Supreme Court Upholds Fraud Conviction Without Economic Loss: Kousisis and Why the Sky Isn’t Falling
Economic Loss Not Required in a Post-Ciminelli World
The Supreme Court has upheld a federal fraud conviction even when the scheme did not seek to cause the victim an economic loss. In Stamatios Kousisis, et al. v. United States, decided May 22, 2025, the Court unanimously affirmed a Third Circuit ruling and rejected the defendants’ argument that wire fraud requires intending a net financial harm to the victim. This outcome is a bit surprising because the Court in recent years has narrowed the reach of fraud laws (for example, rejecting the “right-to-control” theory last year in Ciminelli). But before the defense bar panics, it’s critical not to jump to conclusions, and to recognize the opinion’s built-in limitations. The sky is not falling – the decision, while unfavorable to Kousisis himself, leaves important guardrails intact. In fact, the majority took pains to emphasize how Kousisis fits within existing fraud law and does not turn every lie or breached promise into a federal crime.
Background: The Kousisis “Fraudulent Inducement” Scheme
The Kousisis case arose from a contracting scheme involving a disadvantaged-business enterprise (“DBE”) program. Stamatios Kousisis helped manage Alpha Painting and Construction Co., which won two large Pennsylvania government contracts (painting projects for PennDOT) that required partnering with a certified DBE subcontractor. Kousisis and Alpha promised in their bids to use a qualifying DBE supplier (Markias) for materials, as the contracts demanded. In reality, Markias was a “pass-through” entity: other suppliers provided the paint, and Markias added a markup on invoices to give the illusion of DBE participation. In other words, Kousisis obtained the contracts by lies, he falsely represented compliance with the DBE requirement. PennDOT was “fraudulently induced” into providing the contracts.
Critically, PennDOT paid the contract price and got the painting work completed; the defense argued there was no economic harm because the government received what it paid for. Nonetheless, prosecutors charged Kousisis and Alpha with wire fraud under 18 U.S.C. §1343, theorizing that fraudulent inducement to enter a contract (even without an intended loss) is sufficient. Kousisis was convicted at trial and received 70 months in prison (Alpha was fined and forfeited profits). On appeal, the Third Circuit affirmed, noting the DBE requirement was “an essential part of the contract” and its misrepresentation could sustain fraud charges. The Supreme Court granted certiorari to resolve a split over whether wire fraud demands proof the defendant sought to cause a net financial loss to the victim.
The Supreme Court’s Holding: No Economic-Loss Requirement
In a unanimous judgment (with multiple concurring opinions), the Supreme Court flatly held that a defendant who induces a victim to enter a transaction under materially false pretenses can be convicted of wire fraud even if no economic loss to the victim was intended or occurred. Justice Amy Coney Barrett wrote for the Court, explaining that nothing in the wire fraud statute’s text imposes an “economic harm” requirement. The statute (18 U.S.C. §1343) requires a “scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses” – and Kousisis’s conduct met each element. By using the DBE pass-through ruse, Kousisis “devised a scheme” to obtain government contracts (and thus tens of millions of dollars in payments) through false representations of DBE compliance. Crucially, the Court emphasized that obtaining money through lies is still obtaining money: a fraudster does not escape the statute just because he gave the victim something of value in return (here, the painting work). As the opinion noted, to “obtain” means to gain possession, and money is “no less ‘obtained’ simply because something else is given in return.” In short, a contractual exchange induced by lies can satisfy wire fraud – the law does not require leaving the victim poorer.
The Court supported its ruling by citing his prior precedent. It pointed out that it had “twice rejected the argument that a fraud conviction depends on economic loss” in prior cases. For example, in Carpenter v. United States, the defendants were convicted of fraud for misappropriating confidential information (even though the victim company didn’t suffer an immediate monetary loss), and in Shaw v. United States, the Court allowed a bank fraud conviction even though the bank ultimately didn’t lose money. Those cases were in line with Kousisis by confirming that the focus is on the fraudulent scheme and its object, not on a ledger of losses. Kousisis’s bid to limit fraud to schemes aimed at inflicting net loss was therefore inconsistent with the statute and precedent.
The historical understanding of “fraud” also didn’t save Kousisis. The defense argued that at common law, fraud required an injury (usually economic) to the victim. Justice Barrett responded that while common-law fraud did generally require injury, fraud has never had a fixed meaning that always demanded economic loss. In particular, many 19th-century false pretenses cases and contract rescission suits treated it as fraud when a victim was tricked into accepting something different from what was promised, “even if of equal value”. In other words, being deceived into a transaction was considered a cognizable harm itself – the law wasn’t solely concerned with monetary loss, but with the deprivation of the benefit of one’s bargain through deceit. The Court noted that over time, materiality became the touchstone to separate actionable frauds from mere minor fibs.
Bonus: Reaffirming the “Materiality” Requirement
Kousisis does contain a silver lining for the defense: a strong reaffirmation of the materiality requirement as a critical limit on fraud liability.
In a response to Justice Gorsuch’s concerns that there were now no limits on wire fraud, Justice Barrett went out of her way to stress that “materiality of falsehood is an element of – and thus a limit on – the federal fraud statutes.” (quoting Neder v. United States, a 1999 case). Not every lie or broken promise is criminal – only misrepresentations that are material, meaning they would naturally tend to influence the victim’s decision, can sustain a fraud conviction. Here, Kousisis did not dispute that his DBE misrepresentations were material (likely because PennDOT had explicitly made DBE participation a condition of the contract). But the Court highlighted materiality as a “demanding” standard that “substantially narrows the universe of actionable misrepresentations.”
