Authors: Scott Mascianica, Alice LaCour, Isabel Peraza, and Andy Bastnagel

The Supreme Court has repeatedly narrowed federal criminal fraud statutes over the last several years, reining in what defendant’s conduct and prosecution’s theories can support convictions. On May 22, the Court parted with this recent history in Kousisis v. United States, resolving a circuit split in favor of the broader interpretation of a criminal fraud statute. The Court unanimously affirmed convictions under the federal wire fraud statute that were based on a fraudulent inducement theory where the defendants did not cause net pecuniary harm to the victim. This was a major win for DOJ at the Court.

However, a deeper look at the opinion shows that the Court heeded to its constructionist roots in reaching the opinion, that the specific facts and circumstances of the matter influenced the decision, and that certain limiting factors could curtail a run-up in fraudulent inducement prosecutions.

Kousisis:

In Kousisis, the Pennsylvania Department of Transportation (PennDOT) awarded petitioners Stamatios Kousisis and Alpha Painting and Construction Co. (“Alpha”) two contracts for painting projects. Kousisis falsely represented that Alpha would obtain paint supplies from a disadvantaged business enterprise (“DBE”) to satisfy certain federal regulations. Unbeknownst to PennDOT, Kousisis arranged for the purported DBE entity to function as a mere “pass-through” entity. Although not in compliance with DBE regulations, Kousisis and Alpha performed the project to PennDOT’s satisfaction.

The government charged defendants Kousisis and Alpha with wire fraud and conspiracy to commit the same, premised on the “fraudulent inducement” theory that they induced PennDOT to award the contract based on false pretenses. The defendants were convicted for submitting false information to obtain government contracts concerning DBE compliance. The defendants moved for post-judgment acquittal, arguing that since the contracted work was completed with acceptable quality, the so-called victim (PennDOT) did not suffer a net pecuniary loss so the conviction could not stand. The District Court rejected this argument, and the Third Circuit affirmed the convictions. The Supreme Court granted certiorari to resolve a split among several circuits on whether a defendant who intends to deceive another to induce a commercial transaction—but does not intend to—and doesn’t—cause economic harm—can be guilty under the federal wire fraud statute.

The Supreme Court stayed true to its strict constructionist bent, leaning heavily on the plain language of the federal wire statute in reaching its conclusion.  The Court reasoned that the statute’s plain text requires only a scheme to obtain “money or property,” not an intent to cause economic harm or an actual loss. The Court noted that “the wire fraud statute is agnostic about economic loss” and “does not so much as mention loss, let alone require it.” The Court also considered the traditional, common-law understanding of fraud, which requires some showing of injury, but that injury need not be an economic loss if there is a deprivation of property.

The Court reiterated existing materiality requirements will narrow the universe of actionable misrepresentations, noting that materiality is the “principled basis for distinguishing everyday misstatements from actionable fraud.”  The Court held true to the long-standing objective definition of materiality, considering whether a reasonable person would attach importance to it in deciding how to proceed or if the defendant knew or should have known that the recipient would likely deem the information important.

Takeaways:

For the last several years, the Court has repeatedly narrowed the scope of criminal provisions. In United States v. Kelly, 590 U.S. 391 (2020), the Court unanimously overturned fraud convictions of two New Jersey state officials, holding the convictions could not stand under the wire fraud and federal program fraud statutes where the challenged conduct did not seek to obtain money or property. A few years later, in Ciminelli v. United States, 598 U.S. 306 (2023), the Court unanimously held that the “right to control” theory under the wire fraud statute reaches only traditional property interests, not intangible assets like information, The Court continued its narrowing streak earlier this year in Thompson v. United States, 145 S. Ct. 821 (2025), when it held that a statute which prohibits making false statements to certain regulators and entities (including banks and lenders) does not necessarily extend to misleading statements.

The Kousisis opinion certainly represents a break in the chain of narrowing opinions from the Court, and there is no question that the lack of an economic loss requirement creates a cleaner path for white-collar prosecutions. But a deeper look suggests this is less about a wholesale change in the Court’s consideration of white-collar prosecutions and more about the specific statute and facts at issue.

As noted above, the Court followed its typical blueprint of analyzing the plain text of the statute. And the particular facts at issue—a clear scheme to evade the DBE requirements with contractual terms noting the materiality of compliance—certainly created a clearer path for the Court to affirm. But in doing so, the Court was also quick to reaffirm Kelly and Ciminelli in holding that the wire fraud statute extends only to tangible property interests, that money or property must the object of the fraud, and that there must be an injury (namely, the deprivation of money or property).

Additionally, the narrow question before the Court did not involve any assessment about whether the government had met the “demanding” materiality requirement. As the Court noted, “because Alpha and Kousisis have not contested the materiality of their representations, the Court does not resolve the parties’ debate about the proper standard for materiality under §1343.” Notably, although Justice Thomas joined in the Court’s holding, he set forth his skepticism in his concurring opinion that statements at issue (compliance with federal DBE requirements) could be material. Justice Sotomayer disagreed on this point in her separate concurrence, noting that the contract at issue specifically noted a failure to comply with this requirement would constitute a material breach. But the divide illustrates that an objective materiality requirement remains for the fraudulent inducement theory. The Court’s reliance on Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U. S. 176, 194 n.5 (2016), in its opinion and Justice Thomas’s detailed concurrence can provide a roadmap for parties facing fraudulent inducement prosecutions to persuade courts that the misrepresentations at issue did not go to the “essence of the bargain” and thus are not material.

Third, Justice Gorsuch and Justice Sotomayer penned separate concurring opinions emphasizing similar concerns about the potential scope creep that could come from this opinion.  Serving as unlikely allies from stereotypically separate sides of the ideological spectrum, both justices highlighted the question whether there must be some injury to the victim. As Justice Sotomayer noted (citing Justice Gorsuch’s concurrence), “The Court therefore has no reason to opine on a class of fraudulent-inducement cases distinct from this one: those in which a defendant provides exactly the goods or services that they promised to deliver, but lies in other ways to induce the transaction.” Given the words of caution, prosecutors should tread carefully about utilizing a fraudulent inducement theory where the exact goods or services were delivered.

When viewed in light of the recent, rapid evolution of DOJ white collar enforcement priorities, it is not clear that Kousisis will result in an immediate uptick in fraudulent inducement prosecutions involving different fact patterns.

If you need additional information on this topic, or any topic related to securities enforcement or investigations, please contact any member of Hilgers Graben’s Government Investigations and Regulatory Enforcement practice.

About the Authors

Scott F. Mascianica

Scott F. Mascianica, Partner, Head of Government Investigations and Regulatory Enforcement

Scott serves as the Head of Hilgers Graben’s Government Investigations and Regulatory Enforcement practice. Follow him on LinkedIn here.

Alice Shih LaCour

Alice Shih LaCour, Partner

Alice is an experienced litigator with extensive courtroom experience from nearly a decade of litigating cases for the U.S. Department of Justice. Follow her on LinkedIn here.

Isabel Peraza

Isabel Peraza, Associate

Isabel is a litigator, whose practice focuses on complex commercial litigation, with a particular emphasis on intellectual property litigation. Follow her on LinkedIn here.

Andrew Bastnagel

Andrew Bastnagel, Senior Counsel

Andrew is an experienced litigator and has represented corporate clients in complex litigation and class action matters in state and federal courts at both the trial and appellate levels. Follow him on LinkedIn here.