Wire fraud, a scheme to defraud another person that uses electronic communications across state lines or internationally, is another alternative basis of criminal insider trading liability.1 18 USC § 1343 reaches “any scheme to deprive another of money or property by means of false or fraudulent pretenses, representations, or promises.”2 It is identical to the federal offense of mail fraud, except that mail fraud involves the use of the US mail or other interstate carriers.3
Elements
Generally, a person is liable for wire fraud when an individual:
- used an interstate wire communication to further a scheme or unlawful act
- with a specific intent to defraud (knowingly and willfully), and
- made false representations that were material to the scheme to defraud.
Use of an Interstate Wire or Electronic Communication
A person is liable for wire fraud if (s)he uses any electronic or wire communication with the intent to defraud. The federal wire fraud statute specifically mentions wire, radio, and television communications, but it also includes fraud offenses involving computers, email, and the Internet.4
Intent to Defraud
In the context of the wire fraud statute, to defraud means having a common understanding of “wronging one in his property rights by dishonest methods or schemes,” usually signified by depriving someone of something of value by trick or deceit.5 The fraud can be perpetrated through either false statements or omissions; silence can be fraudulent only when there is a duty to disclose.
A person may be liable for wire fraud even if he or she never actually defrauded anyone, and even if he or she did not personally send a fraudulent wire, radio, or television transmission. A scheme to defraud, not actual fraud, is required. The mere intention of defrauding by means of the use of wire or electronic communications is sufficient to prove liability.6
Materially False Representations
The government must show that wire or electronic communications were used to make untrue statements with the intention to defraud, and that these statements were made by the defendant (or the defendant’s agents) with knowledge of their falsehood. A false statement or representation is material if it objectively had a tendency to influence or was capable of influencing a victim of the fraud.7
1 18 USC § 1343.
2 Carpenter v. United States, 484 U.S. 19, 27 (1987).
3 United States v. Frey, 42 F.3d 795, 797 (3d Cir. 1994).
4 See United States v. Kieffer, 681 F.3d 1143, 1153-55 (10th Cir. 2012).
5 See Carpenter, 484 U.S. at 27 (internal quotations omitted).
6 United States v. Reid, 533 F.2d 1255, 1264 (D.C. Cir. 1976); United States v. Singhal, 876 F.Supp.2d 82, 100 (D. D.C. 2012).
7 United States v. Lindsey, 850 F.3d 1009, 1013-14 (9th Cir. 2017).