In December 2024, the US Supreme Court heard oral arguments in the case of Kousisis v. United States, where the Court was asked to review the scope of federal charges for wire fraud. Wire fraud has long been a preferred tool for federal prosecutors investigating white-collar criminal activity, largely because prosecutors can secure a conviction without needing to prove actual financial harm or even intent to cause economic harm.
The issue in Kousisis is the “fraudulent inducement” theory of fraud and whether using deception to induce a commercial exchange can constitute fraud, even if the infliction of economic harm on the alleged victim was not the object of the scheme.
Historically, the Court has adopted an expansive view of fraud; however, with the Court’s recent trend toward narrowing the application of broadly worded federal statutes, including those involving white-collar crimes, prosecutors, defense attorneys, and legal scholars watched the oral arguments closely and now eagerly await the Court’s decision.
In Kousisis, federal prosecutors claim the Pennsylvania Department of Transportation (PennDOT) was fraudulently induced to award a contract to Defendant Kousisis’s company. PennDOT required that a certain percentage of sub-contracts be awarded to Disadvantaged Business Enterprises (DBEs). Kousisis allegedly misrepresented his company’s use of a DBE subcontractor, instead using a DBE as a passthrough that did no actual work.
Despite the misrepresentation, PennDOT awarded the contract to Kousisis’s company, which completed the project and fulfilled all other terms of the contract. Kousisis’s company received tens of millions of dollars for a contract PennDOT would not have awarded to it had it known Kousisis’s company would not comply with the DBE requirement. However, PennDOT received exactly what it contracted for and suffered no economic harm.
Kousisis’s defense argued that in the absence of economic harm - or even intent to cause harm - the government cannot sustain a charge of wire fraud. Because PennDOT got what it paid for, and the work was completed as promised, he argued no criminal fraud occurred.
The Third Circuit Court of Appeals disagreed, finding that economic harm is not required to sustain a claim for wire fraud. The court sustained Kousisis’s conviction and the sentence of 70 months in prison, $11 million in restitution, and a $500,000 fine.
At oral argument, both the government and attorneys for Kousisis argued that the other side proposed a rule with no reasonable limit. Kousisis argued that under the government’s theory, any white lie that induces someone to enter into a contract would be grounds for charging someone with a federal crime. The government claimed the defendant’s theory was limitless and would eliminate fraud in circumstances where something completely different from the promised good was delivered as long as the price was the same.
The Justices seemed divided on the issue. Justices Sotomayor and Jackson pushed back against Kousisis’s arguments, emphasizing that the contract called for a particular person, in this case a DBE, to provide the service and that failing to do so was a classic case of obtaining property under false pretenses.
The Justices proposed various hypotheticals in an effort to identify exactly when a lie rises to the level of fraud. Examples include cases of charity fraud, painting the wrong room in a house, or receiving a million dollars worth of coal instead of gold bars.
Justice Gorsuch suggested a hypothetical in which a babysitter lied to a prospective client about how the babysitting money would be used. In his example, the babysitter claimed she would spend the money on college but actually intended to use it on a vacation to Cancun. The government eventually conceded that under its theory, the babysitter would have committed fraud.
The Court is expected to announce its decision in July 2025. Meantime, legal experts can only speculate on the ruling and its impact. However, after oral arguments, it appears likely the Court will announce a limited ruling, rejecting the government’s expansive theory that any deception, without intent to harm, could constitute fraud.
However, it seems unlikely that Kousisis will escape unscathed. The Justices seemed to agree he was wrong to lie about employing DBEs and could find that the correct remedy is a civil fraud claim, a claim for breach of contract, or less severe criminal charges.
Hope Lefeber is a federal white-collar criminal defense attorney who serves people in Philadelphia and New York City. She began her career as an enforcement attorney with the SEC and has over 30 years of experience defending people accused of federal financial crimes.
She is regularly called upon to represent high-profile defendants in high-stakes criminal fraud cases. Ms. Lefeber began her career as an Enforcement Attorney with the Securities and Exchange Commission (SEC), where she learned how the government prepares and prosecutes cases in federal court. Today, she uses that experience to defend people accused of bond fraud and other financial crimes.
To learn more about Ms. Lefeber and how she can help, contact us today to schedule a confidential consultation to discuss your situation.
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