Honest Fraud (or What I Did on my Summer Vacation).

Monday, June 15, 2009

Sorry I haven't been much of an active participant in recent months, but my first year of law school took up some time (as did my Mahjongg group and book club). Several people have asked me what I've learned thus far, and I can sum it up like this: the law is a clusterf*ck. For a case in point, I offer you the following scenario.

It's a Monday, and you're hung over. You think about going to work... but it's gonna be a slow day in the office, there's a House marathon on cable, and you could really use a haircut. So you call your boss and tell him that you've got the flu, and you tell him you'll be in tomorrow if you're feeling better.

Congratulations, you've just committed wire fraud.

That's right; your actions constitute a federal offense. You are now liable for large fines and a long, long prison term in a Federal "pound-me-in-the-ass" prison. Tell Roger Clemens we said 'hi.'

Under 18 U.S.C. 1343, wire fraud is defined as the use of a phone (or the internet, fax machine, or pretty much any form of communication invented after the Pony Express) to create a scheme to defraud someone of 'stuff'. Section 1346 clarifies that part of 'stuff' includes the "intangible right of honest services." Ipso facto, presto changeo: a federal crime that is defined as being dishonest to someone to whom you shouldn't be dishonest.

It used to be that Honest Services fraud (which can be of the mail or wire variety) was only used to nail elected officials who sold out their constituents. Think Rod Blagojevich. But in the last decade, things have really picked up for honest services fraud in the private sector. You may remember a little company called "Enron" that had some troubles back in the day. Jeff Skilling, former CEO, is in jail for Honest Services fraud. So are at least a half-dozen of other corporate execs, and hundreds of other private-sector individuals.

The problem is that there is no definition of "honest services" in the statute, nor is it clear to whom the duty is owed. In theory, anyone who lies to his employer has committed fraud, even if (a)the employer is not financially harmed, (b) the employer does not find out about it, or (c) the employee does it to help the company. It's gotten so bad that last year, Antonin Scalia issued a blistering dissent to the refusal to grant cert to review an honest services conviction, claiming that the law was out of control.

Last month, the high court agreed to hear the appeal of Conrad Black to review the scope of the law. Conrad Black, though generally an almost Dickensianly dickish character, was thrown in jail for recieving payments (to which he was legally entitled) from one of his companies in a form that allowed him to minimize his Canadian tax liability. This did not violate Canadian tax law, and the payments were upheld as justified. But the fact that he didn't tell the company WHY he wanted the payments to be labeled a certain way sent the guy to jail for three to five years.

For a quick summary, I suggest you read this article on the topic. I'll be working on the issue for a good portion of the summer with a professor here. In the mean time... I suggest you refrain from pissing off your boss.


Anonymous,  4:08 PM  

So let me ask this.

Let's say a legislative aide uses the phone or internet while on the job to check some sort of campaign related item. (Not that this ever happens)

Clearly they would be violating state election laws and the policies of the legislature, but it also sound like they may be committing wire fraud too.


Mike 6:39 PM  

BMac, don't try to make any sense of RICO. Most fucked up statute there is.

Meanwhile, more importantly, why is my 10th birthday the date on the slate in the Clemens pic?

B Mac 7:32 PM  

It has to be "material", but in theory, that's theoretically possible. They'd (probably) never actually use the statute... but if they did, you'd probably meet the technical definition. That's why the thing is so f-ed up.

I must speak softly when it comes to RICO. The guy who wrote the statute, G. Robert Blakey, is a prof here. As for the photo, I have no idea what those numbers are. Unless you're actually Clemens.

steves 8:34 PM  

RICO is seriously fucked up and has gone way beyond what it was supposed to.

Sopor 8:40 PM  

Oh MY god.

Technically, I suppose I did this just last Friday! I booked out of work early because I "had an appointment"... when in reality, I went disc golfing! The catch? I used the internet to request sick time compensation!!

Sopor's Boss,  9:19 PM  


There is an anonymous setting on this thing for a reason.

the infamous roger 11:37 PM  

This is exactly why I became a brewer instead of going to law school.

At least this way, drinking is part of the job the job is not driving me to drink.

Sopor 8:11 AM  

What are you gonna do Boss? I've already given my two weeks notice ;-)

luiscandelario 10:54 PM  


dont piss off your boss or take them to court for racial discrimination. Thats what happen to me. all you need is a few good men to lie and its a done deal. ofcourse it didnt go well in the first trial.

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