Intellectual Property Law

Internet Advertising is Mass-Marketing for Purposes of Sentence Enhancement in Wire Fraud Cases

By Martha L. Arias

Consumers are becoming constant victims of Internet fraud; for this reason, they must get educated on the type of crime these actions typify and the enforcement authorities to whom consumers may resort.  There are many types of Internet fraud, but the most commonly used is the offering of goods or services by misrepresentation or false pretenses, i.e., Internet users buy computers or online tickets that never arrive.  These deceptive Internet sales may typify a federal crime commonly known as wire fraud.  According to a novel decision by the United States Courts of Appeals for the 9th Circuit, a wire fraud sentence can be enhanced when the fraud is committed through Internet advertising that will be considered mass-marketing under the U.S. Sentencing Guidelines Manual.

The United States Code, U.S.C. § 1343, describes wire fraud as  "Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both."  Fines and imprison sentence are higher when this scheme occurs in relation to, or involving any benefit authorized in a presidentially declared disaster or emergency; in these cases, fines could be no more than $1,000.000 or imprisonment not more than 30 year s or both.  Thus, those deceitful companies or individuals that offer goods or services over the Internet with the intent to defraud or obtain money or property from users are committing wire fraud and their actions can carry up to 20 years in prison.

The twenty-year prison time in wire fraud cases may be increased two levels if the defrauder uses Internet advertising, according to a novel decision by the U.S. Court of Appeals for the 9th Circuit (United States v. Pirello, 255 F.3d 728  (Ct. App. 9th, 2001)).  In Pirello, the 9th Circuit Court, for the first time, considered the issue of whether Internet advertising could be considered mass-marketing under the U.S. Sentencing Guidelines Manual (sentencing guidelines) for purposes of sentence enhancement.  The sentencing guidelines, U.S.S.G. § 2F1.1 (b) (3), instruct district courts to enhance a defendant's sentence by two levels when the offense is committed through "mass-marketing."  A mass-marketing is defined as "a plan, program, promotion, or campaign that is conducted through solicitation by telephone, mail, the Internet, or other means to induce a large number of persons to (A) purchase goods or services. . . . U.S.S.G. § 2F1.1 (b)(3). 

In Pirello, the defendant placed four Internet advertisings in different websites.  The defendant was selling computers and provided brand and product specifications.  The ads clearly described the products and the form of payment.   Three individuals responded to defendant's ads and negotiated the terms of the contract with defendant. Defendant instructed users to make the appropriate payment and assured them that the computers would be delivered upon receipt of payment.  Users made the payments but the computers never arrived.  One of the users reported the case to the FBI (U.S. Federal Bureau of Investigation), which started an investigation that lead to a wire fraud charge and respective prosecution. 

The trial court found defendant guilty of wired fraud and enhanced defendant's sentence two levels, as the sentencing guidelines instruct when the offense is committed through mass-marketing.  Defendant appealed the sentence enhancement.  The court of appeals affirmed the district court's decision.

The Court of appeals held that the defendant's use of a general access Internet classified ads website to solicit money for nonexistent computers constitutes the use of "the Internet ? to induce a large number of persons to purchase goods.  The Internet ads were considered mass-marketing despite defendant's argument that they were not directed to induce a "large number of persons." On this argument from the defendant, the court reasoned that the Internet is used by billions of people and that the fact that only three users responded to the ads was the "product of chance." The defendant also argued that the Internet ads were not mass-marketing because they were not directly sent to a group of e-mail addresses. The court rejected this argument; it added that defendant "argues essentially that a swindler must hunt his victims with a shotgun rather than with a trap to invoke."

This decision has only been followed by the 5th Circuit Court of Appeals, but it is a meaningful instrument against the increasing Internet fraud.  Also, Internet users should be aware that the FBI has a special unit dedicated to investigating cybercrimes, including Internet fraud.  The Federal Trade Commission (FTC) also investigates and files charges against companies that place false advertising, an element of the wire fraud crime.  

Full post as published by IBLS Internet Law Blog on February 18, 2009 (boomark / email).