Honest services fraud
Encyclopedia
Honest services fraud refers to a 28-word sentence of (the federal mail and wire fraud
statute), added by the United States Congress
in 1988, which states: "For the purposes of this chapter, the term, scheme or artifice to defraud includes a scheme or artifice to deprive another of the intangible right of honest services."
The statute has been applied by federal prosecutors in cases of public corruption as well as in cases in which private individuals breached a fiduciary duty to another. In the former, the courts notably have been divided on the question of whether a state law violation is necessary for honest services fraud to have occurred. In the latter, the courts notably have taken differing approaches to determining whether a private individual has committed honest services fraud – a test based on reasonably foreseeable economic harm and a test based on materiality. The statute, which has been a target of criticism, has been successfully challenged before the Supreme Court of the United States
by Jeffrey Skilling
. The Court ruled that the statute was drafted with unconstitutional vagueness and henceforth will only cover "fraudulent schemes to deprive another of honest services through bribes or kickbacks supplied by a third party who ha[s] not been deceived."
ruled in McNally v. United States
that the mail fraud and wire fraud statutes pertained strictly to schemes to defraud victims of tangible property, including money. In 1988, Congress enacted a new law that specifically criminalized schemes to defraud victims of "the intangible right of honest services."
(direct or indirect), where a public official was paid in some way for a particular decision or action, and failure to disclose a conflict of interest
, resulting in personal gain.
decided in United States v. Brumley that in order for a state official to have committed honest services fraud, they must have violated the state statute defining the services which they owed to their employer (the state).
However, the First, Fourth, Ninth
, and Eleventh Circuit Courts have all held that the federal statute does not limit the meaning of "honest services" to violations of state law. As the Ninth Circuit decided in United States v. Weyhrauch in 2008:
The defendant in that case, Bruce Weyhrauch
, is currently appealing that decision to the United States Supreme Court, which granted certiorari.
set a key limit on honest services fraud in United States v. Czubinski, ruling that a mere workplace violation does not constitute fraud without evidence of depriving the employer of property in some way. Richard Czubinski was employed in Massachusetts
by the Internal Revenue Service
when, in 1992, he violated IRS rules by carrying out several unauthorized searches of the IRS database and accessing files outside of the course of his official duties. In 1995, he was convicted of wire fraud (defrauding the IRS of property and the public of his honest services) and computer fraud. The appellate court reversed the honest services fraud conviction on the basis that Czubinski's actions did not amount to anything more than a workplace violation, warranting no more than a dismissal:
Czubinski's other convictions were also reversed.
Generally, the federal circuit courts have adhered to one of two approaches when dealing with honest services fraud cases. One, the "reasonably foreseeable economic harm" test, requires that the defendant intentionally breached his fiduciary duty and "foresaw or reasonably should have foreseen" that his actions could cause economic harm to his victim. The other, the "materiality" test, requires that the defendant possessed a fraudulent intent and made "any misrepresentation that has the natural tendency to influence or is capable of influencing" the victim to change his behavior.
held in United States v. Frost that private individuals could be also convicted of honest services fraud. Two professors at the University of Tennessee Space Institute
, Walter Frost and Robert Eugene Turner, were also president and vice president, respectively, of FWG Associates, a private atmospheric science research firm. Frost and Turner gave FWG reports to two of their students, one a doctoral candidate employed by the Department of the Army
and one a masters degree candidate employed by NASA, allowing them to plagiarize an overwhelming majority of the reports for their respective dissertations. They also allowed another doctoral candidate, employed by NASA, to submit a dissertation which was mostly written by one of their employees at FWG. Their aim was to secure federal contracts with the agencies employing these students. All three students received their degrees, facilitated by Frost and Turner. In addition to many other charges, Frost and Turner were convicted of three counts of mail fraud for defrauding the University of Tennessee
of their honest services as employees. On appeal, Frost and Turner argued that § 1346 did not apply to them because they were not public servants. The court disagreed, ruling that "private individuals, such as Frost and Turner, may commit mail fraud by breaching a fiduciary duty and thereby depriving the person or entity to which the duty is owed of the intangible right to the honest services of that individual."
In 1998, the United States Court of Appeals for the D.C. Circuit upheld the wire fraud conviction of Sun-Diamond Growers of California for defrauding its hired public relations firm of the honest services of one of its agents, James H. Lake, in order to curry favor with the United States Secretary of Agriculture
, Mike Espy
. The corporation's vice president for corporate affairs, Richard Douglas, had acted in the scheme in such a manner that potentially could have caused economic harm to the public relations firm (tarnishing its reputation by engaging Lake in illegal activity) – he and Lake had illegally funneled contributions to a congressional candidate, Espy's brother. Sun-Diamond argued that those actions could not be criminal because there was no intent to do economic harm to the firm. However, the court ruled that an intent to do economic harm was not necessary to have committed wire fraud, affirming a pre-McNally decision in light of the 1988 statute:
In 1999, the United States Court of Appeals for the Eleventh Circuit
adopted a similar interpretation in United States v. deVegter. Michael deVegter, a financial advisor hired by Fulton County
, Georgia
, to craft a professional recommendation of the best underwriter for the county to hire. deVegter accepted a payment of about $42,000 from Richard Poirier in exchange for manipulating the report to influence Fulton County into hiring Poirier's investment banking firm for the underwriter job. deVegter and Poirier were both indicted for conspiracy and wire fraud, with the latter including charges under the honest services statute. The district court dismissed the honest services charges for lack of evidence before the trial began; the government appealed. The court agreed with the government that there was sufficient evidence alleged in the indictment for the defendants to be charged with honest services fraud, because the allegations showed a breach of fiduciary duty and an intent to defraud in such a manner that "reasonably foreseeable economic harm to Fulton County" was a consequence of the scheme.
In 2001, the United States Court of Appeals for the Fourth Circuit
recognized that there were two different tests that other circuit courts had generally used to determine whether honest services fraud had been committed; in United States v. Vinyard, it concluded that the "reasonably foreseeable economic harm" test was superior (because it was based on employee intent and not employer response) and applied that test to the case at hand. The defendant in the case, Michael Vinyard, had been convicted in the United States District Court for the District of South Carolina
of fourteen counts of mail fraud and twelve counts of money laundering. His brother, James Vinyard, was an employee of the Sunoco Products Corporation who was charged with finding an independent broker to research recycled resin
s for their manufacture of plastic bags. The brothers instead created their own brokerage, "Charles Stewart Enterprises," incorporated in the state of Iowa, and misrepresented it to Sunoco as an legitimate, independent firm that was supplying recycled resins at the lowest possible price. They purchased recycled resins from plastic vendors and, marking up the price, sold them to Sunoco, which eventually yielded $2.8 million in profits. The brothers funneled these profits from CSE to themselves through another entity in order to conceal their involvement with CSE on their tax returns. When the brothers were eventually indicted for mail fraud and money laundering, James Vinyard pleaded guilty and testified against his brother. Michael Vinyard appealed, arguing that his conviction of honest services fraud (defrauding Sunoco of the honest services of his brother, their employee) was wrongful because he did not cause harm nor did he intend to cause economic harm to the victim, Sunoco. Upholding his conviction, the court rejected this argument:
In 2006, the United States Court of Appeals for the Ninth Circuit
treated the issue of whether private defendants could be prosecuted under § 1346 as settled law, citing the numerous other circuits which had affirmed the practice. In the case United States v. Williams, the defendant, John Anthony Williams, was an Oregon
insurance salesman who had sold several annuities to an elderly rancher named Loyd Stubbs. When Stubbs liquidated his annuities, Williams deposited the resulting funds in a joint bank account he had opened in his and Stubbs' names. Williams proceeded to make massive cash withdrawals from the account, depositing the money in his own personal account and spending much of it; he also wired money to personal bank accounts he had in Belize
and Louisiana
. Williams was convicted of four counts of wire fraud, three counts of mail fraud, three counts of money laundering, and one count of foreign transportation of stolen money; the fraud charges stemmed from schemes to defraud Stubbs of money and of Williams' honest services as his financial advisor. On appeal, Williams argued that § 1346 did not apply to private commerce. The court disagreed, and, citing previous case law, ruled that within a fiduciary relationship the statute applied.
