Wire Fraud Basics Explained by a Federal Wire Fraud Defense Attorney Ronald W. Chapman II
What is Wire Fraud?
Wire fraud is a federal criminal offense in the United States, charged under 18 U.S.C. § 1343. It involves the use of interstate wire communications (phone calls, emails, internet transactions, etc.) to defraud someone of property or money. It’s a type of fraud that has been expanded to include any fraudulent scheme that uses an electronic means of communication.
What Are the Elements of Wire Fraud?
The elements of the federal crime of wire fraud as defined in 18 U.S.C. § 1343 are typically:
Scheme to Defraud: The defendant was involved in a scheme to defraud someone else of money or property. This means there must be some plan, system, or course of action intended to deceive others and to obtain something of value by false pretenses, representations, or promises. This could involve a variety of fraudulent activities, from Ponzi schemes to fraudulent invoicing.
Intent to Defraud: The defendant had the intent to defraud. That means the defendant knowingly and willingly participated in the scheme with the specific goal of defrauding others. It doesn't necessarily mean the defendant personally benefited from the fraud, just that they knowingly participated in the fraudulent scheme.
Use of Interstate Wire Communications: The defendant used interstate wire communications (or caused them to be used) to carry out or attempt to carry out the scheme. "Interstate wire communications" is broadly defined and includes phone calls, faxes, emails, internet transactions, and any other form of communication that crosses state lines.
Material Deception: The scheme involved material deception. This means the deception wasn't incidental or trivial; it was a significant part of the scheme and likely to influence the behavior of the victim.
Prominent Wire Fraud Examples
Here are some examples of prominent wire fraud cases prosecuted in the United States that you may have heard about in the media.
Bernard "Bernie" Madoff: Bernie Madoff was a former stockbroker and investment advisor who was convicted of running the largest Ponzi scheme in history, estimated to be worth $64.8 billion. Madoff defrauded thousands of investors out of their money, creating false investment statements that showed clients were making significant profits. However, he was just using new investor money to pay older investors, characteristic of a Ponzi scheme. Madoff's fraud involved wire communications, including phone calls and emails, to facilitate his fraudulent scheme. In 2009, Madoff pleaded guilty to 11 federal felonies, including wire fraud. He was sentenced to 150 years in prison and ordered to forfeit $170.8 billion.
Richard Dausey and Adelphia Communications: Adelphia Communications was one of the largest cable companies in the U.S. before being charged with securities fraud, bank fraud, and wire fraud in 2002. Richard Dausey, the former director of internal reporting, was one of the executives charged. Dausey and others allegedly hid liabilities from investors, fraudulently inflated earnings, and used company funds for personal expenses. The scheme was perpetrated in part through the use of interstate wire communications. In 2005, Dausey pleaded guilty to conspiracy and securities fraud, and in 2007, he was sentenced to two years in prison and ordered to pay a fine of $2.4 million.
Elizabeth Holmes and Theranos: Elizabeth Holmes was the founder and CEO of Theranos, a health technology corporation that claimed to have revolutionized blood testing. Holmes and former Theranos COO, Ramesh "Sunny" Balwani, were charged with multiple counts of fraud for making false statements about the company's technology, business, and financial performance. This included wire fraud, as they used electronic communications to spread these false statements and attract investors. Holmes was sentenced to 11 years and three months in federal prison for wire fraud charges.
What is the wire Fraud Penalty?
As for the penalties of wire fraud, under federal law (18 U.S.C. § 1343), a person convicted of this crime can be fined and/or imprisoned for up to 20 years. However, if the wire fraud scheme affects a financial institution or is connected to a presidentially declared disaster or emergency, the potential penalties increase significantly, up to a $1 million fine and/or up to 30 years in prison.
It's important to note that each separate act of wire fraud can be considered a separate offense. That means if someone sends two fraudulent emails as part of a scheme, they could be charged with two counts of wire fraud, potentially doubling the penalties.
What is the difference between mail fraud and wire fraud?
Mail fraud and wire fraud are similar in that they both involve the use of communication systems to perpetrate a fraudulent scheme. The main difference between the two lies in the method of communication used.
Mail Fraud (18 U.S.C. § 1341): This type of fraud involves the use of the U.S. Postal Service or any private or commercial interstate mail carrier to send or receive any material for the purpose of executing a scheme to defraud. This can include letters, packages, postcards, etc. The fraud does not need to be successful to qualify as mail fraud; the mere act of using the mail system as part of a plan to defraud is enough.
