otto Kerner for

HSMF for taking kickbacks from gamblers while

Governor.)

ii. What else happened in 1973? Watergate!

Corruption was in the air.

c. SCOTUS Reads HS out of M&W F on Statutory

Grounds: McNally, 483 U.S. 350 (1987).

i. Democratic Party pols in KY, give state worker’s

comp insurance contracts to firms in which they

have interest without disclosure. Convicted under

HSMF theory.

NB. Private individuals treated as de facto

public officials.

No hint that state got a worse deal than if it

had been on the square.

Reversed. Right of citizens to HS by public

servants or surrogates not intangible property

right.

iii. Some Canons of statutory interpretation the

McNally Court invokes:

Original intent (Were they thinking of HS in

1872?)

Plain language (Nothing about HS in

§§1341, 1343)

Give effect to every part of statute, in this

case, scheme or artifice ands money or property

e. Steven’s dissent: majority runs two clauses of § 1341

together

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i. Scheme or artifice to defraud OR

ii. To obtain money or property by false pretenses

iii. HSMF involves scheme or artifice to

defraud, not to obtain money or property by

deceit.

iv. Invites Congress to fix this, abrogate McNalley.

They do.

f. Detour: MF under the Property Theory, Carpenter,

484 U.S. 19 (1987).

i. Carpenter, WSJ columnist sold confidential biz

info (intangible property) belonging to

Employer, guilty of MF

ii. Of HSMF? Or just plain old MF? The latter.

iii. Intangible property rights are still property rights

3. Sec. 1346 and Re-Enactment of “Honest Services”

Theory a. In 1988 Congress takes up invitation to fix McNally.

For the purposes of this chapter, the term ‘scheme

or artifice to defraud’ includes a scheme or artifice

to deprive another of the intangible right of honest

services. § 1346

b. The Boy Scout Standard in Private HSMF:

“The aspect of the scheme to ‘defraud’ is measured

by nontechnical standard. It is a reflection of moral

uprightness, of fundamental honesty, fair play and

right dealing in the general business life of

members of society.” Gregory, 253 F.2d 104 (5th Cir.

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1958) (before 1987, quoted favorably and repeatedly

by at least 9 Circuits)

c. A tad vague? A bit overbroad? Due process concerns

about:

i. notice of what’s illegal

ii. and arbitrary enforcement.

d. Is breach of fiduciary duty + mailing a federal crime?

How to tell if I’m risking a suit for damages or up

20/30 years in the slam?

i. Breach of fid’y duty not a crime, it’s a tort.

ii. Is adding the mailing/wiring enough for a felony?

iii. Suppose we add nondisclosure to fid’y

breach?

iv. What about conflict of interest?

e. Public officials and private fiduciaries, maybe

different limiting principles. Cf. Coffee, Modern Mail

Fraud: Restoring the Public-Private Distinction, 35

Am. Crim. L. Rev. 427 (1998) recommends

i. Public: Brumley, 116 F3d 726 (5th Cir. 1997)

(HSMF conviction of public official requires

violation of state law; federalism and limitation).;

Weyhrauch, 548 F.3d 1237 (9th Cir. 2008)

(Majority Rule); Murphy, 323 F.3d 1012 (3d Cir.

2003) (public HSMF requires violation of state or

federal law); Sorich, 531 F.3d 501 (7th Cir. 2008)

(Public HSMF requires breach of fiduciary duty

for personal gain)

ii. Private: Frost, 125 F.3d 346 (6th Cir. 1997)

(breach of fiduciary duty+ reasonably foreseeable

harm to employer); Lemire, 720 F.2d 1327 (D.C.

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Cir. 1983) (material nondisclosure + reasonable

contemplated economic harm); Jain, 93 F.3d 436

(8th Cir. 1996) (more stringent enforcement vs.

private than public fiduciaries.

iii. Enough to see this is a can of worms.

C. SCOTUS STEPS IN:

1. Skilling, 561 U.S. 358 (2010) (Private Fiduciary Case)

(combined with Black, 561 U.S. 465, 471 (2010) (private)

and Weyhrauch, 557 U.S. 934 (2009) (Public).

2. The Holding: HSMF REQUIRES

a. BRIBERY OR KICKBACKS

b. And mailing/wiring in furtherance)

c. Undisclosed conflict of interest is out.