laid out the "materiality" test in its decision in United States v. Gray. Kevin Gray, Gary Thomas, and Troy Drummond were three members of the men's basketball coaching staff at Baylor University
in Texas
. These coaches helped five players, recruited from two-year colleges, to obtain the credits required for eligibility and possibly scholarships by providing these students with written course work or answers to correspondence exams, which were then sent to the sponsoring schools as the students' work. They were convicted of conspiracy, mail fraud, and wire fraud; the fraud charges stemmed from schemes to deprive Baylor University of both property (in the form of scholarships) and the coaches' honest services as Baylor employees. The court upheld the convictions, affirming the honest services fraud convictions on the basis that the coaches made "material" misrepresentations:
In 1997, the United States Court of Appeals for the Tenth Circuit
also applied the "materiality" test in its decision in United States v. Cochran. Robert M. Cochran was a bond underwriter in Oklahoma
who was convicted of five counts of wire fraud, two counts of money laundering, and one count of interstate transportation of stolen property. Three of wire fraud counts for which Cochran was convicted were honest services fraud. Cochran's firm, Stifel, Nicolaus & Company
, served as managing underwriter when the SSM Healthcare System
, a non-profit corporation operating several hospitals and nursing homes, issued more than $265 million of tax-exempt bonds; Sakura Global Capital bid $400,000 to provide SSM with a forward supply contract. However, SGC subsequently made a secret payment of $100,000 to Cochran's firm over the course of three wire transmissions; thus, Cochran supposedly deprived SSM and its bondholders of his honest services. The appellate court reversed his conviction, deciding that the government did not provide sufficient evidence that Cochran had actually defrauded SSM or its bondholders of his honest services, applying the "materiality" test:
In 1999, the United States Court of Appeals for the Eighth Circuit
diverged from the D.C. Circuit's Sun-Diamond ruling in its decision in United States v. Pennington. Donald B. Pennington was the president of Harvest Foods, a grocery store chain in eastern Arkansas
, when that company contracted with a food broker and a consultant, John Oldner, to negotiate deals between it and its suppliers. The broker and consultant both funneled a portion of their money from Harvest Foods and its supplier to Pennington – through a sham corporation, Capitol City Marketing – as kickbacks. Pennington was convicted of money laundering and mail fraud; in his appeal he contended that there was insufficient evidence to convict him because the government had failed to show that he had an intent to defraud Harvest Foods of his honest services as its president. The court upheld the conviction, stating that there was sufficient evidence that his actions were a breach of his duty as a fiduciary of Harvest Foods to disclose his material interest in their contracts with Oldner and the broker. However, the court also went further and required (and found) intent to economically harm:
In 2003, the United States Court of Appeals for the Second Circuit
, like the Fourth Circuit in Vinyard, noted the existence of the two tests, but unlike the Fourth Circuit, it opted to use the "materiality" test (describing it as "arising out of fundamental principles of the law of fraud" and critiquing the alternative as "designed simply to limit the scope" of the law). It applied this test to the case at hand, United States v. Rybicki. The defendants were two personal injury lawyers, Thomas Rybicki and Fredric Grae, in the state of New York
; both were convicted of twenty counts of mail fraud, two counts of wire fraud, and one count of conspiracy. The fraud charges pertained to a scheme to make illegal payments to insurance claims adjusters with the intent of inducing the adjusters to expedite the settlement of certain claims; Rybicki and Grae made such payments in at least twenty cases. As the acceptance of such payments by the adjusters was against the insurance companies' policies, Rybicki and Grae had defrauded those insurance companies of the honest services of their employees. Such was the basis for the successful fraud prosecution. The court affirmed the conviction, determining that all of the necessary elements for the crime of honest services fraud to have occurred were present, including material misrepresentation. The court defined the crime thus:
. The term "honest services" is broad and open to jury interpretation, according to several legal experts. Prosecutions under the 1970 Racketeer Influenced and Corrupt Organizations Act
(RICO) frequently use violations of the honest services statute, as mail and wire fraud are predicate acts of racketeering; therefore, two mailings or wire transmissions in the execution of honest services fraud can form "a pattern of racketeering activity."
Prosecutions for honest services fraud that do not involve public corruption generally involve corporate crime, although the line between tort
s and crimes in such cases is considered murky and unclear.
The law is reportedly a favorite of federal prosecutors because the language of statute is vague enough to be applied to corrupt political officials' unethical or criminal activities when they do not fall into a specific category, such as bribery or extortion. For similar reasons, defense attorneys dislike the law, viewing it as a poorly defined law that can be used by prosecutors to convert any kind of unethical behavior into a federal crime
.
Nevertheless, prosecutors must still prove all the elements of mail fraud or wire fraud in a case regarding a scheme to defraud of honest services.
U.S. Supreme Court Justice Antonin Scalia
has criticized the statute, stating that the clause was so poorly defined that it could be the basis for prosecuting "a mayor for using the prestige of his office to get a table at a restaurant without a reservation."
In The Perfect Villain: John McCain and the Demonization of Lobbyist Jack Abramoff, investigative journalist Gary S. Chafetz argued that honest-services fraud is so vague as to be unconstitutional, and that prosecutors abused it as a tool to increase their conviction rates. Bennett L. Gershmann, a professor at Pace University Law School, similarly has contended that the law "is not only subject to abuse...but has been abused." The case of former Alabama Governor Don Siegelman
is often cited as an example of possible prosecutorial misconduct and abuse of the honest services law.
