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Supreme Court And First Circuit Issue Decisions Reversing White Collar Convictions, Cautioning Against Prosecutorial Overreach In Honest Services Fraud Cases
06/01/2023Two facially unrelated decisions, issued last week by the First Circuit and the Supreme Court, continued a recent theme of courts pushing back against potential prosecutorial overreach in the application of fraud statutes—especially in the area of honest services fraud. In the first case, the First Circuit reversed the convictions of two “Varsity Blues” parents who had been found guilty of honest services fraud, among other charges, after paying money to individuals to help get their children into college under false pretenses. And in the second case, the United States Supreme Court unanimously reversed the conviction of Joseph Percoco, a former manager of former New Governor Andrew Cuomo’s re-election campaign who had likewise been found guilty of honest services fraud, unanimously holding that the jury instructions used to convict him were too vague and would sweep in too much innocent conduct.
In a joint opinion regarding U.S. v. Abdelaziz and U.S. v. Wilson (two “Varsity Blues” cases), Nos. 22-1129, 22-1138, the First Circuit Court of Appeals on May 10, 2023, reversed the convictions of two parents who had been found guilty at trial of mail and wire fraud under both an honest services fraud theory and a property theory, among other charges, all in furtherance of gaming college admissions systems and getting their children into elite schools. The core of the government’s theory had been that bribes paid by the parents could trigger liability under an honest services fraud theory on the grounds that they corruptly sought to influence an agent of a university (even though there was no kickback alleged) or could trigger liability under a property theory on the grounds that the parents sought to obtain property in the form of “admission slots” through fraud. In reversing the convictions, the First Circuit rejected both arguments. While making clear that “[w]e do not say the defendants’ conduct is at all desirable,” the Court concluded that the statute at issue did not speak clearly enough to give notice to individuals that the type of conduct at issue could constitute honest services fraud, and further held that the district court had erred in instructing the jury, as a matter of law, that admissions slots were “property”—something the court observed would be a factual question on which they did not need to opine. Notwithstanding that many defendants in the broader Varsity Blues investigation have pled guilty, the Court appeared fundamentally concerned about letting convictions stand for conduct where there may not have been clear notice that it could result in criminal liability.
In Percoco v. United States, No. 21-1158, the Supreme Court on May 11, 2023, reversed the conviction of an aide to former New York Governor Andrew Cuomo. Percoco was managing Cuomo’s re-election campaign in 2014 when a real estate developer allegedly paid him $35,000 for his help in avoiding having to enter into a “labor peace agreement” with local unions. Shortly before he officially returned to the governor’s office, but—importantly, while a private citizen—Percoco allegedly called the head of a state development agency and urged him to let the development go forward without the agreement, and just one day later, state officials reversed their decision that the developer needed to reach an agreement with the unions. Even though he had been a private citizen, Percoco was convicted of fraud for depriving the public of “honest services” after the district court instructed that defendant “owed a duty of honest services to the public if (1) he ‘dominated and controlled any governmental business’ and (2) ‘people working in the government actually relied on him because of’ his relationship with the government.” In reversing Percoco’s conviction, the Supreme Court rejected that standard, observing that it did not provide enough information about what conduct is or is not allowed, nor does it shield against arbitrary enforcement by prosecutors. While clearly different, both of these decisions serve as a reminder that appellate courts—and the Supreme Court especially—continue to serve as a critical check on potential prosecutorial overreach.