3. Intent is to resurrect core of pre-McNally case law a. What about post-McNally case law?

i. SCOTUS doesn’t say but discusses it.

ii. Will Circuits ignore everything they’ve done

with HSMF since 1987 (McNally) (They

haven’t)?

iii. Will Circuit splits consistent with Skilling

survive? (They have)

b. Circuit Splits on limiting Principles

i. Public or Private HSMF requires violation of

state (or federal?) law. Court doesn’t say, but what if not all bribes or

kickbacks are illegal? Then probably not.

ii. Private sector HSMF violation requires

(specific intent to cause) foreseeable economic

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(?) harm. Regent Office Supply, majority rule, +

bribe or kickback

iii. Private sector HSMF requires material

misrepresentation. If that’s Neder, still good

law, but still need bribe or kickback

iv. Public sector HSMF requires private

economic gain (self-dealing or “illegitimate”

gain). Sorich, 523 F.3d 702 (7th Cir. 2008). Only

if it’s in the form of a bribe or a kickback.

c. DEFINITELY OUT i. Rule that Public or Private sector HSMF requires

only intent to deprive another of right to honest

services. Dead.

ii. or mere nondisclosure of material conflict of

interest. Dead

iii. What’s a bribe?

d. What’s a Bribe? Need it be illegal?

i. See Sun-Diamond, 526 U.S.S. 398 (1999)

(bribery and gratuity case), small gifts to official

not illegal under federal law. But are they

HSMF?

ii. Many states criminalize some private sector

bribes, not others.

iii. Is any offer/acceptance of a thing of value

intended to influence a business or political

decision a bribe?

e. What’s a kickback?

i. SCOTUS quotes 41 USC § 52(2), “[Any]thing of

value provided to improperly obtain or

reward favorable treatment in connection with

a federal contract.”

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ii. Very broad. How much does it cover?

iii. What does “improperly” mean?

iv. Many states criminalize some kickbacks, not

others. If combined with deceit and

mailing/wiring, are legal ones HSMF violations?

4. Resurrecting Conflict of Interest? a. Congress might resurrect the conflict of interest

element in HSMF in a §134__ – a good idea?

b. Court raises due process issues (vagueness, notice,

arbitrary enforcement)

a. How direct or significant need conflict be?

b. How far does official action have to go to be

fraud?

c. To whom and how to disclose?

d. Are these any worse than the problems with

bribery and kickbacks?

c. Many federal anti-conflict of interest crimes are

codified immediately after § 201 (bribery), e.g., §§

203, 205, 207. § 208, abridged:

Whoever, being an officer or employee of the executive

branch . . ., participates personally and substantially,

through decision, . . . , the rendering of advice, . . . , or

otherwise, in a judicial or other proceeding, application, . . .

, contract, . . . controversy, charge, . . . or other particular

matter in which, to his knowledge, he, his spouse, minor

child, general partner, organization in which he is serving

as officer, director, trustee, general partner or employee, or

any person or organization with whom he is negotiating or

has any arrangement concerning prospective employment,

has a financial interest– [shall be punished]

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d. Do these face due process/vagueness problems? As far

as I know no one thinks so. See Conlon, 628 F.2d 150,

154, (DCC1980, rejecting DCDC narrowing

construction) (cited with approval by 4C, 6C, 11C)

e. Could these be used be model a hypothetical § 134__?

C. Summary MF + HSMF

1. Scheme or Artifice to Defraud or to obtain $ or

property by false pretenses + mailing, wiring

2. Jurisdiction, Postal Clause, Commerce Clause

3. Materiality, Yes; Reliance, Damages No, MF is

Inchoate

4. Most Circuits require intent to harm as part of MR

5. HSMF : Requires Bribery, Kickbacks.

6. Undisclosed conflict of interest not a basis for HSMF

any more. Not clear that it couldn’t be.

7. What about post-McNally recent case law and limiting

principles? What about the Circuit conflict in pre-

McNally law, supposed to be revived by § 1346?

Inquiring minds want to k now. Meanwhile, look up

the law in your jurisdiction and argue for the

principles that help your client.

Justin Schwartz

Law Office of Justin Schwartz

1723 W. Devon Ave. #607882

Chicago, IL 60660

Phone: 847-687-5477

Fax: 847-261-0187

email:justinschwartzesq@gmail.com

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Website: http://www.justinschwartzesq.net

URL: google.com/+JustinSchwartzEsq

Read my writing and research at SSRN:

http://hq.ssrn.com/submissions/MyPapers.cfm?partid=8504

49