Many interest groups oppose the usage of the honest services law, including the conservative United States Chamber of Commerce
and Washington Legal Foundation
, as well as the more liberal National Association of Criminal Defense Lawyers
. One notable proponent of the law is the Citizens for Responsibility and Ethics in Washington
.
pleaded guilty in 2006 to honest services fraud in addition to conspiracy and tax evasion; he was convicted in 2008 of further charges of honest services fraud in addition to further charges of conspiracy
and tax evasion
. Former Enron
CEO Jeffrey Skilling
was convicted in 2006 of honest services fraud, in addition to securities fraud
. Former Illinois
governor George Ryan
was convicted in 2006 of honest services fraud, in addition to racketeering
, tax fraud, obstruction of justice
, and making false statements to federal agents. Former Alabama
Governor Don Siegelman
was convicted in 2006 of honest services fraud, in addition to conspiracy, bribery
, and obstruction of justice. Duke Cunningham
, a former Congressman from California, was convicted of corruption charges including honest services fraud. Bob Ney
, a former congressman from Ohio, was convicted of corruption charges including honest services fraud. Newspaper magnate Conrad Black
was convicted in 2007 of honest services fraud, in addition to obstruction of justice. Former Alaska
state legislator
Bruce Weyhrauch
was convicted in 2007 of honest services fraud in addition to bribery and extortion. Former New York
Senate Majority Leader Joseph Bruno
was convicted in 2009 on two counts of honest services fraud. Mary McCarty, a former Palm Beach County Commissioner, is currently serving a federal prison sentence for honest services fraud. New Jersey
political boss Joe Ferriero
was convicted in 2009 of conspiracy and two counts of mail fraud. Former Illinois
governor Rod Blagojevich
was indicted in 2009 for allegedly conspiring to commit honest services fraud, as well as for allegedly soliciting bribes. Former Alabama state legislator Sue Schmitz was convicted in 2009 of three counts of mail fraud and four counts of fraud involving a program receiving federal funds. Judges Mark Ciavarella
and Michael Conahan
originally pled guilty to honest services fraud and conspiracy in the Kids for cash scandal
. The pleas were later withdrawn.
Weyhrauch v. United States, by former Alaska state legislator Bruce Weyhrauch
, deals with whether a public official can be charged with honest services fraud without violating his duty under state law.
Black v. United States
, by newspaper magnate Conrad Black
, deals with whether there must be proof that the defendant knew his actions would cause economic harm to the company.
Skilling v. United States, by former Enron
CEO Jeffrey Skilling
, deals with whether the honest services statute requires proof of personal gain. He is also contending that the statute is unconstitutionally vague and unfair.
In December 2009, the Associated Press
reported that the Justices of the Court "seemed to be in broad agreement that the law is vague and has been used to make a crime out of mistakes, minor transgressions and mere ethical violations." Both liberal and conservative justices have criticized the law. Richard Thornburgh, a former United States Attorney General
, has remarked that he expects the court to issue "something fairly sweeping...without doing violence to proper law enforcement."
On June 24, 2010, the Supreme Court ruled unanimously in the cases of Black and Skilling that the law against "honest services" fraud is too vague to constitute a crime unless a bribe or kickback was involved.
Mail and wire fraud
Mail and wire fraud is a federal crime in the United States. Together, 18 U.S.C. §§ 1341, 1343, and 1346 reach any fraudulent scheme or artifice to intentionally deprive another of property or honest services with a nexus to mail or wire communication....
statute), added by the United States Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
in 1988, which states: "For the purposes of this chapter, the term, scheme or artifice to defraud includes a scheme or artifice to deprive another of the intangible right of honest services."
The statute has been applied by federal prosecutors in cases of public corruption as well as in cases in which private individuals breached a fiduciary duty to another. In the former, the courts notably have been divided on the question of whether a state law violation is necessary for honest services fraud to have occurred. In the latter, the courts notably have taken differing approaches to determining whether a private individual has committed honest services fraud – a test based on reasonably foreseeable economic harm and a test based on materiality. The statute, which has been a target of criticism, has been successfully challenged before the Supreme Court of the United States
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
by Jeffrey Skilling
Trial of Kenneth Lay and Jeffrey Skilling
The trial of Kenneth Lay, former chairman and CEO of Enron,and Jeffrey Skilling, former CEO and COO, was presided over by federal district court Judge Sim Lake in 2006 in response to the Enron scandal.-Timeline:* The trial began January 30, 2006....
. The Court ruled that the statute was drafted with unconstitutional vagueness and henceforth will only cover "fraudulent schemes to deprive another of honest services through bribes or kickbacks supplied by a third party who ha[s] not been deceived."
History and case law
Since at least 1941, particularly in the 1970s and 1980s, and prior to 1987, the courts had interpreted the mail fraud and wire fraud statutes as criminalizing not only schemes to defraud victims of money and property, but also schemes to defraud victims of intangible rights such as the "honest services" of a public official. In 1987, the Supreme Court of the United StatesSupreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
ruled in McNally v. United States
McNally v. United States
McNally v. United States, 483 U.S. 350 was a case in which the United States Supreme Court decided that the federal statute criminalizing mail fraud applied only to the schemes and artifices defrauding victims of money or property, as opposed to those defrauding citizens of their rights to good...
that the mail fraud and wire fraud statutes pertained strictly to schemes to defraud victims of tangible property, including money. In 1988, Congress enacted a new law that specifically criminalized schemes to defraud victims of "the intangible right of honest services."
Meaning of "honest services" in public corruption
Honest services fraud is generally more easily proven in the public sphere than in the private, because honest services fraud by public officials can include most unethical conduct, whereas honest services fraud by private individuals only includes some unethical conduct. Federal courts have generally recognized two main areas of public-sector honest service fraud: briberyBribery
Bribery, a form of corruption, is an act implying money or gift giving that alters the behavior of the recipient. Bribery constitutes a crime and is defined by Black's Law Dictionary as the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or...
(direct or indirect), where a public official was paid in some way for a particular decision or action, and failure to disclose a conflict of interest
Conflict of interest
A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
, resulting in personal gain.
Necessity, or lack thereof, of state law violations
In 1997, the United States Court of Appeals for the Fifth CircuitUnited States Court of Appeals for the Fifth Circuit
The United States Court of Appeals for the Fifth Circuit is a federal court with appellate jurisdiction over the district courts in the following districts:* Eastern District of Louisiana* Middle District of Louisiana...
decided in United States v. Brumley that in order for a state official to have committed honest services fraud, they must have violated the state statute defining the services which they owed to their employer (the state).
We find nothing to suggest that Congress was attempting in § 1346 to garner to the federal government the right to impose upon states a federal vision of appropriate services—to establish, in other words, an ethical regime for state employees. Such a taking of power would sorely tax separation of powers and erode our federalist structure. Under the most natural reading of the statute, a federal prosecutor must prove that conduct of a state official breached a duty respecting the provision of services owed to the official's employer under state law. Stated directly, the official must act or fail to act contrary to the requirements of his job under state law. This means that if the official does all that is required under state law, alleging that the services were not otherwise done "honestly" does not charge a violation of the mail fraud statute.
However, the First, Fourth, Ninth
United States Court of Appeals for the Ninth Circuit
The United States Court of Appeals for the Ninth Circuit is a U.S. federal court with appellate jurisdiction over the district courts in the following districts:* District of Alaska* District of Arizona...
, and Eleventh Circuit Courts have all held that the federal statute does not limit the meaning of "honest services" to violations of state law. As the Ninth Circuit decided in United States v. Weyhrauch in 2008:
Because laws governing official conduct differ from state to state, conditioning mail fraud convictions on state law means that conduct in one state might violate the mail fraud statute, whereas identical conduct in a neighboring state would not. Congress has given no indication it intended the criminality of official conduct under federal law to depend on geography.
