In Unanimous 'Kousisis' Decision, US Supreme Court Widens Scope for Federal Fraud Prosecutions

Two months ago, in Kousisis v. United States, 605 U.S. __ (2025), the U.S. Supreme Court unanimously upheld two fraud convictions after determining that the defendants could be guilty of federal fraud so long as they used material misrepresentations to “trick a victim into a contract that requires handing over her money or property,” even if they never intended to cause the victim any net economic loss (and the victim sustained none). In doing so, the court clarified a 6-5 circuit split and expanded the prosecutorial reach of the wire fraud statute, 18 U.S.C. Section 1343, leaving future fraudulent-inducement cases to turn on that statute’s “demanding materiality requirement.”

Background 

Kousisis concerned a painting company and its project manager (Stamatios Kousisis), who had lied to the Pennsylvania Department of Transportation (PennDOT) in its bids for federally funded projects by representing that it would subcontract with a disadvantaged business (that is, one owned and operated by socially and economically disadvantaged persons, 49 CFR Section 26.5). Because federal regulations required grant recipients to ensure that disadvantaged businesses participated in contracts funded by the U.S. Department of Transportation (DOT) (which meant that the disadvantaged business had to “perform a commercially useful function,” 49 C.F.R. Section 26.55(c)), PennDOT required bidders to commit to subcontracting between 6-7% of their contract amount to a disadvantaged business. Failure to comply would be “a material breach” of the contract.

To win the PennDOT contracts, Kousisis represented that the company would acquire $6.4 million in painting supplies from a disadvantaged business. In fact, Kousisis arranged for the company’s actual paint suppliers to generate purchase orders billed to the disadvantaged business, which then tacked on a small additional fee; the disadvantaged business was a mere pass-through. The company then paid both the disadvantaged business and the actual suppliers and submitted false certifications to cover up the scheme.

Kousisis and the company were prosecuted and convicted of wire fraud and conspiracy once their misrepresentations were revealed. Seeking acquittal, they argued that PennDOT had received the benefit of the bargain because their paintwork had met PennDOT’s expectations. Both the trial court and U.S. Court of Appeals for the Third Circuit rejected this argument, concluding that the defendants had “set out to obtain millions of dollars that they would not have received but for their fraudulent misrepresentations.” See United States v. Kousisis, 82 F. 4th 230, 240 (3d Cir. 2023). The Supreme Court granted certiorari to resolve the circuit split over whether a federal fraud conviction is valid when the defendant did not aim to cause the victim’s “net pecuniary loss.”

The Supreme Court’s Holding

The Supreme Court affirmed the Third Circuit, holding that a federal fraud conviction does not require proving economic loss. At the heart of the court’s reasoning was the plain text of the statute, which requires simply that the government prove that a defendant devised a scheme to obtain money or property from the victim through false or fraudulent pretenses. The court reasoned that “to obtain” means to gain possession of something, regardless of whether the defendant gave the victim something in return (like an art collector who “obtains” a prized sculpture by paying handsomely for it). Further, while common-law fraud is frequently understood to require economic loss, the court’s examination of caselaw predating the statute reflected that courts generally found injury in the “deception-induced deprivation of property”—not economic loss.

Takeaways 

Kousisis was somewhat of surprise: not just because it was unanimous, but because it seemed possible, if not likely, the court would follow its recent trajectory in white-collar cases, paring back statutes and eyeing perceived efforts to circumvent the money-or-property requirement in fraud prosecutions. The defendants argued that allowing a fraud conviction to stand where the victim received the goods or services bargained for just means that the victim has been deprived of the intangible right to control his or her assets, a theory rejected by the Court in Ciminelli v. United States, 598 U. S. 306, 316 (2023). They also argued that, without pecuniary loss, the “object” of the deceit was really to interfere with regulatory scheme, a theory rejected in Kelly v. United States, 590 U.S. 391, 398 (2020). The court instead distinguished these recent precedents, reiterating that the Kousisis defendants sought to induce the government to transferring money or property (regardless of whether the government received something in return), and thus satisfied the money-or-property requirement.

• Materiality is likely the next battleground.  

