Anticorruption Archives - Columbia Law Review

Introduction In federal criminal law, the meaning of “fraud” is at a crossroads. In Ciminelli v. United States , the Supreme Court considered a complex scheme to secure a billion-dollar contract with the State of New York.[footnote]143 S. Ct. 1121, 1125 (2023).[/footnote] The defendants, a mix of private actors and state officials, rigged the bidding process in their favor.[footnote]Id. at 1125.[/footnote] Crucially, this case did not hinge on the wrongdoing itself, but instead focused on whether the government’s theory of fraud was compatible with the Court’s conception of “property” as defined in its fraud jurisprudence.[footnote]Id.[/footnote] The government’s theory, rooted in the Second Circuit’s “right to control” conception of property fraud, was that the defendants deprived New York of the right to valuable economic information needed to make discretionary economic decisions.[footnote]Id.[/footnote] In a unanimous opinion, the Court rejected this theory of property and reversed the defendants’ convictions. This result is neither surprising nor unprecedented; Ciminelli is but the latest in a line of cases to reverse fraud convictions despite obvious “wrongdoing[,] deception, corruption, [and] abuse of power”[footnote]Kelly v. United States, 140 S. Ct. 1565, 1568 (2020).[/footnote] by the defendants. Although predictable, this reversal continues a trend of troubling cases that have generated scholarly debate for decades.[footnote]See infra notes 22–23.[/footnote] On one hand, the federal mail and wire fraud statutes remain one of the most versatile and valued tools in the white-collar prosecutor’s arsenal.[footnote]See, e.g., Craig M. Bradley, Federalism and the Federal Criminal Law, 55 Hastings L.J. 573, 574 (2004) (calling mail fraud one of “‘[t]he Four Horsemen of the Apocalypse’ of federal criminal law”); Jed S. Rakoff, The Federal Mail Fraud Statute (pt. 1), 18 Duq. L. Rev. 771, 771 (1980) (“[T]he mail fraud statute is our Stradivarius, our Colt 45, our Louisville Slugger, our Cuisinart—and our true love.”).[/footnote] During much of the twentieth century,[footnote]Congress enacted the original mail fraud statute in 1872. See Act of June 8, 1872, ch. 335 § 302, 17 Stat. 323 (codified as amended at 18 U.S.C. § 1341 (2018)).[/footnote] the Supreme Court rarely reviewed mail fraud convictions,[footnote]See infra section I.A.[/footnote] and it even more rarely reversed appellate decisions for substantive error.[footnote]See infra section I.A. For examples of instances in which the Supreme Court did reverse on a substantive fraud issue, see Neder v. United States, 527 U.S. 1, 23–24 (1999) (addressing whether the term “defraud” imposes a materiality requirement, that is, that a misstatement or omission must be material for the deception to be criminal under the current mail fraud statute, 18 U.S.C. § 1341); Fasulo v. United States, 272 U.S. 620, 626–29 (1926) (reversing a fraud conviction when there were in fact no “false or fraudulent” misrepresentations but instead outright threats of violence and noting that threats and “intimidation” are not “anything in the nature of deceit or fraud . . . as generally understood”).[/footnote] During this era, the federal government found increasingly novel applications for the mail fraud statute.[footnote]See infra section I.A.[/footnote] Even in recent years, prosecutors have secured fraud convictions in such varied cases as the “Dieselgate” emissions scandals,[footnote]See United States v. Palma, 58 F.4th 246, 252 (6th Cir. 2023); see also infra section II.B.2.[/footnote] the use of state money for private campaign activities,[footnote]See, e.g., United States v. Shelton, 997 F.3d 749, 774–75 (7th Cir. 2021).[/footnote] the “Varsity Blues” college admissions scandal,[footnote]See, e.g., United States v. McGlashan, 78 F.4th 1, 7–8 (1st Cir. 2023); United States v. Khoury, No. 20-cr-10177-DJC, 2021 WL 2784835, at *1–2 (D. Mass. July 2, 2021); United States v. Ernst, 502 F. Supp. 3d 637, 643–44 (D. Mass. 2020); United States v. Sidoo, 468 F. Supp. 3d 428, 434–36 (D. Mass. 2020).[/footnote] the bribery of college athletes,[footnote]See, e.g., United States v. Gatto, 986 F.3d 104, 116 (2d Cir. 2021); see also infra section II.B.1.