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White Collar Defense & Compliance Developments in Criminal Law, Federal Case Law and Statutory Developments

Perpetrating Fraud via a Website, with End Users in Different States, Gives Rise to Federal Wire Fraud Liability the Tenth Circuit Holds

Posted in Statutory developments

Edward J. Mullins III, Esq. writes:

The Tenth Circuit recently held that a defendant’s operation of an internet website, which was uploaded, hosted, and accessed from different states, in furtherance of his fraudulent practice of law, was sufficient interstate to support a wire fraud conviction in United States v. Kieffer, No. 10-1391, slip op. at 20-21 (10th Cir. June 11, 2012). The federal wire fraud statute, 18 U.S.C. § 1343, requires proof of an intentional scheme to defraud and the use of interstate wire communications to further that scheme. Sparking this particular battle was the Tenth Circuit’s precedent that a person’s use of the internet, “standing alone,” was insufficient evidence that an item had “traveled across state lines in interstate commerce.” United States v. Schaefer, 501 F.3d 1197, 1200-01 (10th Cir. 2007). (In this regard, the Tenth Circuit departs from its sister circuits, which have held that use of the internet alone does satisfy an interstate commerce element. See United States v. Lewis, 544 F.3d 208, 214-16 (1st Cir. 2009) (transmitting child pornography); United States v. MacEwan, 445 F.3d 237, 244 (3d Cir. 2006) (same)).

Kieffer ran a nationwide unlicensed criminal law practice based in California, advertising his services through his website hosted in Virginia. He actually appeared on behalf of clients in state and federal trial and appellate courts throughout the country, including a murder for hire defendant in Colorado. The victim’s brother, who retained the defendant, viewed the website in Tennessee; the victim’s court-appointed public defender viewed it from Colorado. A jury convicted the defendant of making false statements in violation of § 1343, among other violations. The jury found that the defendant had used the website to promote his unauthorized practice of law, to convince the brother and public defender that he was authorized to practice law, and to swindle tens of thousands of dollars in counsel fees.

The court held that “[t]he presence of end users in different states, coupled with the very character of the internet” permitted the jury to infer transmission across state lines, satisfying the interstate commerce element. Kieffer, slip op. at 19. The court distinguished Schaefer, explaining that one individual’s use of the internet may not necessarily involve an interstate transmission because, arguendo, the content could be uploaded, hosted, and retrieved in the same state. Id. at 21. The identical content of the defendant’s website, accessed from both Colorado and Tennessee computers, without local hosts in either state, must have crossed state lines. Id. at 21-22. Thus, the use of the internet to promote fraudulent services or products continues to excite creative prosecutors and to broaden wire fraud liability for defendants.

(Edward J. Mullins III, Esq., the author of this entry, is an associate with Fox Rothschild LLP, based in our Roseland, NJ office. His practice concerns litigation in the areas of financial services and corporate governance, including white collar defense and securities).