Reported by Sabrina Willmer and Patricia Hurtado

Summary version of report featured below

Recent rulings by the US Supreme Court and a lower appellate panel have made it more difficult to bring charges related to certain types of white-collar fraud cases. These decisions have narrowed the use of federal fraud statutes, limiting the ability to criminalize conduct that doesn’t involve stealing money or tangible property. The court overturned the wire fraud conviction of New York real estate developer Louis Ciminelli, rejecting the “right-to-control theory” that treats information as a protected interest and potentially criminalizes deceptive acts. This theory had been used by prosecutors in numerous cases, but the court’s decision questions its validity.

The Supreme Court’s rulings may lead to increased uncertainty and drag out ongoing cases, as the government reevaluates its legal theories. This uncertainty could harm consumers and investors who rely on clear enforcement guidelines. Additionally, the decisions might impact efforts to combat money laundering and sanctions evasion when foreign entities deceive US financial institutions. Stricter regulation advocates worry that more fraud and criminality in financial markets will discourage investment, hinder capital and business formation, and ultimately impact employment.

The recent rulings also address the theft of honest services. In the Joseph Percoco case, the court limited the scope of prosecutions for this offense by stating that conduct occurring after an official resigns cannot be prosecuted. Similarly, in the “Varsity Blues” college admissions scandal, the Boston appeals panel rejected the honest services theft claim, as the alleged victim was the university receiving the donations.

Defense attorneys are seizing on these rulings to challenge their clients’ convictions or persuade the government to drop investigations. Some defendants argue that the right-to-control theory was the basis for their charges and seek to have their cases reconsidered. For instance, former FTX CEO Sam Bankman-Fried believes the recent decisions have a direct bearing on his case, where he is accused of orchestrating a multibillion-dollar fraud through his cryptocurrency exchange.

While the end of the right-to-control theory may not impact many cases overall, it could significantly influence the prosecution and outcome of important cases. These rulings reflect a pushback against aggressive prosecutorial strategies and may shape the future landscape of white-collar crime enforcement.

Read full report: https://news.bloomberglaw.com/banking-law/supreme-court-rulings-make-us-white-collar-fraud-charges-harder