Los Angeles Real Estate Litigation Lawyer Jeffer Mangels Butler & Mitchell LLP Home
The Supreme Court recently decided that a federal contractor who induces the government to enter into a transaction under materially false pretenses can be convicted of fraud even if the contractor did not seek to cause the victim economic loss. The Court’s decision in Kousisis v. United States, 145 S. Ct. 1382 (2025) permits federal prosecutors to bring enforcement actions under a fraudulent inducement theory, even absent economic loss, so long as there is a material misrepresentation. The Court’s unanimous ruling emphasizes that companies, especially those contracting with government entities, must provide accurate and complete representations throughout bidding processes and through project completion. The decision departs from the Court’s previous line of cases narrowing the scope of federal fraud statutes.
Background
The Pennsylvania Department of Transportation (PennDOT) awarded Stamatios Kousisis and his company, Alpha Painting and Construction Co., two bridge-painting contracts. Federal regulations required a portion of the work to be subcontracted to a disadvantaged business enterprise (DBE). During the project bidding process, Kousisis and Alpha falsely represented they would obtain paint supplies from the prequalified DBE, Markias Inc. Federal prosecutors alleged that Kousisis and Alpha used Markias Inc. solely to funnel checks and invoices to and from their actual suppliers. Kousisis and Alpha completed the bridge-painting projects, receiving approximately $20 million in gross profit.
The U.S. Attorney’s Office for the Eastern District of Pennsylvania charged Alpha and Kousisis with wire fraud and conspiracy, arguing they induced PennDOT to award the two bridge-painting contracts under materially false pretenses. After a jury conviction, Alpha and Kousisis moved for acquittal, arguing prosecutors could not prove they schemed to defraud PennDOT of “money or property” required by federal wire fraud statute 18 U.S.C.§ 1343 because PennDOT received the “full economic benefit of its bargain.” The United States Court of Appeals for the Third Circuit rejected their argument and the Supreme Court granted certiorari to resolve the circuit split regarding an economic loss requirement. Specifically, the Third, Seventh, Eighth, and Tenth Circuits had upheld wire fraud convictions absent economic loss whereas the Second, Sixth, Ninth, Eleventh, and D.C. Circuits had rejected fraudulent inducement theories absent economic loss.
In her May 22, 2025 opinion affirming the conviction, Justice Amy Coney Barrett explains that DOJ’s fraudulent inducement theory in the Kousisis prosecution satisfied the three basic elements for wire fraud: (1) The defendant must devise or intend to devise a scheme, (2) to obtain money or property, (3) by means of false or fraudulent pretenses, representations, or promises. The statute’s language does not require economic loss nor does the common law understanding of “fraud” require economic loss in all cases. The Court upheld the conviction because Kousisis and Alpha devised a scheme to obtain contracts through illusory compliance with PennDOT’s DBE requirement to obtain millions of dollars from PennDOT by making false representations during the bidding process and throughout the project’s completion. Kousisis and Alpha’s fraudulent inducement absent economic loss was sufficient for a wire fraud conviction.
Justice Barrett also reaffirmed that materiality of falsehood is an essential element of federal fraud statutes. This “demanding” requirement “substantially narrows the universe of actionable misrepresentations.” However, the Court declined to define the standard to determine materiality because Kousisis and Alpha did not contest that their misrepresentations were material.
Justice Clarence Thomas concurred in the Court’s judgement, but expressed skepticism regarding the materiality of Kousisis and Alpha’s misrepresentations. For a contract term to be material, it “must go to the very essence of the bargain” and “cannot be found where noncompliance is minor or insubstantial.” In his view, the bridge-painting contract’s DBE provision was irrelevant to the contracts’ fundamental purpose of bridge repair, and thus Kousisis and Alpha’s misrepresentations were not material.
Justice Sonia Sotomayor also concurred in the judgement, but cautioned that the majority goes too far in its application of fraudulent inducement to cases in which a defendant provides exactly the goods or services they promise to deliver, but lies in other ways to induce the transaction. She also criticized Justice Thomas’ concurrence, arguing Kousisis and Alpha’s misrepresentations were material.
Departure from Recent Trends
Kousisis departs from a long line of cases in which the Supreme Court consistently rejected the U.S. Justice Department’s expansive reading of federal fraud statutes, narrowing the statutes’ scope in light of concerns about perceived overcriminalization.
