Supreme Court Holds That Economic Loss Is Not Required for Wire Fraud

On May 22, 2025, the Supreme Court of the United States resolved a deep circuit split by holding that “fraudulent inducement” is a valid theory of wire fraud under 18 U.S.C. § 1343.  In other words, lying to induce a victim to enter into a transaction that will cost her money or property can be the basis for a wire fraud conviction – even if the victim does not suffer actual economic loss.  

Fraudulent Inducement as Wire Fraud?

As relevant here, the wire fraud statute provides that:

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire . . . in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both.

[18 U.S.C. § 1343]

Wire fraud is a favorite of federal prosecutors, as the statute sweeps broadly, encompassing a wide array of fraudulent activity that would otherwise be beyond the reach of federal criminal law, thanks to its “interstate or foreign commerce” jurisdictional hook.  And while the wire fraud statute encompasses much of what we would ordinarily associate with “fraud,” the issue in Kousisis was whether “fraudulent inducement” was sufficient to sustain a conviction when the defendant did not seek to cause the victim a net pecuniary loss.  But what is the “fraudulent-inducement” theory of wire fraud? 

As Justice Barrett, writing for the majority, explained, under the fraudulent-inducement theory of wire fraud, “a defendant commits federal fraud whenever he uses a material misstatement to trick a victim into a contract that requires handing over her money or property—regardless of whether the fraudster, who often provides something in return, seeks to cause the victim net pecuniary loss.” (slip op. at 1-2).  Before the Kousisis case, the federal courts of appeal were split on the issue.  On the one hand, the Third, Seventh, Eighth, and Tenth Circuits would sustain convictions for wire fraud, predicated on “fraudulent inducement,” even when the defendant did not seek to cause the victim a net pecuniary loss.  On the other hand, the Second, Sixth, Ninth, Eleventh, and D.C. Circuits rejected the theory in such circumstances.  The Kousisis case neatly teed up the split for resolution. 

The Kousisis Case

Factually, the case concerned two Pennsylvania Department of Transportation (PennDOT) contracts to restore the Girard Point Bridge and 30th Street Station in Philadelphia.  The projects were in part funded by grants from the federal Department of Transportation (DOT).  These federal funds came with federal strings attached.  More specifically, DOT regulations require that grant recipients establish and “actively implement[t]” a disadvantaged business program.  49 CFR §§26.21, 26.39(c); 112 Stat. 113-115.  The regulations define “Disadvantaged Business Enterprise” as a “for-profit small business” that is majority owned and operated by “one or more individuals who are both socially and economically disadvantaged.” §26.5 (italics omitted).  DOT requires that disadvantaged businesses participate in “DOT-assisted contracts” by performing a “commercially useful function” in projects receiving federal support.  §§26.41, 26.45(a)(1), 26.55(c).  To implement these DOT requirements, PennDOT required that bidders for the two Philadelphia projects commit to subcontracting a percentage of the total contract amount to a disadvantaged business.

The winning bidder was Alpha Painting and Construction Co., which was managed by Stamatios Kousisis.  In connection with their bid, Alpha and Kousisis certified that they would obtain materials for the project from a disadvantaged business — Markias, Inc.  But that wasn’t true.  In reality, Kousisis had arranged for Markias to serve as a “pass-through” entity; Markias supplied nothing to the project and only helped to pass checks and invoices between Alpha and its real suppliers, thus giving the appearance that it was engaged on the project as required by law. 

Alpha completed the project without issue and its work was satisfactory to PennDOT.  Nonetheless, the government eventually learned of the scheme and charged Kousisis and Alpha with wire fraud and conspiracy to commit the same.  18 U.S.C. § 1343, 1349.  The government relied on the “fraudulent-inducement” theory, described above.  The two were convicted at trial.  Kousisis and Alpha moved for acquittal, arguing that despite their noninvolvement of a disadvantaged business, PennDOT received the full benefit of the bargain contracted for—namely, satisfactory performance.  This, according to the defendants, meant that the government could not prove that they had schemed to defraud the government of “money or property” as required by the statute.  The district court and Third Circuit rejected that argument, and the Supreme Court granted certiorari.

The Supreme Court sustained the conviction.  Writing for the Court, Justice Barrett explained that the fraudulent-inducement theory is consistent with both the text of the wire fraud statute and the Court’s jurisprudence interpreting it.  In other words, the statute contained no such economic loss requirement.  Rather, the fraudulent-inducement theory plainly fits within the framework of § 1343—as the Court explained:

To be guilty of wire fraud, a defendant must (1) “devis[e]” or “inten[d]” to devise” a scheme (2) to “obtain[n] money or property” (3) “by means of false or fraudulent pretenses, representations, or promises”

***

Under the fraudulent-inducement theory, a defendant (1) “devise[s]” a “scheme” (2) to induce the victim into a contract to “obtain[n]” her “money or property” (3) “by means of false or fraudulent pretenses.”

[Slip Op. at 7]

The Court then mapped the facts of this case into that framework:

By using Markias as a pass-through entity, [Kousisis and Alpha] “devised” a “scheme” to obtain contracts through feigned compliance with PennDOT’s disadvantaged-business requirement . . . [t]o “obtain money” (tens of millions of dollars) from Penn-DOT . . . [b]y making a number of “false or fraudulent . . . representations”—first about their plans to obtain paint supplies from Markias and later about having done exactly that . . . .  Section 1343 requires nothing more.

[Slip Op. at 7]

The Big Picture

The Kousisis case is an outlier in recent Supreme Court decisions; it breaks the trend of high-profile, white-collar losses for the government at the high Court.  For example, last June, the Court decided Snyder v. United States, which limited the reach of federal bribery law.  603 U.S. 1 (2024).  And in 2023, the Court rejected the government’s “right-to-control” theory of wire fraud in Ciminelli v. U.S.  598 U.S. 306 (2023).

The Kousisis case makes clear that “fraudulent inducement” is a usable theory of proving fraud.  This will be a welcome development at the DOJ, as the new administration recently identified “[w]aste, fraud, and abuse, including health care fraud and federal program and procurement fraud that harm the public fisc” as a “high-impact” area that “the Criminal Division will prioritize investigating and prosecuting.” 

For any questions regarding these developments, please contact Co-Chair of our White Collar Defense and Investigations Group Ryan L. O’Neill at 201.857.6769, Co-Chair Gerard M. Karam at 570.507.5840 or the Stevens & Lee attorney with whom you regularly work.

Print
Close