Ciminelli v. United States: A Fraud Conviction Without Financial Harm

November 2022

Ciminelli v. United States: A Fraud Conviction Without Financial Harm

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The Supreme Court will soon decide whether a person can be convicted of federal wire fraud for depriving others of complete and accurate information relevant to their economic decisions, even without proof of any financial harm.  The case, Ciminelli v. United States, No. 21-1170, is scheduled for oral argument on November 28, 2022.

I.           The Case

In 2012, New York launched the “Buffalo Billion” initiative, which would spend $1 billion developing the greater Buffalo area.  As part of that initiative, it issued a request-for-proposal (RFP) process seeking companies interested in working on Buffalo Billion projects.

Louis Ciminelli owned a construction company that bid on, and was ultimately selected for, a $750 million Buffalo Billion project.  But as it turned out, Ciminelli and an insider had secretly rigged the RFP to designate Ciminelli’s company a “preferred bidder,” giving it a leg up on the competition.  In 2017, Ciminelli was indicted for conspiring to rig the bidding process, and a jury convicted him of federal wire fraud.

On appeal to the Second Circuit, Ciminelli argued that the Government had failed to prove economic harm — typically an essential element of fraud — for two reasons.  First, the preferred bidder status did not guarantee him any contracts, and second, the Government had presented no evidence that another company would have bid and “either charged less or produced a more valuable product absent the fraud.”

The Second Circuit rejected those arguments, reasoning that even though Ciminelli wasn’t guaranteed contracts, he “indisputably” had a leg up on his competition.  The court also held that Ciminelli harmed the victim by depriving it of “valuable economic information that would have resulted from a legitimate and competitive RFP process.”

Now before the Supreme Court, Ciminelli argues that this “right to control” theory, which does not require proof of financial loss, should be rejected because it goes beyond traditional property fraud.  As he puts it, because such a scheme only deprives a victim of economic information without threatening economic loss, it “may violate an intangible interest or a sense of moral uprightness,” but “it does not rise to the level of a property fraud.”

II.       Recent History of Fraud Prosecutions

If this all sounds familiar, you’re not wrong.  For decades, the Supreme Court has taken steps to limit federal fraud statutes and reduce the overcriminalization of non-property fraud.  In 1987, the Supreme Court decided McNally v. United States, holding that the federal mail-fraud statute only applied to schemes depriving people of money or property, not schemes defrauding citizens of the right to good government.  But after McNally, Congress quickly enacted the honest-services fraud statute, 18 U.S.C. § 1346, to cover schemes that deprive others of “the intangible right of honest services.”

For years, prosecutors used that law to punish what Justice Scalia once described as a “staggeringly broad swath of behavior.”  Then, in 2010, in Skilling v. United States, the Supreme Court limited the statute’s reach, holding that it only prohibits “core” honest-services crimes, which are those involving bribes or kickbacks.

Most recently, the Supreme Court vacated fraud convictions in Kelly v. United States, where aides to then-Governor Chris Christie shut down multiple lanes of the George Washington Bridge as political retribution.  The Court reversed the convictions because the defendants’ goal had not been to deprive a victim of any traditional property right.

Ciminelli argues that the “right to control” theory falls in that same category of overbroad fraud prosecutions.  The National Association of Criminal Defense Lawyers agrees.  It filed an amicus brief contending that this theory has no limiting principle: every deception deprives the victim of accurate information, and economic information is always “potentially valuable” and relevant to economic decisions.  So nearly any act of deception could be prosecuted.

The Government disagrees, saying its theory is typically limited to cases where a defendant fraudulently induces the victim to enter into a contract or other transaction, which satisfies the traditional “obtaining money or property” element of fraud.

The Supreme Court will hear oral argument this month on the following question:  Can a person be convicted of federal wire fraud under the “right to control” theory, based on the deprivation of complete and accurate information bearing on another person’s economic decision?

III. Update

On May 11, 2023, the Supreme Court issued its opinion deciding this case in Ciminelli’s favor. In Ciminelli v. United States, the Court held that “[b]ecause the right to valuable economic information needed to make discretionary economic decisions is not a traditional property interest, the Second Circuit’s right-to-control theory cannot form the basis for a conviction under the federal fraud statutes.”

KHALIL & LAKE is a white-collar litigation boutique focusing on federal criminal law, appeals, and complex investigations in a variety of business sectors. If you have any questions about these issues, or if you would like a copy of any materials mentioned here, please let us know.