In previous installments in this series, we learned that federal courts treat the mail- and wire-fraud statutes differently from common-law fraud, but the boundaries between the two species are unclear. All we can really tease out of the Supreme Court cases is that—to establish mail- or wire-fraud—materiality is an element, reliance is not, and deceit standing alone is insufficient to establish the crime. So, what are the limits and where should they be placed? A recent, much-in-the-news case, United States v. Porat, should prove illuminating.
Moshe Porat, the former dean of the Fox School of Business at Temple University, was convicted for his scheme to raise Fox's US News and World Report rankings. At trial, the government offered evidence that many people rely on rankings to compare business schools. During Porat’s tenure at Fox, he became “almost obsessed with rankings,” and “[a]t some point, Porat's efforts to raise Fox's rankings crossed the line from strategy to falsification.” Evidence at trial showed that Fox submitted false data to rankings organizations and that—as a result of these deceptions—Fox’s MBA programs rose precipitously in the rankings. The school aggressively marketed its rankings success, and other evidence at trial showed that these efforts worked. Ultimately, the scheme was exposed, and as it unraveled, Fox’s rankings plummeted, as did its enrollment.
Porat was ultimately tried and convicted, and the Third Circuit had little trouble finding that “[b]ased on the evidence at trial, a rational jury could have found beyond a reasonable doubt that Porat engaged in the kind of scheme the wire-fraud statute criminalizes: that is, that Porat trumpeted Fox's knowingly false, inflated rankings to students for the purpose of enticing his victims to pay tuition money.” Likewise, it found plenty of evidence that this financial purpose was the object of the scheme and that the false, inflated ranking lured students into Fox’s MBA programs.
In a lengthy concurrence, Judge Krause—while agreeing that Porat’s conduct crossed well over into wire-fraud territory—was concerned to explore the line between deceit and statutory fraud. He started his exploration with the common-sense observation that “[n]ot every tort or breach of contract claim can (or should) be prosecuted as a federal crime.” There are plenty of other avenues for vindicating the rights of fraud victims, so principles of federalism and due process urge caution before engaging federal prosecutorial machinery. And yet, he continued, “there is a continued need for vigilance, lest prosecutors convert the fraud statutes—and the lengthy prison sentences that they can trigger—into tools to regulate good morals and business ethics.” His mission, then, is to “cabin what counts as criminal fraud” and review case law lessons that teach methods “for distinguishing tortious misrepresentations from criminal fraud offenses.”
Judge Krause acknowledges that the problem he’s mulling over is not new: “There long has been a tug-of-war over the breadth of the fraud statutes.” As he sees it, the mail fraud law came along at a time (1872) when the nation was experiencing twin, conflicting urges: the federal government was in a period of expanding its policing reach and the economy was both growing and integrating in ways conductive to massive deception. Prosecutors seized on the statute’s loose language and, with the lower courts’ endorsement, “defined its ‘property’ requirement impossibly broadly, transforming the mail-fraud statute into a scheme to enforce ‘moral rectitude in commercial matters.’” And with a perceived license to interpret expansively, “the fraud statutes became,” in then-prosecutor, now-Judge Jed Rakoff’s words, “federal prosecutors’ Stradivarius, our Colt 45, our Louisville Slugger, our Cuisinart—and our true love.” And this, despite the Supreme Court’s repeated admonitions that the fraud statutes “are limited in scope to the protection of property rights only,” “do not enact Article III judges' sense of moral uprightness, of fundamental honesty, fair play and right dealing,” and do not set “standards of disclosure and good government for local and state officials.”
So why do federal prosecutors continue to offer novel fraud theories that run afoul of the Supreme Court’s push to narrow the application of the fraud statutes? A good part of the answer comes from what criminal-law theorists call “overcriminalization.” As a phenomenon, Ellen Podgor suggests that:
In addition to driving mass incarceration, overcriminalization has also been faulted for allowing increased prosecutorial charging discretion. The increasing number of federal criminal statutes, especially in the last forty years, provides increased choices to prosecutors when proceeding against individuals. Overfederalization, an outgrowth of overcriminalization, allows prosecutors to stretch criminal statutes, use “shortcut offenses,” stack multiple charges for the same crime, and proceed against individuals who may be unaware of the criminality of their conduct.
What is it in federal criminal statutes that makes them susceptible to “stretching”? First, as Podgor notes, “the opaque statutory language used in some federal offenses radiates legal confusion. Issues of vagueness, ambiguity, and overbreadth arise when there are statutes that seek to criminalize large swaths of conduct without specifying explicitly what constitutes criminality.” And this linguistic conundrum is nowhere more self-evident than in the fraud statutes themselves. But before turning to them, some definitional spadework is necessary.
Courts often find that “ambiguity” lurks within statutory language that they are attempting to interpret and apply. And some courts characterize ambiguity as either “patent” (which is to say facially obvious) or “latent” (which is to say apparent only in context). Helpful as this distinction may be with respect to contract interpretation (e.g., whether to allow the introduction of parol evidence), it doesn’t tell us much about why particular language is ambiguous. And even in leading case opinions, “ambiguity” is often a shorthand term for language that is unclear. For example, in McNally, the Court found the mail-fraud statute ambiguous: “Rather than construe the statute in a manner that leaves its outer boundaries ambiguous … we read [the statute] as limited in scope.” But in worrying about “outer boundaries”—i.e., what is included in a class—the Court is tacitly invoking a standard definition of “vagueness.” Michael Herz helpfully draws out the distinction: if someone or something is “cool,” that could indicate that the person or thing is “hip” or “of low temperature” or “of even temperament” and is thus ambiguous. By contrast, words like “tall” are vague because “no bright line [exists] between those individuals who are tall and those who are not.” And some words can be both ambiguous and vague: “cool,” as already noted, is ambiguous, but “in the temperature sense, it is also vague.”
In many cases, technical ambiguity—i.e., ambiguity inherent in the use of a word that has multiple dictionary definitions—can be resolved interpretively by considering context. Reverting to our running example of “cool,” we quickly—unconsciously, even—disambiguate the sentence, “It was cool that November afternoon, so I put on a sweater before we went outside.” That is, we link—almost automatically—November, sweater, and outside to know that cool here is used in the temperature sense, not the hip sense. But that doesn’t work with vagueness because interpretive effort can’t specify the semantic content of a vague term. In the presence of a vague term, then, all a court can do is either declare it hopelessly vague or assign a meaning—a line drawing—that (although arbitrary) seems principled in a given context: sheep on this side, goats on the other.
And that would seem to be the case with the federal fraud statutes. Just as vague terms like “tall” or “mountain” resist inquiry, so it is with “scheme to defraud.” And what we find is that the Supreme Court has been engaged in a line-drawing series of cases that have uniformly put novel prosecutorial charges on the “goat” side of the line, all in effort to avoid finding the statutes unconstitutionally vague. The conundrum arises because the Fifth Amendment bars enforcement of impermissibly vague criminal laws. This “void-for-vagueness doctrine … guarantees that ordinary people have ‘fair notice’ of the conduct a statute proscribes.” Thus, “A statute is void on vagueness grounds if it … fails to provide people of ordinary intelligence a reasonable opportunity to understand what conduct it prohibits.” As Judge Krause sums it up, “The constraints that the Court has imposed in McNally, Skilling, Kelly, and Ciminelli promote this due process principle.”
