A grand jury indicted an individual and a corporation he managed (collectively, the “contractors”) for wire fraud and conspiracy to commit wire fraud, under18 U.S.C. §§1343 and 1349. The contractors claimed to have used a third-party prequalified disadvantaged business as a subcontractor for paint supplies, in accordance with state agency requirements to award them the contract. Instead, the contractors used the third party as a pass-through, not for a “commercially useful function,” but rather to funnel money to their preferred paint suppliers. The government brought suit under a fraudulent inducement theory, alleging that the contractors created a fraudulent “pass-through” that served no purpose other than to nominally satisfy the disadvantaged business requirement. Otherwise, the contractors executed the contract to the benefit of the victims. The victims suffered no net pecuniary loss on account of the fraud. The Supreme Court granted certiorari to resolve the circuit split over whether § 1343 and § 1349 required a net pecuniary or economic loss in order to for entities to be convicted under the statutes.
In Kousisis v. United States, 605 U.S. 114 (2025), the Supreme Court affirmed the Third Circuit’s opinion, establishing that economic harm need not be established for a conviction under either § 1343 or § 1349. Section 1349 outlines conspiracy to commit wire fraud, which, by definition, does not require a set action or inflicted injury. 18 U.S.C. §1343, however, outlines the committal of wire fraud, which, under the fraudulent-inducement theory, also now does not require economic damages for a conviction. The Supreme Court considered the text of and precedent related to § 1343 and whether it applied to property damages and other material aspects of fraud or merely the pecuniary damages inflicted. The Court was unpersuaded by the contractors’ argument that the fraudulent-inducement theory requires a pecuniary injury to uphold a conviction. The Court stated that the theory is “agnostic” about the damages, since it only requires a fraudulent action in the inducement of the contract itself. Therefore, the basis for conviction is only a material misrepresentation, which the Court found in this case by the usage of the business as a funnel, rather than the promised role of a supplier. The Court clarified that this holding did not “collapse Congress’s distinction” between the wire fraud crimes and defrauding the United States (18 U.S.C. § 371) or false statements on federal matters (18 U.S.C. § 1001) due to the requirement of obtaining money or property. In conclusion, the Court held that the Third Circuit’s ruling comported with § 1343 and affirmed.
By Andrew Fielden [email protected]
Edited By Taylor O’Brien [email protected]
Edited By Hayden Mariott [email protected]