In Ciminelli v. United States, the United States Supreme Court resolved a decades-long circuit split and clarified that to be guilty of federal wire fraud, prosecutors must prove that the defendant’s scheme to defraud involved a traditional property interest. The court’s opinion narrows the scope of criminal liability under the statute by rejecting the Second Circuit’s “right-to-control” theory. Going forward, prosecutors can no longer base wire fraud liability on the deprivation of “mere information” used to make discretionary economic decisions.
18 U.S.C. § 1343 criminalizes “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.” To be guilty of wire fraud under this statute, the scheme must deprive an individual of a property interest. Prior to Ciminelli, courts were split on whether the property interest had to be a traditional property interest, or whether the statute also protected an individual’s “potentially valuable economic information necessary to make discretionary economic decisions.” The latter approach is known as the “right-to-control” theory.
In Ciminelli, prosecutors relied on the “right-to-control” theory to prosecute and convict a New York business owner, Louis Ciminelli, for wire fraud. The case concerned then Governor Andrew Cuomo’s “Buffalo Billion” initiative which was designed to invest $1 billion in development projects in upstate New York. Mr. Ciminelli, who owned a construction company, together with lobbyists and former Cuomo associates, rigged the contract selection process to favor Ciminelli’s company. As a result, the state awarded Mr. Ciminelli’s construction company contracts worth millions.
Federal prosecutors subsequently charged Ciminelli with wire fraud under the “right-to-control” theory. Prosecutors argued that Ciminelli’s scheme deprived the state of potentially valuable economic information necessary to make discretionary economic decisions regarding whom to allocate state funds to. The jury convicted Ciminelli, and the Second Circuit affirmed the conviction, again relying on the “right-to-control” theory of property deprivation.
In their May 11, 2023 opinion, the Supreme Court rejected the Second Circuit’s “right-to-control” theory, reversing Ciminelli’s conviction. The court held that the wire fraud statute applies to “only traditional property interests.” Because the right to valuable economic information needed to make discretionary economic decisions is not an interest that has “long been recognized as property,” the “right-to-control” theory was rejected. One of the concerns with the “right-to-control” theory is that because it treats mere economic information as a protected interest, almost any deceptive act could be criminalized under the wire fraud act. Consequently, the “right to control” theory vastly expanded federal jurisdiction without Congressional authorization.
This decision by the Supreme Court also resolves a circuit split among the lower courts. In rejecting the “right-to-control” theory, the court sides with the Sixth and Ninth Circuits, which have expressly rejected the approach adopted by the Second Circuit. See, e.g., United States v. Sadler, 750 F. 3d 585, 590-592 (6th Cir. 2014); United States v. Bruchhausen, 977 F. 2d 464, 467-469 (9th Cir. 1992).
While Mr. Ciminelli’s case has been remanded for reconsideration, it is unclear whether prosecutors will be able to convict him on other grounds. What we do know, however, is that from now on, “the government must prove not only that wire fraud defendants engaged in deception but also that money or property was an object of their fraud.”
For questions or legal assistance with this or other white collar-related litigation issues, please contact Madelaine Lane or your Warner attorney.
Warner Summer Associate Katrin Kelley contributed to this eAlert.