Sometimes – especially when money is involved – lawyers, judges, and ordinary people are in situations where what happened in a situation is fairly clear, but the interpretations of that differ. A prosecutor might look at one set of facts and conclude a person committed fraud, while a defense lawyer might look at the same facts and conclude no one did anything against the law. How does this get settled?
The answer is that charges are made up of building blocks called elements (thus the “elements of fraud”). Every charge, from a speeding ticket to murder, has a list of elements associated with it, and the government has to prove each and every one of those elements for the judge to find the accused person guilty. Put another way, the elements are the charge. This is true unless there is some “affirmative defense” to the charge – such as, as you may have seen on TV or the movies, “pleading insanity.”
In Minnesota, for example, the elements of first-degree murder are: a person must have died, the accused must have caused their death, the accused must have done so intentionally and with premeditation, and it needed to have happened in the county where it is being charged. If all these are not present, then the law is that the person cannot be found guilty of first-degree murder.
Fraud in federal court is a more complicated violation. To start with, there are a number of different kinds of fraud charges, such as health care, securities, and bank fraud. Each have their own elements and their own nuances to defending them. But the most common are mail fraud and wire fraud. Mail and wire fraud have similar elements – that the accused person either made up a “scheme to defraud”, or participated in a scheme to defraud knowing it was fraudulent, or participated in a scheme to obtain money or property or property rights through false representations – that the accused acted with “intent to defraud” – and that the accused used either the mail system or an electronic communication (like a text, email, or fax) to carry out the scheme.
Breaking these down: whether the accused person used the mail (or email, text messages, or the like) as part of their business as part of their business is rarely a major issue. Usually the dispute revolves instead around whether there is a scheme to defraud and an intent to defraud.
For example, a person might argue that everything they said was true, so they did not devise a scheme to defraud. The essence of a scheme to defraud is an attempt to mislead someone or something in a financial matter and, without a scheme to defraud, the person cannot be found guilty. Depending on the facts of the case, an argument like this can be a powerful one for judges or juries.
Or, for example, a person accused of fraud might say that the optics of what happened were bad, but their motives were not, so they had no intent to defraud. That is, they did not intend to mislead or cheat or deceive anyone and did not commit fraud. Intent to defraud is an important legal principle because, while there are many ways to commit fraud (for example, actively hiding an important fact from someone you are doing business with may be fraudulent) no one can commit fraud accidentally.
Books could – and have – been written discussing only important federal fraud cases. This blog post will not go into that much detail, but here are a few pertinent cases to illustrate some of the important contours of what legally qualifies as intent to defraud and a scheme to defraud:
Shaw v. United States was a 2016 Supreme Court case where the defendant, Shaw, was accused of misleading a bank to misappropriate a third party’s funds. The defendant was convicted of bank fraud. He challenged that conviction. He argued that everyone agreed the bank was not harmed (even if the third party was), and therefore he could not have had any intent to defraud the bank. But the Supreme Court disagreed, saying he deceived the bank and misled the bank. And, even if the bank “ultimately did not suffer unreimbursed loss,” an intent to deceive the bank was enough (an important element of fraud charges). Another Supreme Court case, Loughrin v. United States (heard in 2014) is similar. There, the defendant stole checks, altered them, and tried to buy things at Target with the faked checks. He too was charged with bank fraud, and he too said he should not have been convicted of that because he tried to steal from Target – not the banks. The Supreme Court disagreed with that as well.
On the other hand, the 2010 Supreme Court case Skilling v. United States grappled with the concept of a scheme to defraud generally, and – specifically – whether Jeff Skilling, the CEO of Enron during its scandal, should have been convicted of honest services fraud. Essentially, one of the prosecutors’ arguments was Skilling participated in a scheme to defraud by enriching himself at the expense of the shareholders. Skilling said, even if this was true, it was not enough for a conviction. The Supreme Court agreed it was not, finding that, for honest services fraud, a scheme to defraud could only extend to bribery or kickback schemes, which this was not. As a result of this intricate argument and decision, Skilling’s prison sentence was reduced by ten years.
Cases like this are complicated, but they are important. What a fraud prosecutor will try to do is to closely associate the facts of the situation with the elements of fraud. And what skilled defense lawyers can do is try to drive a wedge between what happened and the elements. Translating these complicated legal terms into real world experiences requires nuance.
This is complicated. But an experienced lawyer can help you navigate these waters and translate real world experiences into complicated legal terms. If you’re in need, fill out the contact form here and get touch with us today.