Supreme Court paves the way for increased enforcement by rejecting “economic loss” requirement for fraud charges, broadening liability for mail and wire fraud

For the last decade and more, the federal courts have grappled with the precise parameters of the federal wire fraud statute (and analogous criminal statutes).  Among other things, there has been a Circuit split for some years over whether it was necessary for prosecutors to prove that a defendant in such cases sought to cause the victim “net pecuniary loss.”  On May 22, 2025, the Supreme Court unanimously held that the federal fraud statutes do not require that a defendant seek to cause a victim economic loss.  It is now clear that a federal fraud conviction can stand “regardless of whether a defendant seeks to leave the victim economically worse off” or not.  In part, the majority opinion endorsed the “fraudulent-inducement theory” of fraud, which holds that, whenever anyone uses a “material misstatement” to trick a victim into entering into a contract that requires that victim to hand over actual money or property, that person is liable under wire fraud – even if they provided the victim valuable goods or services in return, including goods of equal value.  

As Justice Sotomayor noted in concurrence, “A Yankees fan deceived into buying Mets tickets is no less defrauded simply because the Mets tickets happen to be worth the same amount as the promised Yankees ones.”  

This is the latest in a line of Supreme Court cases defining what it means to fraudulently obtain “money or property” under the federal fraud statutes.  See, eg, “With unanimity comes clarity: In reversing Bridgegate convictions, a unanimous Supreme Court further narrows scope of federal fraud and corruption prosecutions” and “SCOTUS suggests expansive reach of ‘Bridgegate’ ruling in directing Second Circuit to reconsider insider trading convictions.”  Most recently, in Ciminelli v. United States, 598 U.S. 306 (2023), the Supreme Court found that the federal fraud statutes reach only those schemes that target “traditional property interests” and do not protect “intangible interests unconnected to property” such as a scheme “to deprive a victim of potentially valuable economic information.”  598 U.S. at 310, 312. 

As to the precise issue just decided by the Supreme Court, the “net pecuniary loss” issue, some Circuits had imposed stringent requirements on prosecutors.  For example, the Ninth Circuit Court of Appeals vacated several defendants’ mail fraud convictions for using allegedly dishonest tactics to sell printer toner, because they ultimately delivered the product to customers.  See United States v. Milheiser, 98 F.4th 935 (9th Cir. 2023).  There, the defendants would cold-call potential customers and claim (falsely) that they were the incumbent toner supplier and then state (falsely) that prices were about to go up but that an immediate order could be placed at the “old” lower price.  Holding that the government’s fraud theory was “overbroad” the Ninth Circuit also found error in the district court having failed to instruct the jury that “a false statement must directly or indirectly deceive the victim about the nature of the bargain.”  In another case, the DC Circuit affirmed the district court’s dismissal of an indictment charging a defendant – a former State Department foreign service officer – with wire fraud, in part, for lying to renew the security clearance that was necessary for his position.  See United States v. Guertin, 67 F.4th 445 (DC Cir. 2023).  Relying on the fact that the defendant had “received glowing performance reviews,” the court held that, absent “some plausible allegation claiming that the State Department did not receive the benefit of the core employment bargain,” the indictment had failed to adequately allege the existence of a wire fraud scheme.  Those cases and others like them adopted the view that to constitute federal fraud there must be “a discrepancy between benefits reasonably anticipated” by the victim and actual benefits received.  See, eg, United States v. Shellef, 507 F.3d 82, 108-09 (2d Cir. 2007).

Kousisis v. United States

This most recent case, Kousisis v. United States, concerns misrepresentations by a government painting contractor (Alpha Painting & Construction Co.) and its manager Stamatios Kousisis.   Alpha bid for, and was awarded, two painting contracts by the Pennsylvania Department of Transportation (PennDOT).  Bidders were required to subcontract a percentage of the total contract amount to a “disadvantaged business enterprise” or “DBE,” as defined in relevant regulations.  The contract explicitly stated that failing to comply with this requirement would constitute a material breach of contract.  Alpha committed to utilizing a prequalified disadvantaged business, Markias, Inc., to procure its paint supplies.   As noted by Justice Sotomayor in her concurrence, of the 17 warranties set forth in the voluminous contract, only the DBE requirement was explicitly listed as a potential material breach.  

Alpha completed the painting jobs and was paid accordingly, making nearly $20 million in “gross profit.”  It later came to light, however, that Alpha’s promise to utilize Markias was a total sham – “a lie,” in the words of Justice Barrett’s majority Opinion.  In reality, Alpha and Kousisis devised a plan to source the paint supplies from other vendors but make it look like the supplies were coming from Markias (with phony invoices and all the other usual indicia of fraud, including a cut of $170,000 to Markias for doing basically nothing).  In Justice Barrett’s pithy summary, “although Alpha’s paint work met expectations, its adherence to the disadvantaged-business requirement did not.”

Following a jury trial, Alpha and Kousisis were convicted of wire fraud on a theory of “fraudulent indictment” – a theory of prosecution under which a defendant commits federal fraud by using a material misstatement to trick a victim into a contract that requires handing over money or property.   Kousisis was sentenced to nearly six years in prison.  Alpha and Kousisis appealed.

The Supreme Court’s decision turned on what it means to “obtain” a victim’s “money or property” under the wire fraud statute.  

