Federal Judiciary

Excellent question.

Apparently, says the Ninth, it is a crime to use the wires to commit a fraud (even if you're not breaking a law while you're doing it). United States v. Judy Green, __ F.3d __, 2010 WL 200280 (9th Cir. Jan. 22, 2010), decision available here.

Players: Hard-fought trial by ND Cal CJA attorney Erik Babcock. Decision by Judge Tashima.

Facts: Judy Green, a former school teacher, became a consultant to help poor schools procure federal ?E-Rate? funding to add telecommunication access. Id. at *1-*2. The E-Rate program subsidizes part of the costs for telecommunications installation ? the school itself is responsible for purchasing ?ineligible? equipment (like computers). Id. at *1.

Evidence at trial showed that Green colluded with vendors to inflate bids and, essentially, fraudulently shift ?ineligible? costs (normally borne by the schools) into ?eligible? expenses that the E-Rate program would subsidize. Id. at *2-*3. The government believes this scheme bilked the federal government out of $60 million dollars. Id. at *1.

The glitch was that under ?E-Rate?s byzantine application process,? id. at *2, it wasn?t at all clear that what Green did was prohibited by the rat?s nest of regulations around this program. Id. Green lost at trial and was sentenced by the Honorable Charles R. Breyer to ninety months. Id. at *3.

Issue(s): ?Green?s overarching contention on appeal is that her actions were not fraudulent because they were not prohibited by the rules and regulations that governed the E-Rate program during the time period charged in the indictment.? Id. at *3.

Held: ?We conclude that the offense of wire fraud does not require that Green?s conduct violated a rule or regulation of the E-Rate program; thus, her specific challenges fail.? Id. at *3.

Of Note: Remarkably, this is essentially an issue of first impression in the Ninth Circuit - and maybe in any circuit. Id. at *4. Judge Tashima(below) begins by reviewing the analogous question of whether wire (or mail) fraud requires a violation of an underlying state law. Id. These federal fraud statutes do not have such a requirement, and from this the Court concludes that ?it is settled that wire fraud does not require proof that the defendant?s conduct violated a separate law or regulation, be it federal or state law.? Id. at *5.

The scheme to defraud for mail or wire fraud must only include an ?affirmative, material misrepresentation.? Id. at *5. ?A defendant?s conduct need not otherwise be illegal in the sense that the government must also prove that the defendant?s conduct violated a specific statute or regulation.? Id. at *5.

Judge Tashima shrugs-off the concern that this rule leaves wire and mail fraud untethered to actual criminal conduct, and ripe for prosecutorial abuse (like honest services fraud). Id. at *5. Others, however, may be less sanguine about the government?s self-restraint. See, e.g., Barry Bonds in Context; see also, Former Brocade exec gets two months in prison for backdating options; see also Misguided Marijuana War, The New York Times (regarding Ed Rosenthal).

How to Use: The victory (such as it is) in United States v. Judy Green case is on vicarious liability. The jury instructions in the case allowed for Green?s vicarious liability for acts that were reasonably foreseeable to her co-schemers. Id. at *12. In a thoughtful discussion, Judge Tashima explains that this is incorrect: vicarious liability for wire (or mail) fraud is limited to acts that were reasonably foreseeable to the defendant alone. Id. Unfortunately, in this case this mistake was harmless error ? but the principle bears remembering for future fraud jury instructions.

For Further Reading: If you pay for interstate phone calls, you?ve been subsidizing the program to get broadband into low-income schools. Great concept, lousy execution: the FCC?s ?troubled? program has spawned a number of federal indictments across the country in addition to the Green case prosecuted in San Francisco. See article here.

Image of the Honorable Judge Tashima from http://www.totaldenialfilm.com/previewpic.php?pic=judge-Tashima.jpg&title=Federal%20Judge%20Wallace%20Tashima . Image of Kermit the Frog from http://halloweenswimteam.files.wordpress.com/2009/07/kermit.jpg .

Steven Kalar, Senior Litigator N.D. Cal. FPD. Blog at www.ndcalfpd.org

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Full post as published by Ninth Circuit Blog on January 24, 2010 (boomark / email).