Whether in tort or contract law, “materiality look[s] to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.” Universal Health Services, 579 U. S., at 193 (internal quotation marks omitted; alteration in original). Resembling a but-for standard, materiality asks whether the misrepresentation “constitut[ed] an inducement or motive” to enter into a transaction. Smith, 13 Pet., at 39. Or, as we explained in Universal Health Services, 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 likely deem it important. 579 U. S., at 193 (citing Restatement (Second) of Torts §538 (1976); Restatement (Second) of Contracts §162(2) (1979)).
This language, citing the Court’s decision in Universal Health (a False Claims Act case), is terrific for the defense bar. The idea that materiality in the federal fraud laws resembles a “but-for standard” is far stronger than the Neder standard, which simply looks to whether a reasonable person would view the misstatement or omission as important.
For the defense, this reaffirmation of materiality will be a key arrow in the proverbial quiver going forward. The majority opinion acknowledged concerns that allowing fraud charges for contract-related misrepresentations could risk criminalizing minor fibs or misstatements, chose to elevate “materiality” rather than de-criminalize fraudulent inducement. In effect, the Court said, materiality is a filter: fraudulent inducement only covers a “particular species of fraud” – namely, “intentionally lying to induce a victim into a transaction that will cost her money or property.” If the misrepresentation doesn’t meet that threshold, it isn’t wire fraud. Justice Clarence Thomas’s concurrence, underscored this point by casting doubt on whether in Kousisis’s own case the DBE promises were truly material to PennDOT. While taking a whack at the DBE requirement, he noted that if evidence showed PennDOT would have paid out the contracts even knowing about noncompliance, it would be “strong evidence” the misrepresentations were not material.
Thomas’ concurrence should gain momentum going forward and it sends a message: defense attorneys should scrutinize and, if possible, build a record on whether the alleged falsehood actually mattered to the decision-maker. Especially in cases where the victim got the economic benefit it sought (here, completed paint jobs), materiality will be the meaningful guardrail that prevents application of the wire fraud statute to every technical lie.
Why the Supreme Court’s Reasoning in Kousisis Does Not Extend to Transactions lacking “privity”
As described, in Kousisis, the Supreme Court confirmed that federal wire fraud under the “fraudulent inducement” theory occurs when a defendant intentionally uses material false statements to induce a victim into handing over money or property. Critically, however, the scenario the Court considered involved a direct transactional relationship—typically through a contract or some explicit agreement—where the defendant deliberately deceived a known counterparty into parting with funds.
Dynamis has handled numerous cases involving public dissemination of statements where either victims are not economically harmed or economic harm was not the intent of the statement. Does Kousisis apply? No. The situation involving a misleading tweet about a publicly traded stock, with no direct transaction or relationship between the speaker and the eventual buyer, is fundamentally different. Here are key reasons why Kousisis would not apply to this scenario:
No Direct Transaction or Bargain:
The fraudulent inducement theory articulated in Kousisis explicitly focuses on deceptive inducements to enter into a contract, a deal or a direct transaction. The Court repeatedly characterized the relevant fraud as lying to trick a party into entering a specific transaction. A tweet, however, is generally disseminated widely and publicly. There is no identifiable “transaction” or direct exchange of money or property between the individual who posts the tweet and any unknown, diffuse group of readers who might purchase stock based on the tweet’s content.Lack of Intentionality Toward a Specific Victim:
Kousisis emphasizes intentional deceit aimed at obtaining money or property specifically from the deceived party. A broad statement made publicly on social media is inherently generalized and lacks targeted intent. To meet the Kousisis standard, the government would have to show the tweeter specifically intended to trick identified individuals into handing over their money. The impersonal nature of social media typically cannot meet this requirement.No "Obtaining" of Money or Property by the Defendant:
The Supreme Court stressed that wire fraud under the fraudulent inducement theory requires the defendant to obtain money or property from the victim. When someone posts a tweet about a stock, the tweeter does not directly receive money or property from any person who purchases the stock on the open market. Even if the stock price rises indirectly, this indirect, market-driven benefit is fundamentally different from directly obtaining money or property from the victim, as required under the Court’s rationale in Kousisis.Absence of Materiality in a Direct Exchange:
The heightened materiality of Kousisis involves the importance of a falsehood in directly inducing the victim’s decision to part with their money or property. The standard is objective and it requires a “but for” causation chain. With a tweet about a stock, particularly by a third-party unaffiliated with the company at issue, the buyer’s subsequent transaction is influenced by numerous factors—general market conditions, additional information sources, or independent research. It would be very challenging (and arguably inappropriate under Kousisis) to single out a generalized tweet as materially responsible for directly inducing specific market participants’ purchases.
Put simply, Kousisis requires a fraudulent inducement specifically targeting victims with whom the defendant intends a direct transactional deception, resulting in a transfer of money or property directly to the defendant. A scenario involving a publicly disseminated tweet, where there is no direct relationship, no direct transfer of money or property, and no identifiable transactional deceit, simply does not meet this standard.
Conclusion
In sum, Kousisis v. United States tells us that obtaining money through deception is federal fraud – even if the deceived party didn’t suffer an immediate financial loss. While we disagree with this result, the Court’s heightened materiality standard will cushion much of the blow.
For the white-collar defense bar, the message is to not be alarmist. Yes, the government can prosecute fraudulent inducement cases more confidently now, but defendants have the upper hand on materiality after Kousisis. By leveraging the Court’s language about materiality, defense counsel may be better positioned prior to charging to convince prosecutors to back off. Moreover, Kousisis will have virtually no impact on situations where there is not a direct transaction between a defendant and a purported victim.