Alpha and Kousisis argued that a federal fraud conviction cannot stand unless the defendant sought to hurt the victim’s bottom line – in other words, that a scheme cannot constitute wire fraud if the defendant provides something (money, property, or services) of equal value in return.  In that regard, they argued that they were hired to paint a bridge and a train station and that they did paint those projects, and they did a great job; PennDOT was perfectly satisfied with the quality of their work (and there was no allegation that the work was anything other than top-notch) and hence the alleged victim “had received the full economic benefit of its bargain.”  Therefore, there could be no colorable claim that the defendants had schemed to defraud PennDOT of “money or property” (as required under the wire fraud statute), even if the defendants concededly lied about the DBE issue.    As they argued before the Supreme Court, the lie about the DBE requirement was “non-financial” in nature; it “had nothing to do with dollars and cents.”  In their view, the federal fraud statutes bar only schemes contemplating harm to the victim’s “pecuniary or other property interests” and their scheme was not one, because it “never threatened economic harm to PennDOT.”

The Supreme Court unanimously rejected this argument.   The key question here, as noted above, is what does it mean to obtain “money or property” through a scheme to defraud?  In substance, albeit not directly in form, the defendants here argued that lying about compliance with the DBE requirement could not constitute a scheme to defraud “money or property” because whether they complied with the DBE requirement was not itself “money or property”; it “had nothing to do with dollars and cents.” (Relatedly, as Justice Thomas noted in his own concurrence, the “contracts in this case were for bridge repairs, not minority hiring.”)  

This argument was rejected by the courts below, with words that seem straightforward (but nonetheless conflicted essentially with the approach of multiple other Circuits, as discussed in part above): “Obtaining the Government’s money or property was precisely the object of [defendants’] fraudulent scheme.”   As the District Court held (as quoted by Justice Barrett): “The scheme targeted PennDOT’s money, because the agency paid for services – construction performed with materials provided by a [DBE] – which it did not receive.”

After reviewing its own precedent and the common law precedents (at some length), the Supreme Court followed the lead of the lower courts in this case, and rejected the decisions of the other Circuits that took a different view.  In short, the Supreme Court held that the wire fraud statute embraced the fraudulent inducement theory and was inconsistent with the proposed “economic-loss” requirement.  As Justice Barrett wrote, “No matter how long we stare at it, the broad, generic language of [the wire fraud statute] leaves us struggling to see any basis for excluding a fraudulent-inducement scheme.”  The statute says nothing about “loss,” and certainly did not specifically require it; in Justice Barrett’s words, “the wire fraud statute is agnostic about economic loss.” 

The Court was careful to distinguish the conduct it was addressing from the “right-to-control” theory of property it rejected in the Ciminelli case in 2023.  That theory (widely accepted until the Ciminelli decision) maintained that the term “property” included the “right to control the use of one’s assets,” and resulted in convictions of many defendants for scheming to deprive a victim of “potentially valuable economic information necessary to make economic decisions.”  The Ciminelli Court held that that was not a “traditional property interest” of the kind encompassed by the federal fraud statutes.  But that was not this case (and indeed in Ciminelli the Court explicitly declined to reach the alternative theory of the prosecution there, which essentially was the fraudulent inducement theory at issue in Kousisis).  As the Kousisis Court stressed, the protected interest in this case was not “mere information”; it was money and property (here, $20 million).  Again, obtaining that money “was precisely the object” of the fraudulent scheme.

While bringing some clarity to the muddled law on the seemingly self-evident question of what constitutes “money or property,” the decision leaves much fodder for future disputes (and potential Circuit splits).  Prominent among these still-unsettled issues is the question of materiality.  This is particularly thorny because addressing fact-intensive issues of materiality can be difficult at early stages of an investigation.  Whether a misrepresentation was material has long been “the principled basis for distinguishing everyday misstatements from actionable fraud.”  Alpha and Kousisis argued for the “traditional” materiality test: a misrepresentation is material if a reasonable person would attach importance to it in deciding how to proceed.  The prosecution, by contrast, proposed an “essence-of-the-bargain” test under which a misrepresentation is material only if it goes to the very essence of the parties’ bargain.  The Supreme Court did not decide “the details of the materiality standard” because appellants had not contested the materiality element.  That did not stop Justice Thomas from writing a concurrence largely premised on the fact that, notwithstanding the contractual language stating that a failure to comply with the DBE requirement would be a material breach, he was “skeptical that petitioners’ misrepresentations were material.”  This skepticism seemed to flow from Justice Thomas’s view that the government often includes “political” requirements “unrelated to the contract’s core purpose” in an effort to achieve commercially irrelevant policy goals, pointing to the “DBE provisions’ apparent irrelevance to bridge repair.”  In future cases, the precise contours of materiality in similar fraud allegations is sure to provide ample grounds for defense arguments, and potentially yet more Supreme Court attention to the deceptively simple wire and mail fraud statutes.

Takeaways

After a decades-long trend of the Supreme Court reining in expansive government theories of liability around the meaning of “money or property,” Kousisis represents a win for the government and takes away a line of defense that has been part of many high-profile criminal fraud cases in recent years (with some success).  While the precise scope of the necessary materiality element remains somewhat unclear, by endorsing the “fraudulent inducement” theory and rejecting the “economic loss” requirement, the Supreme Court has for now left vulnerable to prosecution for fraud (with a potential penalty of 20 years in prison) entities and individuals who performed a contract flawlessly, on time, and within budget.   We can expect prosecutors to rely on this decision to argue that merely providing the benefit of the bargain is no defense to a criminal prosecution.  

This decision sends a clear warning to all contracting parties and perhaps especially to government contractors: strict compliance with all “material” contract terms is essential (and even arguably “political” requirements “unrelated to the contract’s core purpose” might be deemed material by a prosecutor).  Government contractors may face significant criminal exposure for any material falsehoods, regardless of whether the government suffers a financial loss or is otherwise satisfied with the work performed. This risk is in addition to other potential legal liability, such as under the False Claims Act.  Contractors must ensure that all material representations, certifications, and compliance attestations made during the bidding and performance of government contracts are not knowingly false, in light of the risk of federal prosecution for fraudulent inducement and other potential liability.

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