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Federal Criminal “honest Services” Fraud Law Applicable Here in Atlanta to Be Reviewed by Supreme Court

Kish Law LLC

Eleventh Circuit case law, the controlling federal law here in Georgia, is at risk of changing next fall, when the Supreme Court will likely decide a criminal case and resolve a split among the circuit courts of appeals.

The mail fraud and wire fraud laws are the bread and butter for federal prosecutors bringing white collar cases. Each of these laws requires a scheme to defraud another person out of “money or property.” For many years, federal prosecutors successfully argued that the word “property” included the right to “honest services” from public employees (such as elected officials). In 1988, the Supreme Court ruled that the word “property” does not include “honest services,” but several months later Congress amended these statutes so as to include the concept of “honest services” within the universe of cases that can be prosecuted under the federal mail and wire fraud statutes. Specifically, Section 1346 of the Federal Criminal Code expands the definition of a “scheme or artifice to defraud” under the mail and wire fraud statutes to encompass schemes that “deprive another of the intangible right of honest services.”

Despite the background of this type of fraud, the concept of “honest services” has now been extended by federal prosecutors beyond situations where a public official may have engaged in fraud. Recently, federal prosecutors are bringing more and more cases against people who work for private companies, arguing that the employee breached his or her duty of rendering “honest services” to the employer.

Last Monday the United States Supreme Court granted certiorari in Black v. United States. The Court will decide whether this Section applies in a purely private setting where the defendant’s conduct did not risk any foreseeable harm to the putative victims.

The case involves media mogul Conrad Black, who built an international newspaper empire from a single Canadian newspaper, eventually owning hundreds of community newspapers, as well as several large newspapers, such as the Chicago Sun-Times and London’s Daily Telegraph. In the late 1990s, Black predicted the affect the internet would have on newspapers and suggested that the company sell most of its smaller newspapers. As a part of those deals, purchasers paid Black for covenants not to compete, which the government construed as a scheme to defraud the company’s shareholders, although the money from those deals would have been paid to a different company controlled by Black and his co-defendant, anyway. The trial court’s instructions permitted the jury to convict even if they found that the shareholders didn’t lose any money. Black was convicted. The Seventh Circuit upheld the conviction, even though the law in at least five other circuits would have required reversal.

In 1999, the Eleventh Circuit here in Atlanta decided United States v. DeVegter, requiring the government to prove that economic harm was at least reasonably foreseeable in a private “honest services” case such as this one. Without this rule, Black argued in his petition to the Supreme Court, “[t]he only obstacle to converting every violation of corporate governance or company rules into federal crimes would seem to be the moment-to-moment whims of federal prosecutors.” We hope that the Supreme Court, when it decides this case, agrees with the Eleventh Circuit.

The Court’s docket for this case is available here.
The Seventh Circuit’s opinion below is available here.
Mr. Black’s petition for certiorari is available here.
The government’s brief in opposition is available here.
Mr. Black’s reply brief is available here.

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