Overview
On May 22, 2025, the Supreme Court of the United States (the Court) issued its opinion in Kousisis v. United States, holding that a defendant may be convicted of wire fraud for inducing a victim to enter a contract under materially false pretenses, even if the defendant did not intend to cause, and did not cause, an economic loss.
In this case, the defendants, an industrial painting company (the company) and its project manager, falsely represented to the Pennsylvania Department of Transportation (PennDOT) that the company’s bids on two projects were compliant with PennDOT’s disadvantaged-business program. Though the projects were otherwise performed to PennDOT’s satisfaction, the company and its project manager were tried and convicted for federal wire fraud under a fraudulent inducement theory. Resolving a circuit split, the Court affirmed their convictions.
In contrast to a string of recent decisions from the Court narrowing the wire fraud statute (see, e.g., Ciminelli v. United States), the Court’s unanimous decision here upheld an expansive view of the wire fraud statute as not requiring an economic loss where a defendant obtains money or property – here a valuable government contract – under false pretenses. The Court identified materiality as the safeguard that will prevent every false statement in connection with a contract application – whether a government contract or not – from becoming a federal crime. This decision solidifies, across the country, the use of the criminal wire fraud statute by prosecutors to pursue companies based on representations made in connection with contracts even where there is no actual monetary loss and may impact claims incorporating the wire fraud statute in the civil context.
In Depth
THE FACTS
The company won two government contracts with PennDOT to carry out paint and repair work on Philadelphia landmarks that had fallen into disrepair. These contracts were largely funded through federal grants PennDOT received from the US Department of Transportation (DOT), which required that grant recipients, like PennDOT, establish and implement a disadvantaged-business program. A disadvantaged business, under the relevant federal regulations, is a small business that is majority owned and controlled by individuals who are socially and economically disadvantaged.
PennDOT’s disadvantaged-business program required that bidders commit to subcontracting a percentage of the total contract value to a disadvantaged business. In bidding on the projects, the company represented to PennDOT that it would obtain painting supplies from a disadvantaged business (the supplier). After winning the contracts, the company also reported making payments to the supplier in connection with this requirement, and PennDOT paid the company per the terms of their contracts.
The company, however, had not actually contracted with the supplier to obtain paint supplies. Instead, the company and the supplier had agreed that the supplier would simply serve as a pass-through entity to meet the disadvantaged-business requirement for the bids. The company instead negotiated with its true paint suppliers, who then generated purchase orders that they billed to the supplier, and the supplier then added a fee and invoiced the company. The company would then issue separate checks for the supplier’s fee and for the actual suppliers’ supplies, and the supplier earned a fee without actually supplying any paint.
PennDOT was unaware of the pass-through scheme for the duration of the contract and was ultimately satisfied with the company’s work. When the scheme was eventually discovered, a grand jury indicted the company and its project manager for wire fraud and conspiracy to commit wire fraud, and they were both convicted at trial of three counts of wire fraud and one count of conspiracy. The defendants then moved for a judgment of acquittal based on PennDOT’s satisfaction with their performance under the contracts, arguing that the prosecution had not proven that they defrauded PennDOT of “money or property,” as required under the federal wire fraud statute.
The district court denied the defendants’ motion for a judgment of acquittal, and the US Court of Appeals for the Third Circuit affirmed its decision. Because a circuit split existed as to whether federal fraud convictions could be maintained in the absence of the defendant seeking to cause the victim net pecuniary loss, the US Supreme Court agreed to hear the appeal.
THE SUPREME COURT’S DECISION
Siding with the Third Circuit, the Supreme Court affirmed the defendants’ convictions, holding that a federal wire fraud conviction premised on a fraudulent inducement theory does not require any net pecuniary loss to the victim: “Under the fraudulent-inducement theory, 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 he seeks to cause the victim net pecuniary loss.”
As a textual matter, the Court stated that the wire fraud statute is “agnostic” about economic loss, reading “obtain” to encompass scenarios where money or property is received, even if the victim has received something of equal value in return. The Court also concluded that to the extent the common law required that the victim suffered an injury, there was no settled rule that this injury needed to be economic, and, in fact, that it was “the deception-induced deprivation of property—not economic loss—that common-law courts generally deemed injurious.”
The defendants argued that a no-loss fraud can only cause injury where it related to unique property (e.g., a particular horse or particular artwork), but the Court rejected that standard, instead looking to the existing materiality standard for determining whether misstatements rise to the level of fraud: “[T]he common law has long embraced a different standard—namely, materiality—as the principled basis for distinguishing everyday misstatements from actionable fraud.” The Court went on to note the standard for materiality laid out in Universal Health Services, Inc. v. United States ex rel. Escobar, namely that “a misrepresentation is material if a reasonable person would attach importance to it in deciding how to proceed, or if the defendant knew (or should have known) that the recipient would likely deem it important.” Notably, Justice Thomas wrote a concurrence emphasizing that, although it was uncontested by the parties, he was “skeptical” the government could meet the “high bar” for materiality had it been contested because, inter alia, the contracts at issue totaled more than 1,000 pages and contained numerous requirements and the disadvantaged-business requirements were irrelevant to the fundamental purpose of the contracts, which were “for bridge repairs, not minority hiring.”
Further, the Court distinguished the defendants’ fraud from fraudulent-inducement schemes relating strictly to the government’s regulatory power (e.g., fraud to get a gaming license), which the Court has previously found to be insufficient to sustain a wire fraud conviction. The Court viewed the defendants’ scheme as being focused on “lin[ing] their pockets” as opposed to “thwarting PennDOT’s disadvantaged-business initiative.” In addressing the Court’s recent rejection of the right-to-control theory in Ciminelli, the Court explicitly stated that its decision was not a repackaging of that theory, distinguishing the present case by the fact that the defendants’ scheme sought money, a “traditional property interest,” as opposed to an intangible interest, like the right to impartial government.
Finally, the Court rejected the defendants’ concern that affirming their convictions would render every intentional misrepresentation in connection with a contract or application as federal wire fraud. In doing so, the Court cited the “demanding” materiality requirement as the key principle limiting the universe of potential claims, explaining that the fraudulent inducement theory only “criminalizes a particular species of fraud: intentionally lying to induce a victim into a transaction that will cost her money or property.”
KEY TAKEAWAYS
- After meaningfully contracting the scope of the federal fraud statutes in Ciminelli, the Kousisis decision represents a significant endorsement of federal prosecutors’ ability to make aggressive use of the federal fraud statutes. But materiality will continue to remain a key limitation.
- While the decision relates strictly to the federal wire fraud statute, the government will also likely apply it to other federal fraud statutes that have text similar to the wire fraud statute, including the mail fraud, bank fraud, and healthcare fraud statutes, none of which mention economic loss.
- Companies that contract with government entities have long faced the risk of False Claims Act (FCA) enforcement based on asserted false statements to the government (and even in the absence of economic loss). Kousisis expands the prospective that similar conduct might now give rise to criminal mail and wire fraud prosecutions. This may impact how companies facing FCA inquiries engage with the government and how they approach compliance with respect to government contracts, in particular.
- Similarly, Kousisis may impact the scope of civil claims brought under the wire fraud statute, including civil Racketeer Influenced and Corrupt Organizations Act (RICO) claims, which are increasingly being brought by plaintiff’s firms in a number of contexts, including healthcare and data privacy. In particular, plaintiffs may no longer need to establish economic loss in connection with each fraud-based predicate act to support a RICO claim if they can assert fraudulent inducement.
If you have questions about the potential impact of Kousisis and next steps for your business, contact the authors of this article or your regular McDermott lawyer.