The defendant in that case, Bruce Weyhrauch
Bruce Weyhrauch
Bruce Weyhrauch is a former legislator in the Alaska State House representing Juneau. In May 2007, Weyhrauch, along with fellow legislators Pete Kott and Vic Kohring were charged in connection with a scandal involving oilfield service company VECO attempting to buy government favors in Alaska...
, is currently appealing that decision to the United States Supreme Court, which granted certiorari.
Intent to defraud and personal benefit
In 1997, the United States Court of Appeals for the First CircuitUnited States Court of Appeals for the First Circuit
The United States Court of Appeals for the First Circuit is a federal court with appellate jurisdiction over the district courts in the following districts:* District of Maine* District of Massachusetts...
set a key limit on honest services fraud in United States v. Czubinski, ruling that a mere workplace violation does not constitute fraud without evidence of depriving the employer of property in some way. Richard Czubinski was employed in Massachusetts
Massachusetts
The Commonwealth of Massachusetts is a state in the New England region of the northeastern United States of America. It is bordered by Rhode Island and Connecticut to the south, New York to the west, and Vermont and New Hampshire to the north; at its east lies the Atlantic Ocean. As of the 2010...
by the Internal Revenue Service
Internal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
when, in 1992, he violated IRS rules by carrying out several unauthorized searches of the IRS database and accessing files outside of the course of his official duties. In 1995, he was convicted of wire fraud (defrauding the IRS of property and the public of his honest services) and computer fraud. The appellate court reversed the honest services fraud conviction on the basis that Czubinski's actions did not amount to anything more than a workplace violation, warranting no more than a dismissal:
Czubinski was not bribed or otherwise influenced in any public decisionmaking capacity. Nor did he embezzle funds. He did not receive, nor can it be found that he intended to receive, any tangible benefit. ... The conclusive consideration is that the government simply did not prove that Czubinski deprived, or intended to deprive, the public or his employer of their right to his honest services. Although he clearly committed wrongdoing in searching confidential information, there is no suggestion that he failed to carry out his official tasks adequately, or intended to do so.
Czubinski's other convictions were also reversed.
Meaning of "honest services" in private fiduciary relationships
Although the law is most often applied to corrupt public officials, several federal courts have upheld honest services fraud convictions of private individuals who breached a fiduciary duty to another, such as their employer.Generally, the federal circuit courts have adhered to one of two approaches when dealing with honest services fraud cases. One, the "reasonably foreseeable economic harm" test, requires that the defendant intentionally breached his fiduciary duty and "foresaw or reasonably should have foreseen" that his actions could cause economic harm to his victim. The other, the "materiality" test, requires that the defendant possessed a fraudulent intent and made "any misrepresentation that has the natural tendency to influence or is capable of influencing" the victim to change his behavior.
"Reasonably foreseeable economic harm" test
In 1997, the United States Court of Appeals for the Sixth CircuitUnited States Court of Appeals for the Sixth Circuit
The United States Court of Appeals for the Sixth Circuit is a federal court with appellate jurisdiction over the district courts in the following districts:* Eastern District of Kentucky* Western District of Kentucky...
held in United States v. Frost that private individuals could be also convicted of honest services fraud. Two professors at the University of Tennessee Space Institute
University of Tennessee Space Institute
The University of Tennessee Space Institute, also known as UTSI, is a satellite campus of the University of Tennessee located near Tullahoma, Tennessee....
, Walter Frost and Robert Eugene Turner, were also president and vice president, respectively, of FWG Associates, a private atmospheric science research firm. Frost and Turner gave FWG reports to two of their students, one a doctoral candidate employed by the Department of the Army
United States Department of the Army
The Department of the Army is one of the three military departments within the Department of Defense of the United States of America. The Department of the Army is the Federal Government agency which the United States Army is organized within, and it is led by the Secretary of the Army who has...
and one a masters degree candidate employed by NASA, allowing them to plagiarize an overwhelming majority of the reports for their respective dissertations. They also allowed another doctoral candidate, employed by NASA, to submit a dissertation which was mostly written by one of their employees at FWG. Their aim was to secure federal contracts with the agencies employing these students. All three students received their degrees, facilitated by Frost and Turner. In addition to many other charges, Frost and Turner were convicted of three counts of mail fraud for defrauding the University of Tennessee
University of Tennessee
The University of Tennessee is a public land-grant university headquartered at Knoxville, Tennessee, United States...
of their honest services as employees. On appeal, Frost and Turner argued that § 1346 did not apply to them because they were not public servants. The court disagreed, ruling that "private individuals, such as Frost and Turner, may commit mail fraud by breaching a fiduciary duty and thereby depriving the person or entity to which the duty is owed of the intangible right to the honest services of that individual."
In 1998, the United States Court of Appeals for the D.C. Circuit upheld the wire fraud conviction of Sun-Diamond Growers of California for defrauding its hired public relations firm of the honest services of one of its agents, James H. Lake, in order to curry favor with the United States Secretary of Agriculture
United States Secretary of Agriculture
The United States Secretary of Agriculture is the head of the United States Department of Agriculture. The current secretary is Tom Vilsack, who was confirmed by the U.S. Senate on 20 January 2009. The position carries similar responsibilities to those of agriculture ministers in other...
, Mike Espy
Mike Espy
Alphonso Michael "Mike" Espy is a former United States political figure. From 1987 to 1993, he served in the U.S. House of Representatives from Mississippi. He served as the Secretary of Agriculture from 1993 to 1994. He was the first African American Secretary of Agriculture...
. The corporation's vice president for corporate affairs, Richard Douglas, had acted in the scheme in such a manner that potentially could have caused economic harm to the public relations firm (tarnishing its reputation by engaging Lake in illegal activity) – he and Lake had illegally funneled contributions to a congressional candidate, Espy's brother. Sun-Diamond argued that those actions could not be criminal because there was no intent to do economic harm to the firm. However, the court ruled that an intent to do economic harm was not necessary to have committed wire fraud, affirming a pre-McNally decision in light of the 1988 statute:
In the private sector context, § 1346 poses special risks. Every material act of dishonesty by an employee deprives the employer of that worker's "honest services," yet not every such act is converted into a federal crime by the mere use of the mails or interstate phone system. Aware of the risk that federal criminal liability could metastasize, we held in Lemire that "not every breach of a fiduciary duty works a criminal fraud." ... Rather, "[t]here must be a failure to disclose something which in the knowledge or contemplation of the employee poses an independent business risk to the employer." ... Sun-Diamond appears to confuse the requirement of an intent to defraud...with a requirement of intent to cause economic harm.
In 1999, the United States Court of Appeals for the Eleventh Circuit
United States Court of Appeals for the Eleventh Circuit
The United States Court of Appeals for the Eleventh Circuit is a federal court with appellate jurisdiction over the district courts in the following districts:* Middle District of Alabama...
adopted a similar interpretation in United States v. deVegter. Michael deVegter, a financial advisor hired by Fulton County
Fulton County, Georgia
Fulton County is a county located in the U.S. state of Georgia. Its county seat is Atlanta, the state capital since 1868 and the principal county of the Atlanta metropolitan area...
, Georgia
Georgia (U.S. state)
Georgia is a state located in the southeastern United States. It was established in 1732, the last of the original Thirteen Colonies. The state is named after King George II of Great Britain. Georgia was the fourth state to ratify the United States Constitution, on January 2, 1788...