Wire Fraud (18 U.S.C. § 1343): Wire fraud involves the use of any form of electronic communication in the commission of a fraudulent scheme. This can include telephones, radio, television, email, internet, or any other form of digital communication. Just like mail fraud, the scheme does not need to be successful to qualify as wire fraud.
Both mail and wire fraud are considered federal crimes and can lead to severe penalties, including substantial fines and imprisonment. In both cases, the government must prove that the defendant intentionally participated in a scheme to defraud and used interstate mail or wire communications as part of that scheme. However, it's important to note that a person can be charged with both mail and wire fraud for the same fraudulent scheme if both methods of communication were used.
Who investigates wire fraud?
Several federal agencies in the United States investigate wire fraud, including:
Federal Bureau of Investigation (FBI): The FBI is one of the main investigative agencies for major fraud, including wire fraud. They have the authority to investigate potential violations of federal law, and they use various investigative techniques like surveillance, undercover operations, informants, and wiretaps. They also have forensic capabilities to analyze emails, financial transactions, and other electronic evidence.
U.S. Postal Inspection Service (USPIS): While their primary focus is mail fraud, USPIS also investigates wire fraud cases that involve the use of the U.S. mail system at any point in the fraudulent scheme.
Securities and Exchange Commission (SEC): The SEC handles wire fraud cases involving securities and commodities. They may use document reviews, interviews, and financial analysis to investigate potential fraud.
Internal Revenue Service – Criminal Investigation (IRS-CI): The IRS investigates wire fraud that involves tax evasion or other tax-related crimes.
Department of Justice (DOJ): The DOJ, particularly its Fraud Section, often works with other federal agencies to prosecute wire fraud cases.
The methods used to investigate wire fraud can vary depending on the nature of the case, but some common steps might include:
Gathering Evidence: This could involve collecting and analyzing emails, bank records, phone records, or other documents related to the alleged fraud. Digital forensics could be used to recover and analyze electronic evidence.
Surveillance: In some cases, law enforcement might use surveillance to gather evidence. This could involve monitoring a suspect's activities or communications.
Cooperation with Financial Institutions: Investigators may work with banks or other financial institutions to trace fraudulent transactions and uncover the flow of money.
Undercover Operations: Sometimes, investigators might pose as potential victims to gather evidence of a fraudulent scheme.
Interviews and Interrogations: Investigators may speak with suspects, victims, and potential witnesses to gather information.
Coordinated Efforts: Often, investigating agencies will coordinate their efforts when investigating complex or large-scale fraud. For instance, the FBI might work with the SEC on a case involving securities fraud.
Once the investigation is complete, if there is sufficient evidence of a crime, the case will be referred to a U.S. Attorney's Office or the DOJ for prosecution.
What is “honest services” wire fraud?
"Honest services" wire fraud is a specific type of wire fraud as codified in 18 U.S.C § 1346. This statute states that a scheme or artifice to defraud includes a scheme or artifice to deprive another of the intangible right of honest services. Essentially, it criminalizes fraudulent schemes that deprive another of honest services, often used in cases involving bribery, kickbacks, or undisclosed conflicts of interest, particularly in the public sector or business relationships.
The Supreme Court case Skilling v. United States (2010) significantly limited the scope of the honest services fraud statute. Jeffrey Skilling, former CEO of Enron Corporation, was charged with conspiracy to commit honest services wire fraud, among other charges, relating to his role in the collapse of Enron. The government claimed that Skilling deprived Enron and its shareholders of his honest services by failing to act in the company's best interests and by misrepresenting the company's fiscal health to investors.
In its decision, the Supreme Court held that the honest services fraud statute is limited to cases involving bribery and kickbacks. The Court ruled that because Skilling did not receive bribes or kickbacks, his conduct did not fit within the statute's confines. It thus rejected the "failure to disclose a conflict of interest" as a basis for honest services fraud, absent proof of bribery or kickbacks.
In the wire fraud context, the Skilling decision has had a significant impact. The ruling clarified the interpretation of honest services fraud, limiting its application to cases involving bribes or kickbacks. The decision thus narrows the types of conduct that can be prosecuted as honest services wire fraud. This means that prosecutors cannot charge someone with honest services wire fraud merely because they failed to act in the best interest of another party or failed to disclose a conflict of interest, unless that conduct involves a bribe or kickback.
However, it's important to note that while the Skilling decision limited the scope of honest services fraud, other types of misconduct, including various forms of deception or misrepresentation, may still be prosecuted under other fraud or white-collar crime laws. As always, the specifics of any given case can significantly impact how these general principles are applied.