For instance, in Kelly v. United States, 590 U.S. 391, 140 S. Ct. 1565, 206 L. Ed. 2d 882 (2020), the Court reversed New Jersey officials’ wire fraud convictions, finding their scheme to close bridge toll lanes to cause traffic gridlock did not aim to obtain money or property. Kelly narrowed DOJ’s ability to prosecute under federal fraud statutes, holding schemes for regulatory or public policy reasons do not fall within the statutes’ scope.
In Ciminelli v. United States, 598 U.S. 306, 143 S. Ct. 1121, 215 L. Ed. 2d 294 (2023), the Court reversed Ciminelli’s fraud conviction, finding his scheme to deprive potentially valuable economic information in relation to the New York “Buffalo Billion” initiative was not a traditional property interest. Ciminelli narrowed DOJ’s ability to prosecute under federal fraud statutes, rejecting the “right to control” theory of fraud as a basis for liability and reiterating the federal fraud statutes’ protection extends only to traditional property interests.
Considering these and other cases, Kousisis stands in marked contrast to recent federal fraud jurisprudence, signaling a broader scope of potential enforcement by extending fraud liability to cases including fraudulent inducement, even absent economic loss.
Implications for Federal Contractors and Companies Doing Business with Government Agencies
Before Kousisis, the Supreme Court consistently limited the reach of federal fraud statutes, leading some to predict that the Court would once again push back against perceived prosecutorial overreach. But the Court instead adopted a somewhat broader interpretation of the federal wire fraud statute, permitting the DOJ to bring criminal wire fraud prosecutions under a fraudulent inducement theory, even absent economic loss, so long as there is a material misrepresentation. This decision precludes defendants from avoiding fraud liability by arguing the contract or transaction was fully performed or the victim did not suffer economic harm.
To bring criminal charges under the wire fraud statute, or enforcement actions under the civil False Claims Act (FCA), DOJ must prove that alleged misrepresentations or false contract certifications were “material” to the government’s decision to enter into the contracts. The dueling concurring opinions in Kousisis are a clear indication that future cases defining the scope of the federal fraud statutes will likely turn on the definition of materiality and how federal judges instruct juries on this essential element. Although Kousisis means that federal prosecutors no longer need to prove economic loss in wire fraud prosecutions, defendants and investigation targets can be expected to challenge DOJ’s actions for lack of materiality if the alleged misrepresentations or false certifications do not go to the “essence” of the federal contract.
Kousisis also could impact investigations brought under DOJ’s new Civil Rights Fraud Initiative, which seeks to enforce the FCA against federal contractors and federal funds recipients who are alleged to have made contract certifications that are inconsistent with the Trump administration’s approaches to antisemitism, gender identity issues, and diversity, equity, and inclusion (“DEI”) programs. This new DOJ initiative follows an executive order seeking to eliminate DEI initiatives in federal government agencies and within private companies doing business with the government. See New Executive Order Creates Litigation Risk for Federal Contractors and Healthcare Providers with DEI Policies and Programs. In the current policy environment, there is risk of potential FCA liability for healthcare companies, federal contractors, and federal grant recipients that maintain DEI initiatives and programs. Kousisis could inspire FCA investigations premised on a fraudulent inducement theory where DOJ suspects contractors have made false certifications or representations about DEI policies and practices.
Kousisis follows new guidance on white collar enforcement from DOJ’s Criminal Division, which emphasizes the division’s priority for “investigating and prosecuting corporate crime in areas that will have the greatest impact in protecting American citizens and companies and promoting US interest.” See U.S. Department of Justice Criminal Division Memorandum for Focus, Fairness, and Efficiency in the Fight Against White-Collar Crime (May 12, 2025). Some of these areas include waste, fraud, and abuse including health care fraud and federal program and procurement fraud, trade and customs fraud, elder fraud, securities fraud, conduct that threatens the country’s national security, and crimes involving digital assets that victimize investors and consumers. The memorandum requires prosecutors to “move expeditiously to investigate cases and make charging decisions.” DOJ also recently updated enforcement policies relating to corporate white collar offenses, including revisions to the Corporate Whistleblower Awards Program and the Corporate Enforcement and Voluntary Self-Disclosure Policy.
Given these developments, companies must be vigilant in ensuring they are providing truthful, accurate, and complete representations regarding their ability to comply with all contractual requirements, and should invest in establishing internal compliance programs to detect any potential risks of liability.
