In the Courts

Judge Rakoff found that the government carried its burden of showing that Dreier was a flight risk, citing Dreier's impersonation of another person in Canada in order to keep his alleged fraud alive, and his failure to recall before the Magistrate Judge a trip he had planned to Turkey. The court also found that Dreier had a powerful motive to flee. Despite that risk, the court granted Dreier's bail application because the bail package he proposed went “far to minimize” the risk that Dreier would flee. Dreier agreed to several bail conditions so he could reside in his apartment, among the most significant: a $10 million personal recognizance bond secured by himself, his mother and his son; confinement to his apartment 24/7, monitored electronically and by armed security guards, to be paid for by Dreier at an estimated cost of $210,000 for three months; several restrictions on Dreier's ability to communicate through electronic means; and restrictions on who could visit him. Although Dreier's bail application was granted, Judge Rakoff expressed concern that the law allowed wealthy individuals, such as Dreier, to avoid detention because they are able to pay for the services of armed guards, whereas most defendants would not have the means to do so.

Eleventh Circuit Overrules Its Controversial Decision on Mail Fraud

The Eleventh Circuit Court of Appeals, in an en banc opinion, held that the federal mail fraud statute, which prohibits “any scheme or artifice to defraud” by use of the mail, does not require proof that the scheme be capable of deceiving a reasonably prudent person. United States v. Svete, — F.3d —-, No. 05-13809, 2009 WL 225254 (11th Cir. Feb. 2, 2009).

The decision overrules United States v. Brown, 79 F.3d 1550 (11th Cir. 1996), which held that mail fraud requires proof that a “person of ordinary prudence would rely” on unless the defendant is a fiduciary of the intended victim. The decision in Svete brings the Eleventh Circuit in line with its sister circuits, which have roundly criticized Brown. The en banc court based its decision primarily on the language of the mail fraud statute and the Supreme Court's decision in Neder v. United States, 527 U.S. 1 (1999). In a detailed discussion of the origins of the mail fraud statute, the court determined that the word “any” in the mail fraud statute, which prohibits the use of the mails in furtherance of “any scheme or artifice to defraud,” should be read to mean “all.” The court explained that this interpretation comports with the intent of the original statute, which was enacted in 1872 as part of a recodification of the postal laws. Placing no limitation on the kind of scheme was also consistent with focusing on the intent of the malefactor, not the reasonableness of the victim. The court noted that in the 1870s and 1880s, statutes against false pretenses protected both the gullible and the savvy.

The Supreme Court's decision in Neder, which came three years after the Eleventh Circuit's decision in Brown, also persuaded the court of appeals that Brown had to be overruled. In Neder, the Supreme Court explained that the fraud statutes enacted by Congress in the late 19th century did not incorporate all of the elements of common law fraud. While materiality was an essential element of fraud that carried over to the federal fraud statutes, the Court held that materiality may be proved without establishing that that misrepresentation was objectively reliable. The Neder Court also instructed lower courts to reject elements of common law fraud that would be clearly inconsistent with the statutes enacted by Congress. The en banc court reasoned that the broad scope of the mail fraud statute thus necessitated overruling Brown, since Brown injected an element to the mail fraud statute that Congress did not intend.

Although the Eleventh Circuit candidly summarized criticisms of its decision in Brown by members of the bench, bar, and legal scholars, the court noted that it has “been reluctant to apply the precedent literally.” The opinion goes on to say that the court of appeals has not reversed a conviction for mail fraud based on the objective unreliability of a misrepresentation in a published opinion since Brown, but that several convictions have been affirmed “based on schemes that were more fanciful than the scheme that Brown addressed.”

Marc Dreier Granted Bail Under Strict Conditions

Well-known lawyer and financier Marc Dreier, who has been charged with stealing millions from clients and investors, was granted bail by U.S. District Judge Jed S. Rakoff. See United States v. Dreier, — F.Supp.2d —-, No. 09 Cr. 085, 2009 WL 277096 (S.D.N.Y. Feb. 5, 2009) (Order granting bail application). Dreier has been accused of using millions of dollars in clients' funds to pay for his lavish lifestyle. Rakoff rejected the government's suggestion that Dreier should be denied bail and confined in the Metropolitan Correctional Center. Instead, Dreier will be permitted to reside in his East Side apartment in New York City under constant surveillance by an armed, private security guard.

