Facts of the Case
The U.S. Department of Transportation provides funds to state agencies for transportation projects, requiring recipients to set participation goals for disadvantaged business enterprises (DBEs). Kousisis, Frangos, and their companies, Alpha and Liberty Maintenance, were awarded contracts for two Philadelphia projects with DBE requirements. They committed to working with Markias, Inc., a certified DBE, claiming they would obtain millions in paint supplies from the company.
However, the defendants submitted false documentation about Markias’s role in the projects. Instead of Markias supplying products or performing a commercially useful function as required, it served merely as a pass-through. The defendants arranged for actual suppliers to send invoices to Markias, which then issued its own invoices with a 2.25% fee added. This scheme allowed the defendants to appear compliant with DBE requirements, a condition for receiving payments and avoiding penalties. The jury convicted Kousisis and Alpha of false statements, conspiracy to commit wire fraud, and wire fraud.
The district court calculated the loss based on the defendants’ “ill-gotten profits,” determining that this was an appropriate measure of loss when the actual loss to the government was not measurable at the time of sentencing. This calculation led to a 20-point sentencing enhancement corresponding to a loss between $9.5 million and $25 million.
Kousisis and Alpha appealed their convictions and the calculation of the loss for sentencing purposes. The U.S. Court of Appeals for the Third Circuit affirmed the convictions but vacated the loss calculation.
Questions
Can deception to induce a commercial exchange constitute mail or wire fraud, even if inflicting economic harm on the alleged victim was not the object of the scheme?
Conclusions
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A defendant commits wire fraud under 18 U.S.C. § 1343 when they induce a victim to enter into a transaction using materially false pretenses, even if the defendant does not intend to cause the victim an economic loss. Justice Amy Coney Barrett authored the majority opinion of the Court.
To convict under the wire fraud statute, the government must show that the defendant engaged in deception and aimed to obtain the victim’s money or property. That requirement does not demand proof of economic harm. The statute’s language criminalizes schemes to “obtain” money or property by means of material lies. “Obtain” means to gain possession of something and does not require that the victim end up worse off financially. Likewise, under the common law, fraud through false pretenses or contract rescission did not always require a showing of monetary loss; it was enough that the victim was induced to hand over property based on a material deception. Courts traditionally viewed fraud as complete when the thing received was materially different from what was promised.
Petitioners’ scheme—misrepresenting that they would use a qualified disadvantaged business to supply materials, while knowingly using a pass-through instead—induced the government to award contracts they would not otherwise have approved. That deception was material. That materiality limits the wire fraud statute’s scope; not every misrepresentation, only one that would influence a reasonable person’s decision or is otherwise known to be important, satisfies this requirement. The Court also distinguished this “fraudulent inducement” theory from broader or more speculative theories of harm, reaffirming that the statute punishes deprivation of money or property, not general regulatory interests or abstract rights.
Justice Clarence Thomas authored a concurring opinion emphasizing skepticism about whether compliance with the DBE requirement was truly material under the contracts.
Justice Neil Gorsuch concurred in part and concurred in the judgment, criticizing the majority’s suggestion that any deceptive exchange of property could support a fraud conviction, arguing instead for a traditional “benefit-of-the-bargain” injury requirement.
Justice Sonia Sotomayor concurred in the judgment, agreeing with the rejection of an economic-loss rule but disagreeing with the majority’s broader endorsement of the fraudulent-inducement theory in cases where the defendant delivers exactly what was promised.