, to craft a professional recommendation of the best underwriter for the county to hire. deVegter accepted a payment of about $42,000 from Richard Poirier in exchange for manipulating the report to influence Fulton County into hiring Poirier's investment banking firm for the underwriter job. deVegter and Poirier were both indicted for conspiracy and wire fraud, with the latter including charges under the honest services statute. The district court dismissed the honest services charges for lack of evidence before the trial began; the government appealed. The court agreed with the government that there was sufficient evidence alleged in the indictment for the defendants to be charged with honest services fraud, because the allegations showed a breach of fiduciary duty and an intent to defraud in such a manner that "reasonably foreseeable economic harm to Fulton County" was a consequence of the scheme.
In 2001, the United States Court of Appeals for the Fourth Circuit
United States Court of Appeals for the Fourth Circuit
The United States Court of Appeals for the Fourth Circuit is a federal court located in Richmond, Virginia, with appellate jurisdiction over the district courts in the following districts:*District of Maryland*Eastern District of North Carolina...
recognized that there were two different tests that other circuit courts had generally used to determine whether honest services fraud had been committed; in United States v. Vinyard, it concluded that the "reasonably foreseeable economic harm" test was superior (because it was based on employee intent and not employer response) and applied that test to the case at hand. The defendant in the case, Michael Vinyard, had been convicted in the United States District Court for the District of South Carolina
United States District Court for the District of South Carolina
The United States District Court for the District of South Carolina is the federal district court whose jurisdiction is the state of South Carolina...
of fourteen counts of mail fraud and twelve counts of money laundering. His brother, James Vinyard, was an employee of the Sunoco Products Corporation who was charged with finding an independent broker to research recycled resin
Resin
Resin in the most specific use of the term is a hydrocarbon secretion of many plants, particularly coniferous trees. Resins are valued for their chemical properties and associated uses, such as the production of varnishes, adhesives, and food glazing agents; as an important source of raw materials...
s for their manufacture of plastic bags. The brothers instead created their own brokerage, "Charles Stewart Enterprises," incorporated in the state of Iowa, and misrepresented it to Sunoco as an legitimate, independent firm that was supplying recycled resins at the lowest possible price. They purchased recycled resins from plastic vendors and, marking up the price, sold them to Sunoco, which eventually yielded $2.8 million in profits. The brothers funneled these profits from CSE to themselves through another entity in order to conceal their involvement with CSE on their tax returns. When the brothers were eventually indicted for mail fraud and money laundering, James Vinyard pleaded guilty and testified against his brother. Michael Vinyard appealed, arguing that his conviction of honest services fraud (defrauding Sunoco of the honest services of his brother, their employee) was wrongful because he did not cause harm nor did he intend to cause economic harm to the victim, Sunoco. Upholding his conviction, the court rejected this argument:
The reasonably foreseeable harm test is met whenever, at the time of the fraud scheme, the employee could foresee that the scheme potentially might be detrimental to the employer's economic well-being. Furthermore, the concept of "economic risk" embraces the idea of risk to future opportunities for savings or profit; the focus on the employer's wellbeing encompasses both the long-term and the short-term health of the business. Whether the risk materializes or not is irrelevant; the point is that the employee has no right to endanger the employer's financial health or jeopardize the employer's long-term prospects through self-dealing. Therefore, so long as the employee could have reasonably foreseen the risk to which he was exposing the employer, the requirements of § 1346 will have been met.
In 2006, the United States Court of Appeals for the Ninth Circuit
United States Court of Appeals for the Ninth Circuit
The United States Court of Appeals for the Ninth Circuit is a U.S. federal court with appellate jurisdiction over the district courts in the following districts:* District of Alaska* District of Arizona...
treated the issue of whether private defendants could be prosecuted under § 1346 as settled law, citing the numerous other circuits which had affirmed the practice. In the case United States v. Williams, the defendant, John Anthony Williams, was an Oregon
Oregon
Oregon is a state in the Pacific Northwest region of the United States. It is located on the Pacific coast, with Washington to the north, California to the south, Nevada on the southeast and Idaho to the east. The Columbia and Snake rivers delineate much of Oregon's northern and eastern...
insurance salesman who had sold several annuities to an elderly rancher named Loyd Stubbs. When Stubbs liquidated his annuities, Williams deposited the resulting funds in a joint bank account he had opened in his and Stubbs' names. Williams proceeded to make massive cash withdrawals from the account, depositing the money in his own personal account and spending much of it; he also wired money to personal bank accounts he had in Belize
Belize
Belize is a constitutional monarchy and the northernmost country in Central America. Belize has a diverse society, comprising many cultures and languages. Even though Kriol and Spanish are spoken among the population, Belize is the only country in Central America where English is the official...
and Louisiana
Louisiana
Louisiana is a state located in the southern region of the United States of America. Its capital is Baton Rouge and largest city is New Orleans. Louisiana is the only state in the U.S. with political subdivisions termed parishes, which are local governments equivalent to counties...
. Williams was convicted of four counts of wire fraud, three counts of mail fraud, three counts of money laundering, and one count of foreign transportation of stolen money; the fraud charges stemmed from schemes to defraud Stubbs of money and of Williams' honest services as his financial advisor. On appeal, Williams argued that § 1346 did not apply to private commerce. The court disagreed, and, citing previous case law, ruled that within a fiduciary relationship the statute applied.
"Materiality" test
In 1996, the United States Court of Appeals for the Fifth CircuitUnited States Court of Appeals for the Fifth Circuit
The United States Court of Appeals for the Fifth Circuit is a federal court with appellate jurisdiction over the district courts in the following districts:* Eastern District of Louisiana* Middle District of Louisiana...
laid out the "materiality" test in its decision in United States v. Gray. Kevin Gray, Gary Thomas, and Troy Drummond were three members of the men's basketball coaching staff at Baylor University
Baylor University
Baylor University is a private, Christian university located in Waco, Texas. Founded in 1845, Baylor is accredited by the Southern Association of Colleges and Schools.-History:...
in Texas
Texas
Texas is the second largest U.S. state by both area and population, and the largest state by area in the contiguous United States.The name, based on the Caddo word "Tejas" meaning "friends" or "allies", was applied by the Spanish to the Caddo themselves and to the region of their settlement in...
. These coaches helped five players, recruited from two-year colleges, to obtain the credits required for eligibility and possibly scholarships by providing these students with written course work or answers to correspondence exams, which were then sent to the sponsoring schools as the students' work. They were convicted of conspiracy, mail fraud, and wire fraud; the fraud charges stemmed from schemes to deprive Baylor University of both property (in the form of scholarships) and the coaches' honest services as Baylor employees. The court upheld the convictions, affirming the honest services fraud convictions on the basis that the coaches made "material" misrepresentations:
A breach of fiduciary duty can constitute illegal fraud...only when there is some detriment to the employer. ... The detriment can be a deprivation of an employee's faithful and honest services if a violation of the employee's duty to disclose material information is involved. ... Materiality exists whenever "an employee has reason to believe the information would lead a reasonable employer to change its business conduct." ... The information withheld, i.e. the "coaches' cheating scheme", was material because Baylor did not get the quality student it expected. Further, appellants failure to disclose the scheme to Baylor was material as Baylor might have been able to recruit other qualified, eligible students to play basketball. Instead, once the scheme was suspected, Baylor was forced to institute a costly investigation and the players under suspicion were withheld from competition. It is quite reasonable to believe that Baylor would have changed its business conduct had it known of the "cheating scheme."
