Supreme Court Broadens Wire Fraud Liability to Include Fraudulent Inducement Without Economic Loss

The US Supreme Court’s ruling on May 22, 2025 expands the scope of federal wire fraud to include convictions based on fraudulent inducement even without economic harm. This development raises the stakes for entities involved in government contracts and virtually any business transaction, signaling a need for heightened diligence around compliance, certifications, and representations in federal and state procurement.

The Supreme Court held that a defendant need not intend to cause a fraud victim to suffer any economic loss to be convicted under the federal wire fraud statute under a theory of fraudulent inducement. [1] The Court’s decision reinforces the “undeniably ‘broad’” [2] reach and applicability of the federal wire fraud statute—even in situations where a victim does not incur “net pecuniary harm” from the fraud. [3]

This decision will likely have broad implications for companies and individuals, particularly those seeking federal, state, or local government contracts that require the use of small and disadvantaged businesses, or otherwise meeting contract requirements that are unrelated to the actual final product or service being furnished.

KOUSISIS V. UNITED STATES

In Kousisis, the Pennsylvania Department of Transportation (PennDOT) awarded a $70.3 million contract to Stamatios Kousisis and Alpha Painting and Construction Co. to assist with restoring two Philadelphia landmarks. [4] Restoration funding largely came from the US Department of Transportation (DOT). [5] To receive its grant money, DOT required PennDOT to “set ‘overall goal[s]’” for “disadvantaged-business participation” in the restoration projects. [6] In this case, according to DOT, a disadvantaged business enterprise “is ‘a for-profit small business’ that is majority owned and controlled by ‘one or more individuals who are both socially and economically disadvantaged.’” [7]

As a condition of being awarded the contract, PennDOT in turn required that bidders commit to subcontracting a percentage of the total contract amount to a disadvantaged business. [8] To win the bid, Mr. Kousisis and Alpha represented that Alpha would buy $6.4 million in painting supplies from a supplier that qualified as a disadvantaged business enterprise. [9]

But the disadvantaged business selected by Mr. Kousisis and Alpha was used as a “mere ‘pass-through’ entity.” [10] Using the pass-through entity, Mr. Kousisis “funnel[ed] checks and invoices to and from Alpha’s actual” paint suppliers, and the pass-through entity received a payment for its willingness to participate in the scheme. [11] The scheme went undetected for a significant period of time, resulting in PennDOT paying Alpha for its painting services. [12] By the time the project was completed, Alpha had turned a gross profit of over $20 million, and the pass-through entity pocketed a total of about $170,000.[13]

After their scheme was uncovered, a jury found Mr. Kousisis and Alpha guilty of wire fraud and conspiracy to commit wire fraud. [14] Mr. Kousisis and Alpha moved for acquittal post-verdict, arguing that because they performed their painting services under the projects’ contract, “PennDOT had received the full economic benefit of its bargain,” and they could not be liable under the federal wire fraud statute. [15] The US District Court for the Eastern District of Pennsylvania and the US Court of Appeals for the Third Circuit rejected their argument, with the Third Circuit joining the Seventh, Eighth, and Tenth Circuits by upholding the “validity of a federal fraud conviction when the defendant did not seek to cause the victim net pecuniary loss.” [16]

INTENT TO CAUSE ECONOMIC LOSS NOT REQUIRED FOR WIRE FRAUD CONVICTION

To resolve the circuit split over whether a defendant must “seek to cause the victim net pecuniary loss” [17] to be held liable for fraudulent inducement under the federal wire fraud statute, the Court analyzed (1) the plain language of the federal wire fraud statute, (2) the term “fraud” as understood under common law, and (3) its own prior precedents on whether “a fraud conviction depends on economic loss.” [18] The Court held that the fraudulent-inducement theory of liability proven by the government “is consistent with both the text of the wire fraud statute and [the Court’s] precedent interpreting it.” [19]

