United States Supreme Court Affirms Contractor’s DBE-Based Wire-Fraud Conviction
In Kousisis v. United States, 605 U.S 114 (2025), the United States Supreme Court unanimously affirmed the wire-fraud conviction of Stamatios Kousisis and the industrial-painting company he worked for, Alpha Painting and Construction Co. “When two Philadelphia landmarks, the Girard Point Bridge and the 30th Street Station, fell into disrepair, [the Pennsylvania Department of Transportation] (PennDOT) began soliciting bids for their restoration. Kousisis, Alpha's project manager, submitted a bid for each project. His bidding proved successful: With respect to the Girard Point project, PennDOT awarded a $70.3 million contract to a joint venture comprising Alpha and two other companies. And with respect to the 30th Street project, Alpha and another company (again operating as a joint venture) secured a $15 million subcontract, which represented nearly a third of the $50.8 million total winning bid.”
Because both projects received federal funding, the United States Department of Transportation “require[d] that grant recipients like PennDOT establish and ‘actively implemen[t]’ a disadvantaged-business program. A ‘[d]isadvantaged [b]usiness [e]nterprise,’ according to DOT, is ‘a for-profit small business’ that is majority owned and controlled by ‘one or more individuals who are both socially and economically disadvantaged.’” As required by the U.S. DOT, “PennDOT required that bidders for the Girard Point and 30th Street projects commit to subcontracting a percentage of the total contract amount—six and seven percent, respectively—to a disadvantaged business.”
During the bidding process, “Kousisis represented that Alpha would acquire approximately $6.4 million in painting supplies from Markias, Inc., a prequalified disadvantaged business.” That turned out to be a lie because “Alpha and Kousisis concocted a scheme in which Markias would function as a mere ‘pass-through’ entity. The scheme operated as follows: Kousisis arranged for Alpha's actual paint suppliers, with whom he negotiated directly, to ‘generate purchase orders ... billed to Markias.’ When Markias received an invoice, it tacked on a few-percent fee and then forwarded the inflated invoice to Kousisis. He, in turn, issued two checks: one paid Markias for its mark up, and the other covered the actual cost of the supplies. In short, Markias was no more than a paper pusher, funneling checks and invoices to and from Alpha's actual suppliers.” During work on the projects, Kousisis “falsely reported qualifying payments to Markias. PennDOT, satisfied with Alpha's paint and repair work, paid it accordingly. By the time the last coat of paint had dried, Alpha had turned a gross profit of over $20 million. And Markias, for its ‘pass-through’ services, had pocketed a total of about $170,000.”
A federal jury convicted Kousisis and Alpha of wire fraud and conspiracy to commit wire fraud. Kousisis and Alpha asked the district court to set aside their convictions because “their paintwork met PennDOT's expectations, PennDOT had received the full economic benefit of its bargain. Thus, notwithstanding the lack of disadvantaged-business participation, the Government could not prove that they had schemed to defraud PennDOT of ‘money or property’ as the federal wire fraud statute requires.” The district court and United States Court of Appeals for the Third Circuit rejected the arguments and affirmed the convictions. The United States Supreme Court then heard the case to resolve a split among the federal circuit courts “over the validity of a federal fraud conviction when the defendant did not seek to cause the victim net pecuniary loss.”
The Court recounted that to “convict Alpha and Kousisis, the Government needed to prove that they used the wires to execute a ‘scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises,’” which the Court had previously held requires the Government to prove that the a defendant “both ‘engaged in deception’ and had ‘money or property’ as ‘an object’ of his fraud.” Kousisis’ and Alpha’s argument focused on the “money-or-property” requirement. The Court explained that “[s]chemes that target the exercise of the Government's regulatory power” do not violate the statute, and neither do “schemes that seek to deprive another of ‘intangible interests unconnected to property.’” Furthermore, “the traditional property interest at issue ‘must play more than some bit part in a scheme.’ Obtaining the victim's money or property must have been the ‘aim,’ not an ‘incidental byproduct,’ of the defendant's fraud.” Kousisis and Alpha argued that to obtain a conviction, the Government must also prove that “the defendant sought to hurt the victim's bottom line.”
The Court rejected the argument. It explained that to be convicted, “a defendant must (1) ‘devis[e]’ or ‘inten[d] to devise’ a scheme (2) to ‘obtai[n] money or property’ (3) ‘by means of false or fraudulent pretenses, representations, or promises.’ “ The Court explained that “the theory under which [Kousisis and Alpha] were prosecuted—what they call the fraudulent-inducement theory—is devoid of an economic-loss requirement. As both parties describe it, the theory supports liability for federal fraud anytime a defendant ‘us[es] falsehoods to induce a victim to enter into a transaction.’ In these situations, the defendant need not—and given the reciprocal nature of most transactions, often will not—aim to inflict economic loss.” The Court concluded that the statute permits a conviction under the fraudulent-inducement theory, and that Kousisis’ and Alpha’s conduct satisfied that theory and all of the statute’s requirements: “By using Markias as a pass-through entity, [they] ‘devised’ a ‘scheme’ to obtain contracts through feigned compliance with PennDOT's disadvantaged-business requirement. Their goal? To ‘obtai[n] money’ (tens of millions of dollars) from PennDOT. And how? By making a number of ‘false or fraudulent ... representations’—first about their plans to obtain paint supplies from Markias and later about having done exactly that.” According to the Court, these facts were sufficient to uphold the convictions.
Kousisis and Alpha countered that “a scheme cannot constitute wire fraud if, as here, the defendant provides something—be it money, property, or services—of equal value in return.” The Court rejected that contention, and explained that “the wire fraud statute is agnostic about economic loss. The statute does not so much as mention loss, let alone require it. Instead, a defendant violates [the statute] by scheming to ‘obtain’ the victim's ‘money or property,’ regardless of whether he seeks to leave the victim economically worse off.”
Kousisis and Alpha “warn[ed] of the consequences that will ensue if [the Court] endorse[s] the fraudulent-inducement theory. ‘Under the theory,’ they say, ‘every intentional misrepresentation designed to induce someone to transact in property would constitute property fraud.’ In their view, this result threatens fair notice and, by encroaching into States’ police powers, runs headlong into principles of federalism.” The Court rejected the concerns and stated that the “‘demanding’ materiality requirement substantially narrows the universe of actionable misrepresentations. And the boundaries of the fraudulent-inducement theory are not so imprecise as to risk encroachment on States’ authority or to ‘create traps’ for the ‘unwary.’ Rather, the theory criminalizes a particular species of fraud: intentionally lying to induce a victim into a transaction that will cost her money or property. As Judge Learned Hand put it, ‘[a] man is none the less cheated out of his property, when he is induced to part with it by fraud, because he gets a quid pro quo of equal value.’” The Court acknowledged that the “‘language of the wire fraud statute’ is undeniably ‘broad.’ But Congress enacted the wire fraud statute, and it is up to Congress—if it so chooses—to change it.”
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