In 1997, the United States Court of Appeals for the Tenth Circuit
United States Court of Appeals for the Tenth Circuit
The United States Court of Appeals for the Tenth Circuit is a federal court with appellate jurisdiction over the district courts in the following districts:* District of Colorado* District of Kansas...
also applied the "materiality" test in its decision in United States v. Cochran. Robert M. Cochran was a bond underwriter in Oklahoma
Oklahoma
Oklahoma is a state located in the South Central region of the United States of America. With an estimated 3,751,351 residents as of the 2010 census and a land area of 68,667 square miles , Oklahoma is the 28th most populous and 20th-largest state...
who was convicted of five counts of wire fraud, two counts of money laundering, and one count of interstate transportation of stolen property. Three of wire fraud counts for which Cochran was convicted were honest services fraud. Cochran's firm, Stifel, Nicolaus & Company
Stifel Nicolaus
Stifel Nicolaus and Company, Inc., incorporated in 1923, is the largest subsidiary of Stifel Financial Corporation and is a member of Securities Investor Protection Corporation . The parent company has several subsidiaries....
, served as managing underwriter when the SSM Healthcare System
SSM Health Care
SSM Health Care is a Catholic, not-for-profit health care system with an international reputation as a pioneer in the use of quality measures to improve care. With 5,400 physicians and 22,000 employees in four states, SSM is one of the largest employers in every community it serves. It is located...
, a non-profit corporation operating several hospitals and nursing homes, issued more than $265 million of tax-exempt bonds; Sakura Global Capital bid $400,000 to provide SSM with a forward supply contract. However, SGC subsequently made a secret payment of $100,000 to Cochran's firm over the course of three wire transmissions; thus, Cochran supposedly deprived SSM and its bondholders of his honest services. The appellate court reversed his conviction, deciding that the government did not provide sufficient evidence that Cochran had actually defrauded SSM or its bondholders of his honest services, applying the "materiality" test:
Though Stifel misrepresented that SGC would not pay an additional fee to Stifel for the forward supply contract, this information resulted in no actual or potential harm to SSM. ... No evidence independent of the alleged scheme suggests in any way that Mr. Cochran sought to harm SSM or its bondholders. Moreover, we know not from this record how SSM would have changed its conduct had the disclosure been made.
In 1999, the United States Court of Appeals for the Eighth Circuit
United States Court of Appeals for the Eighth Circuit
The United States Court of Appeals for the Eighth Circuit is a federal court with appellate jurisdiction over the district courts in the following districts:* Eastern District of Arkansas* Western District of Arkansas...
diverged from the D.C. Circuit's Sun-Diamond ruling in its decision in United States v. Pennington. Donald B. Pennington was the president of Harvest Foods, a grocery store chain in eastern Arkansas
Arkansas
Arkansas is a state located in the southern region of the United States. Its name is an Algonquian name of the Quapaw Indians. Arkansas shares borders with six states , and its eastern border is largely defined by the Mississippi River...
, when that company contracted with a food broker and a consultant, John Oldner, to negotiate deals between it and its suppliers. The broker and consultant both funneled a portion of their money from Harvest Foods and its supplier to Pennington – through a sham corporation, Capitol City Marketing – as kickbacks. Pennington was convicted of money laundering and mail fraud; in his appeal he contended that there was insufficient evidence to convict him because the government had failed to show that he had an intent to defraud Harvest Foods of his honest services as its president. The court upheld the conviction, stating that there was sufficient evidence that his actions were a breach of his duty as a fiduciary of Harvest Foods to disclose his material interest in their contracts with Oldner and the broker. However, the court also went further and required (and found) intent to economically harm:
Pennington and Oldner correctly assert that, when dealing with business transactions in the private sector, a mere breach of fiduciary or employee duty may not be sufficient to deprive a client or corporation of "honest services" for purposes of § 1346—to be guilty of mail fraud, defendants must also cause or intend to cause actual harm or injury, and in most business contexts, that means financial or economic harm. ... However, proof of intent to harm may be inferred from the willful non-disclosure by a fiduciary, such as a corporate officer, of material information he has a duty to disclose.
In 2003, the United States Court of Appeals for the Second Circuit
United States Court of Appeals for the Second Circuit
The United States Court of Appeals for the Second Circuit is one of the thirteen United States Courts of Appeals...
, like the Fourth Circuit in Vinyard, noted the existence of the two tests, but unlike the Fourth Circuit, it opted to use the "materiality" test (describing it as "arising out of fundamental principles of the law of fraud" and critiquing the alternative as "designed simply to limit the scope" of the law). It applied this test to the case at hand, United States v. Rybicki. The defendants were two personal injury lawyers, Thomas Rybicki and Fredric Grae, in the state of New York
New York
New York is a state in the Northeastern region of the United States. It is the nation's third most populous state. New York is bordered by New Jersey and Pennsylvania to the south, and by Connecticut, Massachusetts and Vermont to the east...
; both were convicted of twenty counts of mail fraud, two counts of wire fraud, and one count of conspiracy. The fraud charges pertained to a scheme to make illegal payments to insurance claims adjusters with the intent of inducing the adjusters to expedite the settlement of certain claims; Rybicki and Grae made such payments in at least twenty cases. As the acceptance of such payments by the adjusters was against the insurance companies' policies, Rybicki and Grae had defrauded those insurance companies of the honest services of their employees. Such was the basis for the successful fraud prosecution. The court affirmed the conviction, determining that all of the necessary elements for the crime of honest services fraud to have occurred were present, including material misrepresentation. The court defined the crime thus:
The phrase "scheme or artifice [to defraud] by depriv[ing] another of the intangible right of honest services," in the private sector context, means a scheme or artifice to use the mails or wires to enable an officer or employee of a private entity (or a person in a relationship that gives rise to a duty of loyalty comparable to that owed by employees to employers) purporting to act for and in the interests of his or her employer (or of the other person to whom the duty of loyalty is owed) secretly to act in his or her or the defendant's own interests instead, accompanied by a material misrepresentation made or omission of information disclosed to the employer or other person.
Usage and criticism
The statute grants jurisdiction to the federal government to prosecute local, state and federal officials. It is frequently used to fight public corruption because it is easier to prove than bribery or extortionExtortion
Extortion is a criminal offence which occurs when a person unlawfully obtains either money, property or services from a person, entity, or institution, through coercion. Refraining from doing harm is sometimes euphemistically called protection. Extortion is commonly practiced by organized crime...
. The term "honest services" is broad and open to jury interpretation, according to several legal experts. Prosecutions under the 1970 Racketeer Influenced and Corrupt Organizations Act
Racketeer Influenced and Corrupt Organizations Act
The Racketeer Influenced and Corrupt Organizations Act, commonly referred to as the RICO Act or simply RICO, is a United States federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization...
