Elements of Fraud: The I-Stole-from-Her-But-Lied-to-Him Defense

An elementary principle of litigation is keeping an eye on the elements.

A federal appellate court decided in August that the federal mail and wire fraud statutes allow a defendant to be convicted for engaging in a “scheme to defraud” even if the defendant’s deceptive statements were made to different people than the victims who actually lost their money.[1] The defendant had argued that the conduct he was accused of engaging in – lying to banks and credit card processors about unauthorized credit card charges, and using unauthorized credit card charges to obtain money from customers – was not wire fraud because he lied to different people than he stole from.

The court’s decision to reject the I-stole-from-her-but-lied-to-him defense may seem obvious, but it’s a little more complicated than it looks. The reason requires an understanding of the legal principle of “elements.”

Fraud is a crime.[2] But how do we know when someone commits fraud? You probably have certain intuitions; if I tell you the green box is filled with gems, and you pay me for the green box full of gems, and then you open the green box and it’s empty, clearly I have defrauded you. But:

  • What if I honestly believe the green box is full of gems when I tell you that?
  • What if you know the green box is empty, even after I tell you that?
  • What if the green box is full of gems – but they are sunstones instead of sapphires?
  • What if I tell you the green box is full of gems, but you buy it (empty) from Coraline?

Am I guilty of fraud in these other situations?

Elements Provide Answers

Elements provide a way to determine whether or not a person has committed a given crime. Every crime is defined by a set of requirements, called elements. If a defendant satisfies all of the requirements, he can be convicted of that crime.[3] If he fails to satisfy even a single one of the requirements, then he cannot be convicted of that crime (though, perhaps, he may be convicted of another crime with a different set of elements).

For example, the elements of Minnesota’s crime of first degree arson of a dwelling are (1) intentionally (2) using fire or explosives (3) to destroy or damage (4) a building used as a dwelling or connected to a dwelling.[4] If the defendant intentionally burned construction lumber, he would not be guilty this crime. If the defendant burned a dwelling by accident, he would not be guilty of this crime. If he intentionally used a bulldozer to destroy a building, he would not be guilty of this crime. All elements must be proved to convict. (Using a bulldozer intentionally to destroy someone else’s building would likely allow a conviction under the Damage to Property statute, Minn. Stat. § 609.595.)

With an understanding of elements, it becomes clear why a defendant accused of federal wire fraud might argue that he was not guilty, because the person he lied to was different from the victim he stole from. If it is an element of wire fraud that the defendant obtains money from the victim by deceiving her, the I-stole-from-her-but-lied-to-him defense might be correct. Remember, to escape conviction, the defendant does not need to prove what he did was right, fair, honest, or just; all he needs to do is show that the prosecutor failed to prove one element of the charged crime. In fact, the I-stole-from-her-but-lied-to-him defense appears viable against charges under Minnesota’s generic criminal fraud statute, which requires (among other things) proof the defendant “obtains” “possession” of “property” of “a third person by intentionally deceiving the third person with a false representation” “which does defraud the person to whom it is made.” See Minn. Stat. § 609.52 subd. 2(a)(3) (emphasis added).

The Elements of Fraud

Unfortunately for the U.S. v. Greenberg defendant, the enormous variety of schemes by which people have attempted to deceitfully take money from others has led to broadening of many laws prohibiting fraudulent types of behavior, often removing elements such as the requirement that the target of the lies and victim of the theft must be the same person. The federal mail and wire fraud statutes are prime examples. These statutes do not prohibit fraud traditionally defined. Rather, they prohibit using mail or interstate wire communications (like the phone or internet) to carry out a “scheme or artifice to defraud” or “attempting to do so.”[5]

A defendant, then, need not commit fraud as strictly defined in the traditional sense to be convicted of the federal crimes called “mail fraud” and “wire fraud.” If the defendant used the mail/telephone/internet to obtain money wrongfully from someone else, and if he had fraudulent intent, then he is guilty. “Mail fraud” and “wire fraud” have elements different from traditional fraud.

As the court in U.S. v. Greenberg explained,

The federal mail and wire fraud statutes penalize using the mails or a wire communication to execute “any 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. §§ 1341, 1343. Thus, the “essential elements” of the crime are “(1) a scheme to defraud, (2) money or property as the object of the scheme, and (3) use of the mails or wires to further the scheme.” . . . As we have recently reiterated, “[t]he gravamen of the offense is the scheme to defraud.”

To that end, the wire fraud statute requires the Government to show proof of a “scheme or artifice to defraud,” 18 U.S.C. § 1343, “which itself demands a showing that the defendant possessed a fraudulent intent,” but the Government need not prove “that the victims of the fraud were actually injured,” but only “that defendants contemplated some actual harm or injury to their victims.” . . . Nothing in these statutory texts, moreover, suggests that the scheme to defraud must involve the deception of the same person or entity whose money or property is the object of the scheme.[6]

The Greenberg defendant, in essence, argued that wire fraud includes an additional element (that the target of the lies be the same as the victim of the theft), and the court didn’t see that element when it read the statute. So the defendant lost.

Civil Claim Elements

In the same way as criminal charges, claims in civil lawsuits also have elements. For example, Minn. Stat. § 302A.423 concerns the valuation of fractional shares of stock, a corporation’s ability to purchase fractional shares from stockholders under some circumstances, and the valuation of fractional shares when a corporation exercises this ability. Subd. 2 of that statute allows dissenting shareholders to challenge the valuation determined by the board of directors if there is “fraud.” The Minnesota Supreme Court decided that the elements of fraud for a claim under this statute are the same as the common law elements of fraud:

(1) a false representation of a past or existing material fact susceptible of knowledge; (2) made with knowledge of the falsity of the representation or made without knowing whether it was true or false; (3) with the intention to induce action in reliance thereon; (4) that the representation caused action in reliance thereon; and (5) pecuniary damages as a result of the reliance.

U.S. Bank N.A. v. Cold Spring Granite Co., no. A10-0252, sl. op. at 17 (Minn. Sept. 7, 2011).

When litigating fraud, civil or criminal,[7] it’s important to keep an eye on the elements. Forgetting an element or (as in Greenberg) relying on a non-existent element can sink a case.

[1] United States v. Greenberg, no. 14-4208-cr(L) (2d Cir. August 31, 2016). Unfortunately, the Second Circuit site does not allow direct linking to specific opinions. Instead, you must access the search page on the site. Searching by the case number appears to work well.

[2] Minnesota treats generic fraud as a type of theft. Minn. Stat. § 609.52 subd. 2(a)(3). Other statutes establish more specific fraud crimes. For example, securities fraud, insurance fraud, credit card fraud.

[3] State v. Jones, 347 N.W.2d 796, 800 (Minn. 1984).

[4] See Minn. Stat. 609.561 subd. 1.

[5] 18 U.S.C. §§ 1341, 1343.

[6] United States v. Greenberg, no. 14-4208-cr(L), sl. op. at 25 (2d Cir. August 31, 2016).

[7] When litigating something other than fraud, too.