Federal prosecutors often use charges of mail fraud and wire fraud to add onto indictments alleging other complex, substantive crimes. This devious strategy is often used to increase the potential range of punishment or to make convicting a defendant changed with a complex fraud easier. Why? Because almost every conceivable transaction in today’s world uses the mail, phone or electronic communication in some way to further its purpose. A simple phone call or e-mail made in furtherance of an alleged scheme is all it takes to support a wire fraud allegation and end up in federal court.
There are sixteen selected Federal fraud laws in this country. Two of those are the wire and mail fraud statutes governed by Sections 1343 and 1341 of Title 18, United States Code. The elements of wire and mail fraud parallel each other. The mail fraud statute prohibits any “scheme or artifice to defraud” that uses or involves the U.S. mail while wire fraud statute prohibits the use of a cell phone or a computer, or any device that sends information across state lines, in an attempt to defraud.
The policy of the U.S. Justice Department is that fraud prosecutions should not be undertaken if the scheme to defraud involves isolated transactions between individuals. Such transactions generally involve either minor financial loss or individual victims. The Justice Department feels these fraud-based transactions should be handled in civil or criminal litigation in state courts.
However, the Justice Department firmly believes that prosecution should be pursued when the nature of the scheme targets defrauding a class of persons or the public in general. Such prosecutions usually include wire and mail fraud charges.
For example, the Justice Department opened a serious fraud investigation through the Manhattan U.S. Attorney’s Office into whether General Motors made misleading statements about a deadly ignition switch flaw that reportedly caused the deaths of 13 people. Opened in July 2014, prosecutors are using the wire and mail fraud statutes as the core basis of the investigation—the same tactic the Government used against Toyota Motor Corp., forcing that auto manufacturer to accept a $1.2 billion penalty to settle the criminal investigation.
To establish fraud in these kinds of cases, the Government must prove that insiders in the company knew about the deadly defects and either failed to disclose or misled regulators about the defects. Because prosecutions against corporate giants like GM require the expenditure of enormous resources and target politically powerful individuals, criminal charges are infrequent and convictions never a sure thing.
Therefore, prosecutors will often opt for a financial criminal penalty against the company and allow its executives to escape personal criminal exposure.
Criminal convictions for wire and mail fraud are not so kind. The penalties for conviction under either statute can result in imprisonment up to 20 years and fines of $250,000. If the fraud scheme affects a financial institution or is connected to a presidential declared disaster or emergency, the penalty can be imprisonment up to 30 years and a fine of $1,000,000.
It is significant to note that a person does not have to directly wire or mail anything fraudulent to be charged under either statute. Any alleged scheme that uses the mail, phone or electronic communication in furtherance of the scheme, which in occurs in almost every conceivable transaction, can result in an indictment and conviction. That’s why the Government generally adds wire and mail fraud counts to indictments charging tax fraud, health care fraud, honest services fraud, securities fraud, and bank and mortgage fraud.
There are many defenses to wire and mail fraud indictments, two of the most common being good faith and “puffery.”
Any scheme to defraud requires a showing of intent to defraud. An individual who acts in good faith without the requisite intent to enter into a scheme to defraud cannot be convicted of wire or mail fraud. “Puffery” occurs when salespeople use flattery, exaggerations, or opinionated statements to get people to buy something. It can also be called “puffing.” It can be used as a defense against wire fraud when the sales pitch involves exaggerated claims, but it cannot be used when the claims are intentionally and materially false.