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The 'Right to Control' Wire Fraud Theory Should Be Eliminated
Judge Jed Rakoff famously noted that, "[t]o federal prosecutors of white collar crime, the mail fraud statute is our Stradivarius, our Colt 45, our Louisville Slugger, our Cuisinart — and our true love." Jed S. Rakoff, The Federal Mail Fraud Statute (Part 1), 18 Duq. L. Rev. 771 (1980). This effusive enthusiasm for the federal mail and wire fraud statutes is rooted largely in their "adaptability." Id. In recent decades, the federal prosecutors of the Second Circuit have demonstrated, and the Second Circuit has affirmed, that adaptability by broadly using the federal fraud statutes to penalize even conduct that does not and could not result in a transfer of tangible property from the victim to the defendant. These prosecutions have relied on the theory that a defendant can fraudulently deprive a victim of the intangible "right to control" its assets, even if the victim is not deprived of any tangible money or property. While this theory has been repeatedly affirmed by the Second Circuit, it is incompatible with a series of recent Supreme Court cases in which the Court has narrowed the scope of federal white-collar criminal statutes by adopting narrow definitions of the term "property." Given the Second Circuit's crucial role in defining the law for the prosecution of complex white-collar criminal cases, this discrepancy looms large: the Supreme Court should eliminate the Second Circuit's dubious right to control doctrine.
The federal mail and wire fraud statutes, 18 U.S.C. §§1341, 1343, prohibit "obtaining money or property" by fraud. However, several federal circuits, including the Second Circuit, have construed this provision broadly to encompass intangible, tenuous conceptions of property. Notably, the Second Circuit has for decades allowed for wire fraud prosecution in cases where the defendant has deprived the purported victim of its "right to control" its assets, even where there was no deprivation of transferrable money or property.
The Second Circuit's "right to control" doctrine originated in 1991 with United States v. Wallach, 935 F.2d 445 (2d Cir. 1991). In Wallach, certain directors of a corporation were charged with mail fraud in conjunction with a public offering of the corporation's securities in which the directors misled shareholders regarding a payment made to the directors for services related to the offering. Id. at 460. The directors argued that this conduct could not form the basis for a mail fraud conviction because neither the corporation or its shareholders were defrauded of any property—the corporation received services in return for the disputed payments. Id. at 461.
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