The Supreme Court has granted certiorari in, and will soon resolve, three related cases, all involving the scope of “honest services” fraud under 18 U.S.C. §1346.1 By itself, this is unusual, because the Court usually takes only a single case and remands related cases for reconsideration in light of its decision. Also unusual is the fact that the Court is reconsidering the scope of mail and wire fraud, as §1346 was passed by Congress as a direct rebuff to the Supreme Court following the Court’s last attempt (two decades ago) to trim the ineffably broad scope of the mail and wire fraud statutes. Reversing the narrow reading that the Court had given those statutes in McNally v. United States2 so that they applied only to schemes seeking money or property (and not to deprivation of intangible rights), §1346 broadly criminalized any “scheme to deprive another of the intangible right of honest services,” at least if the mails or interstate wires were used. Not surprisingly, the circuits have split over when this intangible right arises and what it must be based upon.
At this point, many corporate and securities lawyers may yawn and turn the page, thinking that this column is only about substantive criminal law. But it is not. What the Court says about fiduciary duties under the mail fraud statute may carry over to what can be reached in insider trading prosecutions as well, where some form of fiduciary breach is generally also a prerequisite to liability. In addition, two of the defendants in these three cases—Lord Conrad Black and Jeffrey Skilling, the former CEO of Enron—are household names; and the third case involves a public official accused of bribe taking. As a result, the Court appears likely to fashion a comprehensive statement, covering both the private and public sectors, as to when breaches of fiduciary duty or similar confidential relationships violate the mail and wire fraud statutes. Such a recodification should have considerable impact, because over the past 40 years, the breadth of the federal mail and wire fraud statutes has enabled federal prosecutors to reshape the landscape of federal criminal law, both reaching cases involving conflicts of interest in the business world and many forms of political corruption engaged in by public officials at both the state and federal level. No other statute has convicted as many governors, congressmen and CEOs.