(RICO) frequently use violations of the honest services statute, as mail and wire fraud are predicate acts of racketeering; therefore, two mailings or wire transmissions in the execution of honest services fraud can form "a pattern of racketeering activity."
Prosecutions for honest services fraud that do not involve public corruption generally involve corporate crime, although the line between tort
Tort
A tort, in common law jurisdictions, is a wrong that involves a breach of a civil duty owed to someone else. It is differentiated from a crime, which involves a breach of a duty owed to society in general...
s and crimes in such cases is considered murky and unclear.
The law is reportedly a favorite of federal prosecutors because the language of statute is vague enough to be applied to corrupt political officials' unethical or criminal activities when they do not fall into a specific category, such as bribery or extortion. For similar reasons, defense attorneys dislike the law, viewing it as a poorly defined law that can be used by prosecutors to convert any kind of unethical behavior into a federal crime
Federal crime
In the United States, a federal crime or federal offense is a crime that is made illegal by U.S. federal legislation. In the United States, criminal law and prosecution happen at both the federal and the state levels; thus a “federal crime” is one that is prosecuted under federal criminal law, and...
.
Nevertheless, prosecutors must still prove all the elements of mail fraud or wire fraud in a case regarding a scheme to defraud of honest services.
U.S. Supreme Court Justice Antonin Scalia
Antonin Scalia
Antonin Gregory Scalia is an American jurist who serves as an Associate Justice of the Supreme Court of the United States. As the longest-serving justice on the Court, Scalia is the Senior Associate Justice...
has criticized the statute, stating that the clause was so poorly defined that it could be the basis for prosecuting "a mayor for using the prestige of his office to get a table at a restaurant without a reservation."
In The Perfect Villain: John McCain and the Demonization of Lobbyist Jack Abramoff, investigative journalist Gary S. Chafetz argued that honest-services fraud is so vague as to be unconstitutional, and that prosecutors abused it as a tool to increase their conviction rates. Bennett L. Gershmann, a professor at Pace University Law School, similarly has contended that the law "is not only subject to abuse...but has been abused." The case of former Alabama Governor Don Siegelman
Don Siegelman
Don Eugene Siegelman is an American Democratic Party politician who held numerous offices in Alabama. He was the 51st Governor of Alabama for one term from 1999 to 2003...
is often cited as an example of possible prosecutorial misconduct and abuse of the honest services law.
Many interest groups oppose the usage of the honest services law, including the conservative United States Chamber of Commerce
United States Chamber of Commerce
The United States Chamber of Commerce is an American lobbying group representing the interests of many businesses and trade associations. It is not an agency of the United States government....
and Washington Legal Foundation
Washington Legal Foundation
The Washington Legal Foundation is a non-profit legal organization based in Washington, D.C. Founded in 1977, the Foundation's stated goal is "to defend and promote the principles of freedom and justice." The organization promotes pro-business and free-market positions and is widely perceived as...
, as well as the more liberal National Association of Criminal Defense Lawyers
National Association of Criminal Defense Lawyers
The National Association of Criminal Defense Lawyers is an American criminal defense organization. Their stated mission is to "Ensure justice and due process for persons accused of crime. Foster the integrity, independence and expertise of the criminal defense profession...
. One notable proponent of the law is the Citizens for Responsibility and Ethics in Washington
Citizens for Responsibility and Ethics in Washington
Citizens for Responsibility and Ethics in Washington is a nonprofit 501 organization that describes itself as "dedicated to promoting ethics and accountability in government and public life by targeting government officials – regardless of party affiliation – who sacrifice the common good to...
.
Recent notable prosecutions
Several notable figures have been charged with or convicted of honest services fraud. Washington lobbyist Jack AbramoffJack Abramoff
Jack Abramoff is an American former lobbyist and businessman. Convicted in 2006 of mail fraud and conspiracy, he was at the heart of an extensive corruption investigation that led to the conviction of White House officials J. Steven Griles and David Safavian, U.S. Representative Bob Ney, and nine...
pleaded guilty in 2006 to honest services fraud in addition to conspiracy and tax evasion; he was convicted in 2008 of further charges of honest services fraud in addition to further charges of conspiracy
Conspiracy (crime)
In the criminal law, a conspiracy is an agreement between two or more persons to break the law at some time in the future, and, in some cases, with at least one overt act in furtherance of that agreement...
and tax evasion
Tax evasion
Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability,...
. Former Enron
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
CEO Jeffrey Skilling
Jeffrey Skilling
Jeffrey Keith "Jeff" Skilling is the former president of Enron Corporation, headquartered in Houston, Texas. In 2006 he was convicted of multiple federal felony charges relating to Enron's financial collapse, and is currently serving a 24-year, four-month prison sentence at the Federal...
was convicted in 2006 of honest services fraud, in addition to securities fraud
Securities fraud
Securities fraud, also known as stock fraud and investment fraud, is a practice that induces investors to make purchase or sale decisions on the basis of false information, frequently resulting in losses, in violation of the securities laws....
. Former Illinois
Illinois
Illinois is the fifth-most populous state of the United States of America, and is often noted for being a microcosm of the entire country. With Chicago in the northeast, small industrial cities and great agricultural productivity in central and northern Illinois, and natural resources like coal,...
governor George Ryan
George Ryan
George Homer Ryan, Sr. was the 39th Governor of the U.S. state of Illinois from 1999 until 2003. He is a member of the Republican Party. Ryan became nationally known when in 2000 he imposed a moratorium on executions and "raised the national debate on capital punishment"...
was convicted in 2006 of honest services fraud, in addition to racketeering
Racketeer Influenced and Corrupt Organizations Act
The Racketeer Influenced and Corrupt Organizations Act, commonly referred to as the RICO Act or simply RICO, is a United States federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization...
, tax fraud, obstruction of justice
Obstruction of justice
The crime of obstruction of justice, in United States jurisdictions, refers to the crime of interfering with the work of police, investigators, regulatory agencies, prosecutors, or other officials...
, and making false statements to federal agents. Former Alabama
Alabama
Alabama is a state located in the southeastern region of the United States. It is bordered by Tennessee to the north, Georgia to the east, Florida and the Gulf of Mexico to the south, and Mississippi to the west. Alabama ranks 30th in total land area and ranks second in the size of its inland...
Governor Don Siegelman
Don Siegelman
Don Eugene Siegelman is an American Democratic Party politician who held numerous offices in Alabama. He was the 51st Governor of Alabama for one term from 1999 to 2003...
was convicted in 2006 of honest services fraud, in addition to conspiracy, bribery
Bribery
Bribery, a form of corruption, is an act implying money or gift giving that alters the behavior of the recipient. Bribery constitutes a crime and is defined by Black's Law Dictionary as the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or...
, and obstruction of justice. Duke Cunningham
Duke Cunningham
Randall Harold Cunningham , usually known as Randy or Duke, is United States Navy veteran, convicted felon, and former Republican member of the United States House of Representatives from California's 50th Congressional District from 1991 to 2005.Cunningham resigned from the House on November 28,...
, a former Congressman from California, was convicted of corruption charges including honest services fraud. Bob Ney
Bob Ney
Robert William Ney is an American politician from the U.S. state of Ohio. A Republican, Ney represented Ohio's 18th congressional district in the U.S. House of Representatives from 1995 until November 3, 2006, when he resigned...
