Supreme Court Overturns Fraud Convictions, Further Limiting Prosecutorial Power in Political Corruption Cases

Ciminelli v. United States, No. 21-1170
Ciminelli was convicted of wire fraud in violation of 18 § U.S.C. 1343 and conspiracy to commit the same under 18 § U.S.C. 1349 for his involvement in a scheme to rig the bid process for obtaining state-funded development projects associated with then-governor of New York Andrew Cuomo’s Buffalo Billion initiative. The initiative aimed to invest $1 billion to develop projects in upstate New York. The initiative was administered by a nonprofit, Fort Schuyler Management Corporation. The scheme involved Alain Kaloyeros, Todd Howe and Ciminelli—all associates of Cuomo. Kaloyeros paid $25,000 to Howe, a lobbyist, to ensure that Kaloyeros had a prominent role in administering projects for the Buffalo Billion initiative. In 2013, Ciminelli paid Howe $100,000 to $180,000 per year, and Howe and Kaloyeros devised a scheme whereby Kaloyeros would tailor Fort Schuyler’s bid process to allow Ciminelli’s construction company, LPCiminelli, to obtain lucrative Buffalo Billion contracts. At trial, the Government relied on the Second Circuit’s “right to control” theory of wire fraud, by which the Government could establish wire fraud by showing that the defendant schemed to deprive a victim of potentially valuable economic information relevant to discretionary economic decisions. The District Court instructed the jury that the term “property” in 18 § U.S.C. 1343 includes “intangible interests such as the right to control the use of one’s assets,” which could be harmed by depriving Fort Schuyler of “potentially valuable economic information.” On appeal to the Second Circuit, Ciminelli argued that the right to control one’s assets is not “property” as required under 18 § U.S.C. 1343. However, the Second Circuit rejected this argument and affirmed Ciminelli’s convictions.

Upon review, the Supreme Court analyzed whether the Second Circuit’s longstanding “right to control” theory of fraud describes a valid basis for liability under 18 § U.S.C. 1343. In the past, lower courts have interpreted the mail and wire fraud statutes to protect intangible interests unconnected to traditional property rights. The Court responded to that trend in McNally v. United States, 483 U.S. 350 (1987) by confining the federal fraud statutes to the protection of traditional property rights. Congress responded to McNally by amending the fraud statutes to specifically cover the intangible right of honest services, as delineated in Cleveland v. United States, 531 U.S. 12 (2000).

In the present case, the Court unanimously held in a decision by Justice Thomas that the right to valuable economic information relevant to discretionary economic decisions is not a traditional property interest and, thus, that the Second Circuit’s “right to control” theory cannot form the basis for a conviction under the federal fraud statutes. The Court reasoned that the theory is inconsistent with the structure and history of the federal fraud statutes and relied on McNally’s instruction that the federal fraud statutes only protect traditional property rights, not intangible property rights. Further, the Court specifically pointed out that following McNally, Congress revived only the intangible right of honest services by enacting 18 U.S.C. § 1346, and that the silence of Congress about other intangible interests forecloses the expansion of the wire fraud statute to cover the intangible right to control. The Court concluded that the “right to control” theory vastly expands federal jurisdiction without statutory authorization and reasoned that under this theory any deceptive act could be criminalized as the theory treats mere information as a protected property interest.

Percoco v. United States, No. 21-1158
Percoco was charged with conspiracy to commit honest-services wire fraud in violation of 18 U.S.C. §§ 1343 and 1346, and conspiracy to commit the same under 18 U.S.C. § 1349. Percoco served as the Executive Deputy Secretary to Cuomo from 2011 to 2016, with a brief but important interlude in 2014. In 2014, Percoco resigned from government service to manage Cuomo’s re-election campaign. During that time, Percoco accepted $35,000 from Steven Aiello to assist his real-estate company, COR Development, in obtaining state funding for a lucrative project. A state agency, Empire State Development (ESD), informed Aiello that he needed to enter a “Labor Peace Agreement” with local unions in order to obtain state funding for the project. Aiello contacted Percoco through an intermediary to use his influence to sway ESD to remove the requirement that Aiello’s company enter into the agreement. The following day, ESD informed Aiello that the labor agreement was not necessary. At trial, the jury was instructed that Percoco owed a duty of honest services to the public if (1) he “dominated and controlled any governmental business” and (2) “people working in the government actually relied on him because of a special relationship he had with the government.” The Second Circuit approved this jury instruction finding that it “fits comfortably” within their decision in United States v. Margiotta, 688 F. 2d 108.

Upon review, the Supreme Court considered whether a private citizen with influence over government decision-making can be convicted of wire fraud on the theory that he or she deprived the public of its intangible right of honest services. The Court held that instructing the jury based on the Second Circuit’s decision in Margiotta on the legal standard for finding that a private citizen owes the government a duty of honest services was erroneous. The Court relied on its decision in Skilling v. United States, 561 U.S. 358, which instructed that “the intangible right of honest services” must be defined with clarity typical of criminal statutes. The Court found that Margiotta’s standard was too vague, and, thus, the jury instructions did not define the intangible right of honest services with sufficient definiteness such that ordinary people could understand what conduct is prohibited. The Court was further concerned that Margiotta’s standard would encourage arbitrary and discriminatory enforcement.

The Court’s Recent Trend in Limiting Prosecutors in Political Corruption Cases
These decisions follow the Court’s recent trend over the last decade to limit prosecutors in political corruption cases. In 2016, the Court overturned Virginia Governor Robert McDonnell’s bribery conviction reasoning that his conduct fell short of an “official act” in exchange for a bribe, as required for conviction under federal bribery law. In 2020, the Court overturned two fraud convictions of two former aides, Bridget Anne Kelly and Bill Baroni, to then-governor of New Jersey, Chris Christie. The Court held that because the aides involved in the scheme did not obtain money or property for themselves, they could not have violated the federal fraud statutes under which they were prosecuted. Ciminelli and Percoco further signify the Court’s concern that federal prosecutors are overreaching in their attempts to expand federal jurisdiction without statutory authorization and the Court’s intention to place limits on such fraud prosecutions.