In September 2016, the United States Attorney for the Southern District of New York charged, among other defendants, former New York Governor Andrew Cuomo’s campaign manager, Joseph Percoco, not-for-profit Fort Schuyler Management board member, Alain Kaloyeros, and Buffalo-based developer, Louis Ciminelli, with conspiring to commit a scheme to defraud related to Cuomo’s “Buffalo Billion” initiative.  In summary, the government alleged that the defendants participated in an unlawful bid-rigging scheme that assured certain developers were awarded state-funded contracts.  The jury rendered guilty verdicts in 2018.  But on May 11, 2023, the United States Supreme Court, in two decisions discussed below, unanimously overturned certain wire fraud and conspiracy convictions for these defendants, finding that federal prosecutors’ theory of fraud or the corresponding jury instructions were overly broad or otherwise improper.

In Percoco v. United States et al., the Supreme Court considered whether a private citizen (i.e., Cuomo’s campaign manager) can be convicted for wire fraud on the theory that he deprived the public of its “intangible right of honest services.”  See 18 U.S.C. § 1346.  The jury found Percoco guilty of this offense based on instructions that directed the jury to determine whether, as the Governor’s campaign manager, he had a “special relationship” with the government and “dominated and controlled” government business.  In overturning Percoco’s conviction, the Supreme Court issued the Government its latest setback in “honest services” prosecutions by finding the district court’s instructions too vague as they did not define “the intangible right of honest services,” “with sufficient definiteness that ordinary people can understand what conduct is prohibited,” or “in a manner that does not encourage arbitrary and discriminatory enforcement.” See McDonnell v. United States, 579 U.S. 550, 576 (2016).

In Ciminelli v. United States et al., the Court considered whether a “right to control” theory of fraud is sufficient to satisfy the federal wire fraud statute. See 18 U.S.C. §§ 1343, 1349.  Under the “right to control” theory, a defendant is guilty of wire fraud if he schemes to deprive the victim of “potentially valuable economic information…necessary to make discretionary economic decisions.”  The Court found that federal fraud statutes criminalize only schemes to defraud people of “traditional property interests” and not the alleged bid-rigging scheme that deprived the not-for-profit of potentially valuable economic information necessary to make discretionary economic decisions. 

In submitting bids and entering into government contracts, it is crucial for businesses, lobbyists, political consultants and others to watch closely for emerging updates and seek qualified legal guidance. If you require assistance or advice related to federal or state investigations, contact Dennis C. Vacco (dvacco@lippes.com), Michael G. Rossetti (mrossetti@lippes.com), Karl J. Sleight (ksleight@lippes.com), or Scott S. Allen, Jr. (sallen@lippes.com) of Lippes Mathias' government & corporate investigations practice team.