Moving forward, the success of fraudulent-inducement prosecutions under Section 1343 will likely turn on whether the alleged misrepresentations were material. However, the standard for materiality remains an open question. The Kousisis defendants argued that a misrepresentation is material if a reasonable person would attach importance to it in deciding how to proceed, or if the defendant knew (or should have known) that the recipient would deem it important. The government, on the other hand, argued that a misrepresentation is material only if it goes “to the very essence of the parties’ bargain.” Because the defendants conceded materiality, the Court declined to weigh in, concluding only that the “demanding” requirement “substantially narrows the universe of actionable misrepresentations.”

While the government proposed a stricter materiality standard before the Supreme Court, it seems likely that line prosecutors will push for a less demanding standard. Indeed, without guidance from Kousisis, recent district court decisions applying Kousisis have relied upon older Supreme Court precedent endorsing the less strict standard, reasoning that “a false statement is material if it has a natural tendency to influence ... the decision of the decision-making body to which it was addressed.” See United States v. Peraire-Bueno, 2025 WL 2062021, at *8 (S.D.N.Y. Jul. 23, 2025); United States v. Madigan, 2025 WL 1836050, at *22 (N.D. Ill. Jul. 3, 2025) (same); see also United States v. Pukke, 2025 WL 2089261, at *3 (S.D.N.Y. Jul. 25, 2025) (misrepresentations “material” where they “would have mattered to a reasonable person in making such a decision”).

• The babysitter hypothetical fails to sway the court. 

At oral argument, several justices posed variations of a hypothetical where a babysitter promises a family that she would use money for college to obtain the job, but instead uses that money for a vacation. The justices wanted to know whether the babysitter’s conduct amounted to federal fraud even if the babysitter had provided excellent services. The court appeared to respond to this concern by pointing to the limitations imposed by the materiality requirement. However, the court then reiterated that what is criminal is “intentionally lying to induce a victim into a transaction that will cost her money or property”—fraud occurs even when the victim receives a “quid pro quo of equal value.” Under this rule, it seems that the lying babysitter possibly could be indicted for wire fraud, punishable by up to 20 years in prison.

U.S. Supreme Court Justice Sonia Sotomayor and Justice Neil Gorsuch, in their concurrences, questioned the soundness of this rule. Gorsuch insisted that to draw a line between mere lies and criminal fraud, the government must prove that the victim did not receive what was promised. Justice Sotomayor expressed a similar concern, distinguishing the facts of Kousisis from cases where a defendant provides exactly what was promised but lies in other ways to induce the transaction. She reasoned that in fact, PennDOT did not receive what was promised, because what was promised was that a disadvantaged business would provide painting supplies. That did not happen.

The failure to sway the justices with the extreme babysitter hypothetical represents a departure from certain decisions last term, where such hypotheticals appeared to animate the court’s decision to narrow the scope of other criminal laws. While it seems unlikely that federal prosecutors will aim to convict babysitters lying their way to a spring break trip, other, more commercial fact patterns could implicate this rule, and the court’s decision leaves substantial discretion in prosecutors’ hands. If the Department of Justice brings such cases, the lower courts may determine that a stricter materiality standard is appropriate.

• Paving the way for “illegal DEI” prosecutions.

In January, the White House issued an executive order requiring all recipients of federal contracts or grants to certify that they do not operate any programs promoting DEI. As examined by other commentators, given the U.S. Department of Justice’s intent to prosecute those who falsely certify that they do not maintain DEI programs, Kousisis may expose government contractors to potential criminal liability under Section 1343 for misrepresenting compliance with the executive order—even if the government sustains no economic loss and the contract specifications are met.

Whether such prosecutions would be successful under Section 1343 would turn on the materiality of such certifications. In Kousisis, Sotomayor determined that the requirement went to the “very essence of the bargain” because compliance would determine the viability of the projects to be funded to completion. The same arguably holds true for anti-DEI certifications. By contrast, Justice Clarence Thomas’s concurrence reasoned that even though the contract at issue implied that subcontracting to a disadvantaged business was a material requirement, such a requirement was not material because it was “irrelevant to the contracts’ fundamental purpose—bridge repair.” As such, while federal prosecutors may now threaten government contractors with a wire fraud indictment to compel anti-DEI compliance, those seeking a defense may turn to Justice Thomas’ reasoning on materiality. Also, where the certifications require entities to attest that they engaged in no “illegal DEI” or “illegal discrimination,” the government may struggle to prove that a defendant knowingly made a false statement, if the defendant believed that his or her diversity program complied with the law, and therefore was not illegal.

Reprinted with permission from the August 14, 2025 issue of Law.com © 2025 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.