[/footnote] and countless other applications.[footnote]See, e.g., United States v. Berroa, 856 F.3d 141, 151–53 (1st Cir. 2017) (exam cheating scheme); United States v. Chastain, No. 22-CR-305 ( JMF), 2023 WL 2966643, at *1 (S.D.N.Y. Apr. 17, 2023) (scheme to front-run nonfungible tokens). For additional discussion of the front-running scheme in Chastain , see Kevin J. Harnisch, Andrew James Lom, Mayling C. Blanco, Rachael Browndorf & Matthew Niss, First NFT “Insider Trading” Trial Ends in Criminal Conviction Based on Novel Theory, Norton Rose Fulbright (May 2023), https://www.nortonrosefulbright.com/en-us/knowledge/publications/ce029848/first-nft-insider-trading-trial-ends-in-criminal-conviction-based-on-novel-theory/ [https://perma.cc/XK49-CTT3].[/footnote] On the other hand, fraud prosecutions have faced intense scrutiny from the Supreme Court in recent decades, particularly in cases that implicate states.[footnote]See infra sections I.A.2–.B.[/footnote] Since the 1980s, the Supreme Court reversed lower courts in four of the six cases in which the meaning of “property” was at issue.[footnote]See infra sections I.A.2–.B.[/footnote] Each reversal exhibited three important characteristics: (1) the purported victim (or defendant) was a state actor;[footnote]See infra sections I.A.2–.B.[/footnote] (2) the scheme did not have a “property interest” as its aim;[footnote]See infra sections I.A.2–.B.[/footnote] and (3) the opinion was motivated in part by the Court’s announced desire to preserve state–federal divisions by limiting creative theories of fraud prosecution.[footnote]See infra sections I.A.2–.B; see also McNally v. United States, 483 U.S. 350, 360 (1987) (“[T]he Federal Government [should not] set[] standards of disclosure and good government for local and state officials . . . .”).[/footnote] The ideological considerations underlying the Supreme Court’s modern case law have sparked intense debate. Detractors have criticized these decisions as hindering the federal government’s ability to punish otherwise hard-to-reach instances of state corruption,[footnote]See Ciara Torres-Spelliscy, Elegy for Anti-Corruption Law: How the Bridgegate Case Could Crush Corruption Prosecutions and Boost Liars, 69 Am. U. L. Rev. 1689, 1711 (2020) (“[The Supreme Court’s recent cases will] broaden the parameter of acceptable lying by elected and appointed government officials.”); see also George D. Brown, Should Federalism Shield Corruption?—Mail Fraud, State Law and Post- Lopez Analysis, 82 Cornell L. Rev. 225, 299–300 (1997) (arguing, prior to Cleveland , for an incorporation of state law into federal prosecutions as a way of overcoming federalism concerns rather than limiting federal prosecutions outright); cf. Daniel C. Richman, Navigating Between “Politics as Usual” and Sacks of Cash, 133 Yale L.J. Forum 564, 566 (2023), https://www.yalelawjournal.org/pdf/RichmanYLJForumEssay_nwinm3th.pdf [https://perma.cc/K3UQ-F7PN] [hereinafter Richman, Politics as Usual] (arguing that there is a “federal interest in pursuing corrupt arrangements far more nuanced than the exchange of sacks of cash for official favor[s]” and that the Court must “confront the tension between its fears of . . . partisan targeting . . . and its ostensible commitment to statutory text”).[/footnote] while supporters have defended the Court’s decisions as a necessary prophylactic that protects against federal overreach into state affairs.[footnote]See, e.g., United States v. Porat, 76 F.4th 213, 224–25 (3d Cir. 2023) (Krause, J., concurring) (“[This] era should have come to a grinding halt thirty-six years ago . . . . Yet federal prosecutors have continued to proffer novel theories of liability that run afoul of [Supreme Court] dictates, each time requiring the Supreme Court to step in and overturn the conviction.”); George D. Brown, Defending Bridgegate, 77 Wash. & Lee L. Rev. Online 141, 176–77 (2020), https://scholarlycommons.law.wlu.edu/cgi/viewcontent.cgi?article= 1134&context=wlulr-online [https://perma.cc/AGY9-HEYP] (“The extent to which federalism is a significant constitutional principle or a canon of construction is an