, a former congressman from Ohio, was convicted of corruption charges including honest services fraud. Newspaper magnate Conrad Black
Conrad Black
Conrad Moffat Black, Baron Black of Crossharbour, OC, KCSG, PC is a Canadian-born member of the British House of Lords, and a historian, columnist and publisher, who was for a time the third largest newspaper magnate in the world. Lord Black controlled Hollinger International, Inc...
was convicted in 2007 of honest services fraud, in addition to obstruction of justice. Former Alaska
Alaska
Alaska is the largest state in the United States by area. It is situated in the northwest extremity of the North American continent, with Canada to the east, the Arctic Ocean to the north, and the Pacific Ocean to the west and south, with Russia further west across the Bering Strait...
state legislator
Alaska House of Representatives
The Alaska House of Representatives is the lower house in the Alaska Legislature, the state legislature of the U.S. state of Alaska. The House is composed of 40 members, each of whom represents a district of about 15,673 people . Members serve two-year terms without term limits...
Bruce Weyhrauch
Bruce Weyhrauch
Bruce Weyhrauch is a former legislator in the Alaska State House representing Juneau. In May 2007, Weyhrauch, along with fellow legislators Pete Kott and Vic Kohring were charged in connection with a scandal involving oilfield service company VECO attempting to buy government favors in Alaska...
was convicted in 2007 of honest services fraud in addition to bribery and extortion. Former New York
New York
New York is a state in the Northeastern region of the United States. It is the nation's third most populous state. New York is bordered by New Jersey and Pennsylvania to the south, and by Connecticut, Massachusetts and Vermont to the east...
Senate Majority Leader Joseph Bruno
Joseph Bruno
Joseph L. Bruno is an American businessman, and Republican politician. He was the Temporary President of the New York State Senate and its majority leader. Most recently he also served as Lieutenant Governor of New York ....
was convicted in 2009 on two counts of honest services fraud. Mary McCarty, a former Palm Beach County Commissioner, is currently serving a federal prison sentence for honest services fraud. New Jersey
New Jersey
New Jersey is a state in the Northeastern and Middle Atlantic regions of the United States. , its population was 8,791,894. It is bordered on the north and east by the state of New York, on the southeast and south by the Atlantic Ocean, on the west by Pennsylvania and on the southwest by Delaware...
political boss Joe Ferriero
Joe Ferriero
Joseph A. Ferriero is an American Democratic Party political leader from New Jersey and former chairman of the Bergen County Democratic Organization. Ferriero, an attorney by profession, resides in Old Tappan...
was convicted in 2009 of conspiracy and two counts of mail fraud. Former Illinois
Illinois
Illinois is the fifth-most populous state of the United States of America, and is often noted for being a microcosm of the entire country. With Chicago in the northeast, small industrial cities and great agricultural productivity in central and northern Illinois, and natural resources like coal,...
governor Rod Blagojevich
Rod Blagojevich
Rod R. Blagojevich is an American politician who served as the 40th Governor of Illinois from 2003 to 2009. A Democrat, Blagojevich was a State Representative before being elected to the United States House of Representatives representing parts of Chicago...
was indicted in 2009 for allegedly conspiring to commit honest services fraud, as well as for allegedly soliciting bribes. Former Alabama state legislator Sue Schmitz was convicted in 2009 of three counts of mail fraud and four counts of fraud involving a program receiving federal funds. Judges Mark Ciavarella
Mark Ciavarella
Mark Arthur Ciavarella Jr. is a convicted felon and former President Judge of the Luzerne County Court of Common Pleas in Wilkes-Barre, Pennsylvania who committed, along with fellow judge Michael Conahan, the "Kids for cash" scandal in 2008.In August 2011, Ciavarella was sentenced to 28 years in...
and Michael Conahan
Michael Conahan
Michael Conahan is a former judge from Luzerne County, Pennsylvaniawho committed the "Kids for cash" scandal in2008 with fellow judge Mark Ciavarella.Conahan, as president judge, used his budgetary discretion to stop funding the...
originally pled guilty to honest services fraud and conspiracy in the Kids for cash scandal
Kids for cash scandal
The "Kids for cash" scandal unfolded in 2008 over judicial kickbacks at the Luzerne County Court of Common Pleas in Wilkes-Barre, Pennsylvania. Two judges, President Judge Mark Ciavarella and Senior Judge Michael Conahan, were accused of accepting money from the co-owner and builder of two private,...
. The pleas were later withdrawn.
Supreme Court cases
In its 2009-2010 term, there were three appeals against the statute at the United States Supreme Court, all challenging its constitutionality. All three appellants were convicted of honest services fraud in 2006 or 2007.Weyhrauch v. United States, by former Alaska state legislator Bruce Weyhrauch
Bruce Weyhrauch
Bruce Weyhrauch is a former legislator in the Alaska State House representing Juneau. In May 2007, Weyhrauch, along with fellow legislators Pete Kott and Vic Kohring were charged in connection with a scandal involving oilfield service company VECO attempting to buy government favors in Alaska...
, deals with whether a public official can be charged with honest services fraud without violating his duty under state law.
Black v. United States
United States v. Conrad Black
United States v. Conrad Black is the title of businessman Conrad Black's criminal fraud trial held in the United States of America.-Probe against Hollinger Inc.:...
, by newspaper magnate Conrad Black
Conrad Black
Conrad Moffat Black, Baron Black of Crossharbour, OC, KCSG, PC is a Canadian-born member of the British House of Lords, and a historian, columnist and publisher, who was for a time the third largest newspaper magnate in the world. Lord Black controlled Hollinger International, Inc...
, deals with whether there must be proof that the defendant knew his actions would cause economic harm to the company.
Skilling v. United States, by former Enron
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
CEO Jeffrey Skilling
Jeffrey Skilling
Jeffrey Keith "Jeff" Skilling is the former president of Enron Corporation, headquartered in Houston, Texas. In 2006 he was convicted of multiple federal felony charges relating to Enron's financial collapse, and is currently serving a 24-year, four-month prison sentence at the Federal...
, deals with whether the honest services statute requires proof of personal gain. He is also contending that the statute is unconstitutionally vague and unfair.
In December 2009, the Associated Press
Associated Press
The Associated Press is an American news agency. The AP is a cooperative owned by its contributing newspapers, radio and television stations in the United States, which both contribute stories to the AP and use material written by its staff journalists...
reported that the Justices of the Court "seemed to be in broad agreement that the law is vague and has been used to make a crime out of mistakes, minor transgressions and mere ethical violations." Both liberal and conservative justices have criticized the law. Richard Thornburgh, a former United States Attorney General
United States Attorney General
The United States Attorney General is the head of the United States Department of Justice concerned with legal affairs and is the chief law enforcement officer of the United States government. The attorney general is considered to be the chief lawyer of the U.S. government...
, has remarked that he expects the court to issue "something fairly sweeping...without doing violence to proper law enforcement."
On June 24, 2010, the Supreme Court ruled unanimously in the cases of Black and Skilling that the law against "honest services" fraud is too vague to constitute a crime unless a bribe or kickback was involved.