Opinion ID: 504381
Heading Depth: 1
Heading Rank: 2

Heading: Whose Property Must be Taken

Text: 8 The federal fraud statutes prohibit devising or intending to devise a scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises. 18 U.S.C. Secs. 1341, 1343. The leading case interpreting the relevant language is McNally v. United States, --- U.S. ----, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987), which reversed convictions of defendants charged with participating in a scheme to require Kentucky's insurance agency to share its commissions with companies in which defendants secretly had an interest. The McNally indictment alleged, in relevant part, (a) that the defendants had defrauded the state of the right to have its affairs conducted honestly, and (b) that by virtue of their fraud on Kentucky, the defendants received money from the insurance companies. There were no allegations that Kentucky paid higher premiums because of defendants' scheme. Judge Sand relied upon McNally in dismissing the federal fraud counts. The government argues that the judge erred, but Evans responds that the Court in McNally reversed the convictions because the only party wronged, the Commonwealth of Kentucky, did not lose money because of the scheme. We do not think matters are so clear. Although there is language in McNally that supports Evans, the opinion's holding is that the statutes apply only to frauds involving money or property, and not to schemes relating to good government. 107 S.Ct. at 2881. This reading of the case is confirmed by the Supreme Court's description of McNally in Carpenter v. United States, 108 S.Ct. 316, 320 (1987) (citations omitted): We held in McNally that the mail fraud statute does not reach 'schemes to defraud citizens of their intangible rights to honest and impartial government,' and that the statute is 'limited in scope to the protection of property rights.'  Thus, as we read McNally, the Supreme Court did not focus on whether the person deceived also had to lose money or property. 9 Nonetheless, this may be the correct view of the statute. If a scheme to defraud must involve the deceptive obtaining of property, the conclusion seems logical that the deceived party must lose some money or property. See United States v. Covino, 837 F.2d 65, 71 (2d Cir.1988) (mail fraud requires a finding that the victim be defrauded of money or property.); United States v. Starr, 816 F.2d 94 (2d Cir.1987) (pre-McNally ). Language in McNally supports this reading of the statutes. For example, the Court stated that Insofar as the sparse legislative history reveals anything, it indicates that the original impetus behind the mail fraud statute was to protect the people from schemes to deprive them of their money or property, 107 S.Ct. at 2879 (emphasis added). Similarly, the Court distinguished 18 U.S.C. Section 371, which punishes a conspiracy to defraud the United States and which has been construed to encompass non-property rights, like the right to honest government, from the wire and mail fraud statutes by explaining that Section 371 protects many interests of the federal government, but that any benefit which the Government derives from the [wire or mail fraud] statute[s] must be limited to the Government's interests as property-holder. 107 S.Ct. at 2881 n. 8. This statement implies that for those statutes to apply, the government must lose property if the government is the defrauded party. Finally, the Court explained that the words 'to defraud' commonly refer 'to wronging one in his property rights by dishonest methods or schemes.'  107 S.Ct. at 2880-81 (quoting Hammerschmidt v. United States, 265 U.S. 182, 188, 44 S.Ct. 511, 512, 68 L.Ed. 968 (1924)) (emphasis added). This statement tends to support Evans, although the word commonly implies that in some circumstances defraud could have other meanings. These quotations, although dicta with regard to the issue before us, indicate that the Supreme Court may have read the mail fraud statute as the district court did. 10 The government argues that the legislative history of the predecessors to the current statute reveals that Congress intended the statutes to forbid activities that would be permitted by this reading of the law. In particular, the government observes that Congress amended the law in 1889 specifically to prohibit schemes in which defendants mailed letters offering to sell counterfeit money at a fraction of face value. Sometimes defendants would defraud those who sent them money by not sending any counterfeit in return, and sometimes defendants would send the counterfeit and defraud the merchants to whom it was passed by depriving them of the value of the currency they thought they were getting. See Rakoff, The Federal Mail Fraud Statute (Part I), 18 Duquesne L. Rev. 771, 797-98 (1980). The government argues that the district court's interpretation of the law would prevent prosecution of defendants who actually sent the counterfeit, since the defendants defrauded the merchants who accepted the counterfeit currency but received money from those to whom they had sold the counterfeit. However, this objection is easily answered. The point is not that the defendant must receive the same money or property that the deceived party lost, but only that the party deceived must lose money or property. Since defendants who sent the counterfeit currency would be deceiving the merchants and since the merchants would lose money from the scheme, such defendants could be convicted even under this interpretation of this law. 11 However, the case before us today does not require us to decide this general question. As already quoted, the Supreme Court has made clear that any benefit which the Government derives from the [wire or mail fraud] statute[s] must be limited to the Government's interest as property-holder. McNally, 107 S.Ct. at 2881 n. 8. This is enough for this case. To win, the government must show that it had some property interest in the arms. This it has not done. The closest it comes is when it half-heartedly argues that the indictment implies that the United States owned all of the rights in at least some of the weapons at some point, since certain types of weapons legally may be sold only by the government. However, the government also stated at oral argument that it would not attempt to prove its ownership at trial. Consequently, for present purposes we assume that the government is not asserting any property right arising out of sales of weapons owned and possessed by the United States immediately before the fraud, but only rights arising out of sales of weapons owned by third countries. Thus, unless we accept the alienation theory, the judgment below should be affirmed under the interpretation of the federal fraud statutes previously set out. 12 Defendants assert that we may not consider the alienation theory because it is not raised in the indictment; were we to consider it, they argue, we would violate their fifth-amendment right to a grand jury indictment. We do not decide this issue because, even assuming that the indictment alleges that defendants schemed to deprive the United States of the right to control alienation of the weapons, we find that such a right is not money or property under McNally.