“Property” Fraud in an Intangible Age│USA

The federal mail and wire fraud statutes make it a crime to obtain “money or property by means of false or fraudulent pretenses” in the United States of America (18 U.S.C. §§ 1341, 1343). The US Supreme Court has long construed the word “property” to mean “something of value”. However, the federal fraud statutes were written long before the age of intangibles and courts increasingly face the first-impression task of applying the property prong of old fraud statutes to such “new age” concepts.

This creates challenges for federal prosecutors and opportunities for defence counsel. In 2023, in Ciminelli v United States, the US Supreme Court is expected to offer further guidance on the so-called right-to-control theory of fraud involving interference with property interests.

The boundaries of the term “property” have expanded and contracted since the enactment of the wire fraud statute in 1952.

In the early 1980s, prosecutors used the federal mail and wire fraud statutes to attack various forms of corruption that deprived victims of intangible rights seemingly unrelated to “property” – for example, the electoral body’s right to a fair election and a client’s right to his attorney’s loyalty. In 1987, the US Supreme Court sharply limited the development of the intangible-rights doctrine, holding in McNally v United States that the mail fraud statute did not reach the intangible right to “good government”.

Months later, in Carpenter v United States, the US Supreme Court clarified that the wire and mail fraud statutes do apply to some intangible interests. The court held that a newspaper’s interest in “the confidentiality of the contents and [the] timing” of its columns was a property interest, reasoning that confidential information “is stock in trade… to be distributed and sold to those who will pay money for it”. The court added that a newspaper’s “right to exclusive use of the information” is an “important aspect” of private property.

Since the turn of the century, there have been several key US Supreme Court precedents in relation to property fraud, and the definition thereof.

In each of these cases, the US Supreme Court applied the term “property” under the federal fraud statutes to an intangible right; however, only the Carpenter case involved the taking of arguably private “property”. The others each involved an alleged fraud against a governmental body or the public at large. Thus, the most recent case may not have altered the US Supreme Court’s precedent regarding what constitutes property – rather, Kelly reaffirmed its precedent by holding that the “exercise of regulatory power” is not property.

Against this backdrop, lower courts grapple with questions about the application of these statutes in what has become known as “the intangible age”. Judges are faced with the challenge of applying fraud statutes from a pre-digital age to rapidly evolving technology that turns the whole concept of property on its head. Post-Kelly decisions that focus on the right to control, informational rights, and the existence of a market serve as guideposts for judges considering whether the bundle of intangible rights imbued to technology users rank as “property” under the wire fraud statute.

While the US Supreme Court has yet to expressly endorse a right-to-control theory in the context of federal fraud statutes, prosecutors have long relied on it to argue that new types of intangibles are the object of property fraud schemes. In recent cases, lower courts have opined on the adequacy of the right to control as a means for determining whether intangibles are “property” under the federal fraud statutes – with the following among the differing outcomes.

In late 2022, the US Supreme Court was presented with another opportunity to opine on the right-to-control theory in a bid-rigging case prosecuted under the wire fraud statute (Ciminelli vs United States).

The issue is whether the Second Circuit’s right-to-control theory of fraud – which treats the deprivation of complete and accurate information influencing a person’s economic decision as a species of property fraud – states a valid basis for liability. Pulling back from its broader argument in the lower courts, the government conceded that the right to control the disposition of one’s assets – without limitation – “could lead to overbroad results that would expand property fraud beyond its definition at common law and as Congress would have understood it”.  

The decision in Ciminelli promises to have far-reaching implications likely limiting the right-to-control theory in federal fraud prosecutions.

Although confidential business information has long been protected by US Supreme Court precedent (see Carpenter), recent appellate cases suggest that such information must be “economic” in nature in order to constitute property under the wire fraud statute. These cases hold that there is no property interest – for example, the right to make an informed business decision – in “the ethereal right to accurate information”. In United States v Yates, the Ninth Circuit likewise warned that recognising accurate information as property would “transform all deception into fraud”.

As with the right-to-control theory, and in light of Kelly, federal prosecutors acknowledged in United States v Blaszczak that “information typically must have economic value” to constitute “property” under the federal fraud statutes.

An alternate way to determine the scope of property in the fraud context is to consider how property is treated under other federal statutes. The Hobbs Act targets “property” obtained through extortion (18 U.S.C § 1951(b)(2)). Similarly, the Racketeer Influenced and Corrupt Organizations (RICO) Act imposes a standing requirement, limiting actions to those involving injury to “business or property” (18 U.S.C. § 1964(c)).

Under these statutes, certain intangibles would not qualify as “property” because no market exists for them. In this context, for example, the US Supreme Court held in Scheidler v National Organization for Women that “exclusive control” of assets does not amount to “something of value” that could be exercised, transferred, or sold.

This market-based approach is consistent with US Supreme Court precedent in the wire fraud context. In concluding that the intangible right to confidential business information is “property” under the wire fraud statute, the US Supreme Court in the aforementioned Carpenter case reasoned that such information may “be distributed and sold to those who will pay money for it”.

The due process clause of the Fifth Amendment requires federal statutes to provide “a person of ordinary intelligence fair notice of what is prohibited”. The term “property” is undefined by the federal criminal fraud statutes.

While the US Supreme Court has considered the “property” element as it applies to certain intangibles (primarily those involving rights of governmental bodies), it has never articulated a clear framework for determining whether something intangible is property – particularly something involving access to a common public resource such as the internet.

This lack of clarity creates due process issues arising from vagueness and lack of fair notice. To the extent that “property” is used ambiguously in the federal fraud statutes, the US Supreme Court has instructed that ambiguity concerning the ambit of criminal statutes should be resolved in favour of lenity.

There is uncertainty in the law regarding what is covered by the term “property” in the federal fraud statutes, resulting in due process concerns arising from vagueness and lack of fair notice. The internet, untethered digital currency, and the metaverse are raising questions about the traditional understandings of things and possessions.

Until legislatures provide greater clarity, prosecutors will grapple with whether prosecutions involving intangibles are fair applications of older statutes. And defence attorneys should challenge prosecutions alleging facts that may smell of wrongdoing but do not clearly violate statutes written in a different age.