In order to detain Dreier, the government had to show, by a preponderance of the evidence, that if released, he presents an actual flight risk and that no condition or combination of conditions could be imposed on the defendant that would reasonably assure his presence in court.

Judge Rakoff found that the government carried its burden of showing that Dreier was a flight risk, citing Dreier's impersonation of another person in Canada in order to keep his alleged fraud alive, and his failure to recall before the Magistrate Judge a trip he had planned to Turkey. The court also found that Dreier had a powerful motive to flee. Despite that risk, the court granted Dreier's bail application because the bail package he proposed went “far to minimize” the risk that Dreier would flee. Dreier agreed to several bail conditions so he could reside in his apartment, among the most significant: a $10 million personal recognizance bond secured by himself, his mother and his son; confinement to his apartment 24/7, monitored electronically and by armed security guards, to be paid for by Dreier at an estimated cost of $210,000 for three months; several restrictions on Dreier's ability to communicate through electronic means; and restrictions on who could visit him. Although Dreier's bail application was granted, Judge Rakoff expressed concern that the law allowed wealthy individuals, such as Dreier, to avoid detention because they are able to pay for the services of armed guards, whereas most defendants would not have the means to do so.

Eleventh Circuit Overrules Its Controversial Decision on Mail Fraud

The Eleventh Circuit Court of Appeals, in an en banc opinion, held that the federal mail fraud statute, which prohibits “any scheme or artifice to defraud” by use of the mail, does not require proof that the scheme be capable of deceiving a reasonably prudent person. United States v. Svete, — F.3d —-, No. 05-13809, 2009 WL 225254 (11th Cir. Feb. 2, 2009).

The decision overrules United States v. Brown , 79 F.3d 1550 (11th Cir. 1996), which held that mail fraud requires proof that a “person of ordinary prudence would rely” on unless the defendant is a fiduciary of the intended victim. The decision in Svete brings the Eleventh Circuit in line with its sister circuits, which have roundly criticized Brown. The en banc court based its decision primarily on the language of the mail fraud statute and the Supreme Court's decision in Neder v. United States , 527 U.S. 1 (1999). In a detailed discussion of the origins of the mail fraud statute, the court determined that the word “any” in the mail fraud statute, which prohibits the use of the mails in furtherance of “any scheme or artifice to defraud,” should be read to mean “all.” The court explained that this interpretation comports with the intent of the original statute, which was enacted in 1872 as part of a recodification of the postal laws. Placing no limitation on the kind of scheme was also consistent with focusing on the intent of the malefactor, not the reasonableness of the victim. The court noted that in the 1870s and 1880s, statutes against false pretenses protected both the gullible and the savvy.

The Supreme Court's decision in Neder, which came three years after the Eleventh Circuit's decision in Brown, also persuaded the court of appeals that Brown had to be overruled. In Neder, the Supreme Court explained that the fraud statutes enacted by Congress in the late 19th century did not incorporate all of the elements of common law fraud. While materiality was an essential element of fraud that carried over to the federal fraud statutes, the Court held that materiality may be proved without establishing that that misrepresentation was objectively reliable. The Neder Court also instructed lower courts to reject elements of common law fraud that would be clearly inconsistent with the statutes enacted by Congress. The en banc court reasoned that the broad scope of the mail fraud statute thus necessitated overruling Brown, since Brown injected an element to the mail fraud statute that Congress did not intend.

Although the Eleventh Circuit candidly summarized criticisms of its decision in Brown by members of the bench, bar, and legal scholars, the court noted that it has “been reluctant to apply the precedent literally.” The opinion goes on to say that the court of appeals has not reversed a conviction for mail fraud based on the objective unreliability of a misrepresentation in a published opinion since Brown, but that several convictions have been affirmed “based on schemes that were more fanciful than the scheme that Brown addressed.”