important question. Kelly leads to this kind of questioning and rethinking. For this reason, it should be celebrated . . . .”); see also John C. Coffee, Jr., Hush!: The Criminal Status of Confidential Information After McNally and Carpenter and the Enduring Problem of Overcriminalization, 26 Am. Crim. L. Rev. 121, 130–31 (1988) (arguing that intangible property rights like information should not be within the scope of property fraud); Ellen S. Podgor, Mail Fraud: Opening Letters, 43 S.C. L. Rev. 223, 225 (1992) (characterizing mail fraud prior to Cleveland as “moving further from its roots” and “permit[ting] its haphazard application to a wide spectrum of criminal conduct”); cf. Miriam H. Baer, Square-Peg Frauds, 118 Nw. U. L. Rev. 1, 7–10 (2023) (arguing that use of the fraud statutes to punish misconduct like that seen in the Varsity Blues scandal is actually harmful in that it discourages legislators from making more systematic reforms).[/footnote] Rather than joining the already-crowded debate as to the correctness of the Court’s ideological views, this Note critically examines the effectiveness of the modern fraud doctrine relative to the Court’s stated federalist agenda. This Note argues that at the heart of the Court’s modern fraud doctrine lies a vague, superficially simple “property-or-not” test that leads to paradoxical outcomes.[footnote]See infra Part II.[/footnote] Originally rooted in cases that interpreted federal fraud to require property as a necessary element of the crime, the modern test defines property differently based on both the identity of the victim[footnote]See infra Part II.[/footnote] and the extent to which the right or interest at issue was considered property under early common law.[footnote]See infra sections I.B.2–.3.[/footnote] In practice, the modern mutation of the property-or-not test creates outcomes in which the same fundamental right or interest might be a “property interest” in the hands of a private party while simultaneously constituting a nonproperty “regulatory interest” in the hands of a state. This Note argues that the doctrine’s reliance on the meaning of property is not only practically and analytically unworkable, but also fundamentally fails to further the Court’s ideal division between the federal and state balance of criminal power. This Note proceeds in three parts: Part I first traces the expansion and contraction of mail and wire fraud jurisprudence and explains that the modern doctrinal shift toward property as a limiting principle was driven by the Supreme Court’s renewed interest in federalist principles. It then examines the incremental evolution of the Court’s property-or-not test from 1987 to the present day. Part II explains how this doctrine fails to achieve the Court’s stated policy goals. Section II.A first demonstrates that the property-or-not test fails to provide lower courts a workable test in day-to-day applications. II.B then provides specific examples to illustrate how the modern property fraud doctrine fails to meaningfully prevent prosecutors from intervening in state misconduct, concluding that property fraud jurisprudence amounts to little more than a handful of technical pleading requirements. Finally, Part III considers different methods to unravel the “property paradox” created by the current doctrine. This Part ultimately concludes that to develop a fraud doctrine that truly limits prosecutors’ ability to convict certain types of state-level wrongdoing, the Court must abandon its property-centric approach to fraud entirely. By systematically deconstructing the modern fraud doctrine and reimagining it from the ground up, this Note raises novel observations about the Court’s ideological and doctrinal approaches to federal criminal jurisprudence. These observations are not only immediately useful to the federal criminal practitioner but also carry implications about the Court’s jurisprudence that reach well beyond the fraud statutes themselves.

Anticorruption

FRAUD AND FEDERALISM: HOW THE MODERN COURT HAS USED THE MEANING OF “PROPERTY” TO RESHAPE FEDERAL FRAUD JURISPRUDENCE

STATE OFFICIAL MISCONDUCT STATUTES AND ANTICORRUPTION FEDERALISM AFTER KELLY V. UNITED STATES