Other Supreme Court Cases Impacting Federal Wire Fraud Statutes
The federal fraud statutes criminalize only schemes to deprive people of traditional property interests. Cleveland v. United States, 531 U.S. 12, 24 (2000). While federal prosecutors have attempted to charge wire fraud schemes where the “victim” was not deprived of property - the Supreme Court has consistently understood the “money or property” requirement of fraud statutes to limit the “scheme or artifice to defraud” element because the “common understanding” of the words “to defraud” refers “to wronging one in his property rights.” Id. at 19.
In Cleveland, the defendant engaged in a deceptive scheme to use nominee owners on a gaming license application (and multiple reapplications). The government argued that the scheme aimed to deprive the State of property by altering its licensing decisions. The Supreme Court reject that claim because the State’s “intangible rights of allocation, exclusion, and control” do not create a property interest. Rather, the Court stated, those rights “amount to no more and no less than” the State’s “sovereign power to regulate. Id. at 20. The defendant’s fraud ‘implicate[d] the Government’s role as sovereign” wielding “traditional police powers” – not its role “as property holder.” Id. at 23-24.
This understanding reflects not only the original meaning of the text, but also that the fraud statues do not vest a general power in “the Federal Government . . . to enforce (its view of) integrity in broad swaths of state and local policy making.” Kelly v. United States, 590 U.S. . . .140 S. Ct. 1565, 206 L. Ed. 2d 882 (2020)(slip op., at 12). Accordingly, the Government must prove not only that defendants “engaged in deception,” but also that money or property was “an object of their fraud.” Id. at 1573. A property fraud conviction cannot stand when the loss to the victim is an incidental byproduct (even if foreseen) of the scheme. Id.
Kelly involved defendants accused of abusing their power to reduce traffic lane access in New Jersey as punishment to a city mayor. The government alleged the defendants sought to commandeer part of the bridge itself and deprive the Port Authority of the costs of compensating the traffic engineers and back-up toll collectors who performed work relating to the lane realignment. Id. at 1572. The Court disagreed with the government’s argument that the obstruction of traffic lanes equated to the deprivation of property. Id. In doing so, the Court reiterated the finding in Cleveland that the realignment was an exercise of regulatory authority – not a property right. Id. While the Court recognized a government’s rights to its employees’ time and labor can undergird a property fraud prosecution, that property must play more than some bit part in a scheme – it must be the object of the fraud. Id. at 1573. To clarify, the Court stated a property fraud conviction cannot stand when the loss to the victim is only an incidental byproduct of the scheme (even if foreseen). Id. at 1573-1574.
Expanding fraud statutes to reach intangible interests unconnected to property would make “a federal crime of an almost limitless variety of deceptive actions traditionally left to state contract and tort law”. Ciminelli v. United States, 2023 U.S. LEXIS 1888, 14 (2023). Property fraud statutes are not intended to be brought under a theory seeking to regulate ethics – or a lack thereof. Id.
The Ciminelli case has not fully been digested by the lower courts but this case certainly will limit federal prosecutors utilizing the wire fraud statute to protect a non-property right.
Federal Wire Fraud Defense Attorney Ronald W. Chapman II
Ron Chapman is a renowned federal criminal defense attorney who has been instrumental in the successful defense of numerous high-profile fraud cases. He possesses an in-depth understanding of the complexities and nuances of federal laws and the criminal justice system, particularly in cases involving wire fraud.
Throughout his distinguished career, Ron has proven to be a zealous advocate for his clients. His focus is always on protecting their rights, preserving their reputation, and obtaining the best possible outcome in their case. His record of victories speaks to his skill in navigating the challenging terrain of federal fraud investigations and trials.
Ron is recognized for his meticulous approach to case preparation, his ability to create compelling defense strategies, and his exceptional advocacy skills in the courtroom. He understands the importance of thoroughness and diligence in dealing with charges as serious as wire fraud, where the stakes are high and the penalties can be severe.
With his deep knowledge of wire fraud law, including its many complexities and the potential defenses that can be raised, Ron Chapman is an invaluable asset for anyone facing an investigation or prosecution in this area.
If you or someone you know is facing an investigation or prosecution for wire fraud, it is crucial to seek legal advice at the earliest opportunity. The sooner you have a skilled defense attorney like Ron on your side, the better your chances of successfully navigating the legal process. Don’t leave your future to chance – contact Ron Chapman today to discuss your case and explore your options.
Contact Wire Fraud Attorney Ronald W. Chapman II
Remember, in the face of a wire fraud charge, you need more than just a lawyer; you need a dedicated, experienced advocate who understands the system and will fight tirelessly on your behalf. That's what you'll find when you choose Ron Chapman as your federal criminal defense attorney.
