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Supreme Court Decision Endorses Fraudulent-Inducement Theory Under Federal Wire Fraud Statute, Resolving Circuit Split And Confirming Broad Reading Of Statute
06/17/2025On May 22, 2025, in a significant decision that clarifies the scope of the federal wire fraud statute and resolves a circuit split, the U.S. Supreme Court upheld a pair of wire fraud convictions that had been premised on a fraudulent-inducement theory without a showing that defendants intended to cause, or in fact caused, their victims a net economic loss. Kousisis v. United States, 145 S. Ct. 1382 (2025). The Court’s unanimous decision embraced a broad reading of the federal wire fraud statute, making clear that a defendant may be convicted as long as they fraudulently induce a victim to provide money or property under materially false pretenses, regardless of the ultimate economic impact to the victim. While the decision leaves largely unresolved how materiality will be defined in any individual case, it allows prosecutors additional flexibility to pursue federal wire fraud prosecutions in a range of circumstances.
The Alleged Fraudulent-Inducement At Issue In Kousisis
In the Kousisis case, defendants (the “Petitioners”) had been convicted at trial of engaging in a fraudulent scheme that allegedly involved making false representations to the Pennsylvania Department of Transportation (“PennDOT”) and failing to adhere to contract requirements regarding their support for disadvantaged businesses. Specifically, Petitioners were accused of securing two government contracts for painting projects in Philadelphia by claiming, among other things, that they would subcontract a portion of every contract to a “disadvantaged business enterprise.” In the process of securing the contracts, Petitioners allegedly made a false representation that they would subcontract a specific prequalified disadvantaged business when in fact they only arranged for that entity to operate as a pass-through entity to funnel checks and invoices to another entity. There was no allegation that Petitioners failed to perform the work demanded in a commercially satisfactory way, but because they allegedly lied about this aspect of who would do the work (and be rewarded for it), which the contract had described as a material term, they were later accused of fraud.
The Department of Justice (“DOJ”) charged Petitioners with wire fraud under 18 U.S.C. § 1343 and conspiracy to commit wire fraud under 18 U.S.C. § 1349. The federal wire fraud statute prohibits the use of interstate wires in furtherance of schemes to obtain money or property by means of materially “false or fraudulent pretenses, representations, or promises.” 18 U.S.C. § 1343.
The DOJ argued that Petitioners induced PennDOT to award them the painting contracts based on false pretenses. Meanwhile, at both trial and on appeal, Petitioners argued that their conduct did not constitute wire fraud because PennDOT received the full economic benefit of its bargain and suffered no financial loss.
The Supreme Court Decision
The Court found Petitioners’ alleged scheme of obtaining money or property through false representations to PennDOT sufficient to constitute a wire fraud scheme, irrespective of the lack of any net economic loss. The Court supported the DOJ’s use of the fraudulent-inducement theory and held that a defendant may be convicted of federal wire fraud for inducing a victim to enter a transaction under materially false pretenses even if the defendant did not intend to cause an economic loss to the victim and even if the alleged perpetrator provided bargained-for goods or services to the victim. The Court held that the fraudulent-inducement theory is consistent with the wire fraud statute and its own prior precedent.
This decision resolved a key circuit split. Prior to the Court’s decision, the circuits were divided on whether there was an economic loss requirement for federal wire fraud convictions. The Third, Seventh, Eighth, and Tenth Circuits had adopted the fraudulent-inducement theory, which does not require a showing of net economic loss. See, e.g., United States v. Kousisis, 82 F.4th 230, 240–44 (3d Cir. 2023); United States v. Leahy, 464 F.3d 773, 787–89 (7th Cir. 2006); United States v. Granberry, 908 F.2d 278, 280 (8th Cir. 1990); United States v. Richter, 796 F.3d 1173, 1192 (10th Cir. 2015). By contrast, the Second, Sixth, Ninth, Eleventh, and D.C. Circuits had required a showing of net economic loss. See, e.g., United States v. Shellef, 507 F.3d 82, 108–09 (2d Cir. 2007); United States v. Sadlar, 750 F.3d 585, 590–92 (6th Cir. 2014); United States v. Bruchhausen, 977 F.2d 464, 467–468 (9th Cir. 1992); United States v. Takhalov, 827 F.3d 1307, 1312–14 (11th Cir. 2016); United States v. Guertin, 67 F.4th 445, 450–52 (D.C. Cir. 2023).
While the Court affirmed use of the fraudulent-inducement theory, it declined to articulate a clear standard defining a material misrepresentation. The DOJ proposed an “essence-of-the-bargain” test, where a misrepresentation is material only if it goes to the very essence of the parties’ bargain. Petitioners instead proposed “the traditional materiality test” based on common law. But because the Petitioners did not contest that their misrepresentations were material, the Court declined to address which test applies. The Court simply affirmed that materiality is a requirement and that “[a] conviction premised on the fraudulent-inducement theory cannot be sustained without it.” 145 S. Ct. at 1396. The requirement is later referred to in the opinion as “the ‘demanding’ materiality requirement” that “substantially narrows the universe of actionable misrepresentations,” but ultimately the Court leaves it up to lower courts to decide how to apply this standard under federal fraud statutes. Id. at 1385.
Implications For The DOJ’s Pursuit Of Wire Fraud Cases Moving Forward
Kousisis follows a series of Supreme Court decisions⸺with two recent cases being Ciminelli v. United States, 143 S. Ct. 1121 (2023), and Kelly v. United States, 140 S. Ct. 1565 (2020)⸺where the Court reversed federal fraud convictions and upheld narrow readings of federal fraud statutes.The Court’s broad reading of the wire fraud statute, as to not require a showing of intent to cause economic loss, deviates from this trend and could have significant implications on the DOJ’s prosecution of wire fraud schemes moving forward.
The Court’s decision could embolden DOJ prosecutors to aggressively pursue wire fraud cases where financial loss is absent, including for more political purposes. In addition, the Court’s decision could lead to an increase in the DOJ pursuing criminal fraud charges in tandem with the False Claims Act (“FCA”), which was enacted to combat fraud in government contracts. Ultimately, while defendants will still have ample ability to argue that a given misstatement is not “materially” false for purposes of the federal fraud statutes, this decision removes a bright line that had applied in certain circuits and without which certain defendants will face increased uncertainty as to what types of misstatements can trigger federal fraud claims.
