White (collar) lies: no intangible property right to accurate information under the wire fraud statute

On Nov. 28, the Supreme Court heard argument in Ciminelli v. United States. The case gives the Court another opportunity to narrow the scope of intangible property rights under the federal wire fraud statutes. Understanding the evolving intangible rights case law is vital for white collar defense attorneys because prosecutors continue to broadly charge schemes of alleged cheating and deceit, especially in cases like Ciminelli, where the purported victim bases a business decision on inaccurate or misleading information.

Ciminelli and the Right to Control Theory

Ciminelli arose from a bid-rigging scheme in New York's "Buffalo Billion" plan of economic development. Louis Ciminelli, the principal of a development firm, allegedly conspired with the head of the non-profit organization tasked with issuing requests for proposals (RFPs) to write RFPs in Ciminelli's favor. Though winning the RFP did not guarantee the subsequent development contract or establish any terms, it granted Ciminelli "the first opportunity to negotiate" with the non-profit that would issue contracts. The government charged, among other things, conspiracy to commit wire fraud in connection with the RFP bid rigging (18 U.S.C. § 1349), and wire fraud (18 U.S.C. §§ 1343 and 2).

The superseding indictment relied solely on the "right to control" theory of property fraud. It alleged defendants "devised a scheme to defraud [the non-profit] of its right to control its assets, and thereby exposed [the non-profit] to risk of economic harm" through misrepresentations about the fairness and competitiveness of the bidding process. At trial, the government did not offer proof the non-profit was deprived of fair pricing, quality workmanship, or that it could have used another developer. The jury was instructed that deprivation of money or property could include "intangible interests such as the right to control the use of one's assets." The jury was further instructed that this interest is harmed when someone is deprived of "potentially valuable economic information" - information that affects assessment of a transaction's benefits or burdens, economic risks, or the quality of goods or services received.

Given this amorphous guidance about the property interest at stake, the jury convicted. The Second Circuit affirmed and stated, "[i]n a right to control case, 'it is not necessary that a defendant intend that his misrepresentation actually inflict a financial loss - it suffices that a defendant intend that his misrepresentations induce a party to enter a transaction without the relevant facts necessary to make an informed decision.'" United States v. Percoco, 13 F.4th 158, 170 (2d Cir. 2021) (internal citations omitted). In essence, the government had shown Ciminelli caused an "informational deprivation" in the RFP process, which was sufficient harm to property for wire fraud.

The Supreme Court is now reviewing whether "right to control" - which treats the deprivation of complete and accurate information bearing on an economic decision as a species of property fraud - states a valid basis for wire fraud liability.

Accurate Information - Is it Property?

The Supreme Court has curbed the growth of intangible property rights since McNally v. United States, which held citizens do not have an intangible right to good government under the mail fraud statute. 483 U.S. 350 (1987); see also Cleveland v. United States, 431 U.S. 12, 22-24, 26-27 (2000) (state had no property interest in business licenses, misrepresentation on applications did not deprive state of economic value); Pasquantino v. United States, 544 U.S. 349, 354-356 (2005) (liquor smuggler deprived Canada of property right in expected tax revenue); Kelly v. United States, 140 S. Ct. 1565, 1573 (2020) (bridge lane realignment implicated state's regulatory power, not property rights, and deprivation of employee labor was "incidental byproduct"). To be sure, the Court clarified that the mail and wire fraud statutes do apply to some intangible property. See Carpenter v. United States, 484 U.S. 19, 25-27 (1987) (property right in exclusive use of confidential business information). However, Ciminelli is the Court's first opportunity to determine whether there is an intangible property right to complete and accurate information when making decisions of economic value.

The Ninth Circuit case law, by contrast, is clear. In United States v. Yates, the Court explained, "[t]here is no cognizable property interest in 'the ethereal right to accurate information.'" 16 F.4th 256, 265 (9th Cir. 2021). While "trade secrets or confidential business information can constitute something of value ... the right to make an informed business decision ... cannot." Id. The Court further noted, "recognizing accurate information as property would transform all deception into fraud." Id. at 265, 268-269. In other words, depriving someone of accurate information doesn't necessarily affect their right to control possession, use, or exclusion from property.

Yet prosecutors continue to try and fit square pegs like intangible interests into the round hole of traditional property rights under the theory that inaccurate information deprives victims of their right to control. For example, we recently represented an advertising executive charged with participation in a scheme to acquire inactive "netblocks" of legacy IP addresses. The government charged our client and others with wire fraud and electronic mail fraud, alleging defendants acquired the netblocks without authorization and then deceived internet hosting companies with false letters of authorization. Had the case gone to trial, the government would have had to prove 1) IP netblocks are property, and 2) inaccurate information provided to someone other than the victim deprived netblock holders of property. See United States v. Bychak, No. 18-CR-4683-GPC, 2021 WL 734371 at *11 (S.D. Cal. Feb. 25, 2021). [Note: Following opening statements at trial, the government dropped the wire fraud charges]. Our case underscored the ways prosecutors seek to criminalize behavior that appears immoral or unethical without the requisite showing of contemplated harm to the victim's property.

What's Next?

The right to control theory may soon be history, but Ciminelli probably won't produce a single, unified guideline restraining the scope of the wire fraud statute. Prosecutors will still aggressively target behaviors like undisclosed self-dealing, government corruption, unethical business practices and rule-breaking in private organizations. These often involve theories of inaccurate or misleading information which deprived victims of money or property. Therefore, understanding the intangible rights case law will continue to be key for white collar defense counsel.