In Kousisis v. United States, 605 U.S. ___ (2025), the Supreme Court resolved a Circuit split addressing the scope of the federal wire fraud statute, 18 U.S.C. § 1343. Without dissent, the Court held that the government did not have to prove that the defendant in a federal fraud prosecution intended or caused “economic loss” to the victim. Endorsing what is also known as the “fraudulent inducement theory” of wire fraud, the Court made clear that the federal wire fraud statute properly applies to a defendant who induces a victim to enter into a transaction under materially false pretenses regardless of whether the defendant intended or caused economic harm to the victim. Kousisis is a significant win for federal prosecutors — particularly in the Second Circuit, where the wire fraud statute is at the core of most white collar and cyber-crime prosecutions — after a string of cases in recent years in which the Court has pared back expansive readings of the same and related statutes.
Background
In their bids for Pennsylvania Department of Transportation (PennDOT) painting contracts, petitioners Stamatios Kousisis and Alpha Painting and Construction Co. represented that they would comply with PennDOT’s requirement that they obtain at least some services from sub-contractors that qualified as “disadvantaged business enterprises” (DBEs). PennDOT made it clear that failure to comply with the DBE requirement would constitute “a material breach” of the contract. In their bids for the contract, petitioners promised to award approximately $6.4 million to a qualifying DBE, Markias, Inc., for painting supplies. When petitioners were subsequently awarded the contract, however, they used Markias merely as a pass-through entity. Throughout the project, petitioners falsely reported to PennDOT payments made to Markias; other painting subcontractors sent Markias invoices, which added a small mark-up before submitting invoices to Alpha. Id. at 1-4. Markias ultimately received just $170,000.
Petitioners were indicted for wire fraud and conspiracy to commit wire fraud. Petitioners argued that because they satisfactorily performed their work under the contract and PennDOT did not suffer any economic loss (PennDOT received the “benefit of the bargain”), petitioners’ deception regarding the DBE requirement did not satisfy the wire fraud statute’s requirement that the victim be deprived of “money or property.” The district court and U.S. Court of Appeals for the Third Circuit both rejected this argument, holding that the act of making false representations to obtain the government’s money was in fact the fraud. The Supreme Court affirmed these rulings. Id. at 2, 4.
The Opinion of the Court
Writing for the Court, Justice Barrett affirmed the viability of the fraudulent inducement theory of federal wire fraud on the grounds that neither the text of the federal wire fraud statute nor the Court’s precedent interpreting it required that the victim suffer economic loss. Justice Barrett explained that “fraudulent inducement” is “a particular species of fraud: intentionally lying to induce a victim into a transaction that will cost her money or property.” Such a deception is fraud regardless of whether the defendant intended to cause financial harm or whether the victim actually suffered economic loss. In Kousisis, it was enough for the government to have proved that PennDOT was tricked into awarding the contract based on petitioners’ false statements that they would abide by the DBE requirement and their subsequent submission of falsified invoices. This deception was material to the award of the contract because, the Court determined, petitioners received millions of dollars that they would not have otherwise received but for their fraudulent misrepresentations regarding their compliance with the DBE requirement. Though PennDOT did not lose any money on the contract, PennDOT would not — and likely could not, under the terms of a federal grant funding the contract — have contracted with petitioners absent their promise to abide by the DBE requirement. The petitioners did not contest the materiality of their misrepresentations, so the Court did not address the proper standard for materiality under § 1343. The Court nevertheless took pains to reiterate that materiality of the deception remained “the principled basis for distinguishing everyday misstatements from actionable fraud.” Id. at 6-8, 15-16.
Separate Opinions
Justice Thomas joined the opinion of the Court in full but also wrote a separate concurrence questioning the materiality of petitioners’ false representations. Petitioners had not challenged materiality. Justice Gorsuch did not join the opinion of the Court in full. He agreed with much of it but questioned a footnote’s description of the common law of fraud. Justice Sotomayor did not join the opinion of the Court but concurred in the judgment. Her separate opinion disagreed with Justice Thomas on materiality and otherwise suggested that the Court could have reached the same result through narrower reasoning.
Back to Materiality
Kousisis halts a recent trend in Supreme Court decisions that have narrowed the scope of the wire fraud statute in recent cases like Ciminelli and McNally. In Ciminelli v. U.S., 598 U.S. 306, 309 (2023), the Court unanimously rejected the “right-to-control” theory of wire fraud, which had empowered prosecutors (largely in the Second Circuit) to pursue fraud charges against a defendant who merely deprived the victim of information “necessary to make discretionary economic decisions.” In doing so, the Court held that the federal wire fraud statute applied only to the deprivation of “traditional property interests” like money and tangible assets. Id. at 316. Similarly, in McNally v. U.S., 483 U.S. 350, 355 (1987), the Court held that the federal mail fraud statute applied only to tangible property interests like money and property rights, not to the public’s right to an “honest and impartial government.” Congress later codified the “honest services fraud” theory that had been rejected in McNally. 18 U.S.C. § 1346. But the statute has given rise to its own constitutional challenges and narrowing case law, including Percoco v. United States, 598 U.S. 319 (2023), decided the same day as Ciminelli.
Kousisis, by contrast, preserves an expansive theory of prosecution under the wire fraud statute. To be sure, both the Court’s opinion and the concurrences make plain that the materiality requirement will police what is “actionable fraud” from “everyday misstatement.” Defendants, however, should be cautious. Whether or not a deception or misstatement is “material” to a victim’s decision to enter a business arrangement is a matter of fact decided by a jury. Prosecutors typically seize on intentional or knowing misstatements as material in and of themselves: after all, if the fact, assurance or position being misrepresented is not material, then why lie about it in the first place? The petitioners in Kousisis did not contest this issue. Particularly between sophisticated parties, a successful defense to wire fraud will likely turn on how robustly counsel researches, contextualizes and presents the role that a deception or misstatement played (or could have played) in the putative victim’s decision to transact.
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