1. 18 USC § 1343: The Court determined that the federal wire fraud statute “is agnostic about economic loss” [20] and requires, in relevant part, that a defendant “devis[e]” a scheme to “obtai[n] money or property.” [21] “A thing is no less ‘obtained’ simply because something else is simultaneously given in return,” according to the Court. [22] And in this case, Mr. Kousisis and Alpha “‘obtai[ned] money’ (tens of millions of dollars) from PennDOT.” [23] It did not matter, according to the Court, that PennDOT received the value of Alpha’s painting services in return. [24]
2. “[C]ommon-law understanding of fraud” [25]: The Court disagreed with Mr. Kousisis and Alpha’s argument that “economic loss is part and parcel of the common-law understanding of fraud.” [26] At common law, “‘fraud’ was a term with expansive reach,” [27] and “courts did not uniformly condition an action sounding in fraud on the plaintiff’s ability to prove economic loss.” Mr. Kousisis and Alpha could not rely on the common-law definition of “fraud” to insert an economic loss requirement into proving a fraudulent-inducement theory of liability. [29]The Court also noted tha[28]t the common law has long embraced materiality as the key basis for distinguishing everyday misstatements from actionable fraud and quoted from its decision in Universal Health Services Inc. v. United States, ex rel. Escobar: “Whether in tort or contract law, ‘materiality look[s] to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.’” [30]
3. Supreme Court Precedent on Fraud and Economic Loss: The Court clarified that, for liability to attach under the federal wire fraud statute, “money or property” must be “an object of the fraudster’s scheme.” [31] The Court used this requirement to delineate from other “statutes . . . not limited to schemes to ‘obtai[n] money or property,’” and that “extend beyond what the fraudulent-inducement theory can reach.” [32]

CONCURRING OPINIONS

Three Justices authored concurring opinions addressing different aspects of the case against Mr. Kousisis and Alpha.

1. Justice Clarence Thomas: Justice Thomas expressed “skeptic[ism]” Mr. Kousisis and Alpha’s “misrepresentations” to win PennDOT’s bid “were material,” as is required under the federal wire fraud statute. [33] Although Mr. Kousisis and Alpha did not contest the materiality of their misrepresentations, Justice Thomas opined that he “seriously doubt[ed] that the [disadvantaged business enterprise] provisions” of the projects’ contract “can meet th[e] standard” [34]for materiality set forth in Universal Health Services because the provisions “did not go to the ‘very essence of the bargain.’” [35]
2. Justice Neil Gorsuch: Justice Gorsuch scrutinized a footnote in the Court’s opinion that “a fraud is complete when the defendant has induced the deprivation of money or property under materially false pretenses.” [36] Justice Gorsuch reasoned that, because “common-law courts usually demanded proof that a defendant deprived his victim of what he bargained for,” the mere “obtaining of money [or property] under false pretenses” cannot “satisfy fraud’s injury requirement” on its own. [37]
3. Justice Sonia Sotomayor: Justice Sotomayor declined to endorse the Court’s more “broad[]” discussion of the government’s “fraudulent-inducement theory” beyond the facts of Kousisis. [38] Justice Sotomayor further opined that “[t]here can be no real debate that” Mr. Kousisis and Alpha’s “misstatements were material” [39] based on (1) the language of the contract itself making “compliance with federal [disadvantaged business enterprise] regulations a ‘material’ term,” [40] (2) compliance with the regulations “went directly to the viability of the projects themselves,” [41] and (3) PennDOT’s failure to administer the disadvantaged business enterprise requirements would have “risked legal sanction.” [42]

TAKEAWAYS

Kousisis reinforces the breadth of the federal wire fraud statute and the vitality of the fraudulent inducement theory as a weapon for prosecutors. Companies seeking to enter a contract or other business transaction, particularly with governmental entities, must take care to accurately represent their ability to adhere to all contractual requirements during the bidding process and fully comply with each of them if awarded the contract. Even if a company performs under a contract that does not result in any economic loss, and otherwise fulfills its contractual obligations to deliver a product or service on time and within the contractual requirements, the company may still be criminally liable for wire fraud if it fraudulently obtained the contract through a material misrepresentation.

Looking ahead, it remains to be seen whether the dangers warned about by the defendants in Kousisis, namely that every intentional misrepresentation designed to induce someone to transact in property would constitute property fraud, or whether, as the Court held, the “‘demanding’ materiality requirement [of Universal Health Services] substantially narrows the universe of actionable misrepresentations.” [43]