Kousisis v. United States: Can Fraud Convictions Stand Without Economic Harm?
R Tamara de Silva
The Supreme Court’s docket this term includes Kousisis v. United States, a federal wire fraud case that could redefine the scope of federal fraud prosecutions. At issue is a scheme where a contractor lied to win government contracts but still delivered the promised work—raising the question: Can there be fraud if the victim suffered no economic harm? The Court’s answer may clarify how far prosecutors can go in treating deceptive business dealings as criminal fraud.
Background: Contractor Convicted of Wire Fraud in DBE Scheme
Stamatios Kousisis and his company, Alpha Painting & Construction Co., Inc., won two bridge-repair contracts with the Pennsylvania Department of Transportation (PennDOT). The contracts required that a certain percentage of the work be subcontracted to a certified Disadvantaged Business Enterprise (DBE). Kousisis’s company lied about using a DBE subcontractor. It listed a qualifying DBE firm as a partner even though that firm performed no actual work on the project. This deception allowed the company to meet the DBE participation requirement on paper and secure the contracts.
Kousisis’s company ultimately completed the bridge work successfully, fulfilling all other terms of the contract at the agreed-upon price. PennDOT received the full benefit of its bargain – the bridges were repaired for the price agreed. However, because the DBE participation was a sham, federal prosecutors charged Kousisis and Alpha Painting with conspiracy to commit wire fraud and multiple counts of wire fraud. A jury convicted them on all counts.
On appeal, Kousisis argued that he did not defraud the government of any property because PennDOT suffered no financial loss and got exactly what it paid for. The U.S. Court of Appeals for the Third Circuit disagreed and upheld the convictions. The Third Circuit reasoned that Kousisis’s false certification of DBE compliance was sufficient to sustain fraud charges even if no net economic harm befell PennDOT. In other words, fraud lay in the fraudulent inducement of the contract: the government paid out money under false pretenses that it might not have paid had it known the truth.
As a result of the convictions, Kousisis was sentenced to 70 months in prison. His company was ordered to forfeit 100% of its profits on the projects (nearly $11 million) as a penalty. This effectively stripped the defendants of the entire payment they had received from PennDOT, underscoring how seriously the law treats obtaining government contracts through deceit.
The Legal Question: Does Wire Fraud Require Economic Harm?
This case squarely raises the question of economic harm in fraud cases. Kousisis argued that without any allegation of economic harm – or even any intent to cause such harm – there can be no basis to sustain a charge of federal fraud. His company provided quality work at the bargained-for price, and the state suffered no loss; therefore, in his view, no crime occurred. Essentially, he urges a “no harm, no foul” rule: the fraud statutes should not punish deceit that doesn’t cause economic injury to the victim.
On the other side, the government insists that deception alone can suffice for wire fraud if the perpetrator obtains money or property by means of false statements. In their view, deceiving a victim out of money under false pretenses is fraud even if the victim ultimately receives the goods or services promised. Here, the government emphasizes that PennDOT’s money was obtained by misrepresentation. The property at issue was the contract payments themselves, which Kousisis would not have received but for the lie about DBE participation. Thus, they contend it is enough that money changed hands due to deception, and no actual loss by the victim is required under the statute. In fact, courts have recognized that fraud can be complete even if the victim is not left financially worse off, so long as a material lie led to the transaction.
Is a Contract Right Considered “Property” in Fraud Cases?
Another key issue in Kousisis is what counts as “property” under the federal fraud statutes. The defense argues that a government’s regulatory or policy interest – here, ensuring participation of DBE subcontractors – is not a property interest protected by these statutes. Kousisis’s team contends that “not all contract rights are property.” In this case, they say the government was deprived only of its right to honest information and compliance with the DBE term, an intangible interest rather than a physical or monetary loss. This argument echoes the Supreme Court’s recent approach in fraud cases like Ciminelli v. United States (2023), where the Court unanimously rejected the “right-to-control” theory of fraud. In Ciminelli, the scheme deprived the victim of potentially valuable information but not tangible property or money, and the Court overturned those fraud convictions.
Similarly, Kousisis contends that lying about DBE compliance, while dishonest, did not actually take any of the government’s money or goods beyond what was contractually agreed. The prosecution counters that this was not a mere technical or intangible injury. When PennDOT awarded the contracts under false pretenses, it paid money to a contractor it otherwise might not have paid. Those funds are a concrete property interest. The government’s brief stresses that the fraudulent inducement here led to the transfer of millions of dollars – which is very much a property loss, even if PennDOT got the bridge work in return. In the prosecutors’ view, the misrepresentation corrupted the transaction and effectively caused the defendants to obtain property (the contract payments) by deceit. That, they argue, satisfies the statutory definition of fraud.
Supreme Court Oral Argument Highlights
Oral arguments in December 2024 revealed a divided Supreme Court grappling with where to draw the line in cases like this. Some Justices appeared sympathetic to the government’s position that Kousisis’s conduct was a “classic fraudulent scheme to obtain property under false pretenses.” For example, Justice Ketanji Brown Jackson pressed Kousisis’s attorney on why this wasn’t straightforward fraud if the contract specifically required DBE involvement and that term was flouted. Justice Sonia Sotomayor similarly questioned how this case differed from a contractor simply lying to get paid while ignoring a key contract obligation.
Other Justices, however, voiced concern about the breadth of the government’s theory. Justice Neil Gorsuch posed a now-notorious hypothetical: If a babysitter tells a family she’ll use her earnings for college tuition but instead spends the money on a trip to Cancun, is that wire fraud? The government’s lawyer was eventually forced to concede that under the letter of the law, even this kind of fib could technically be prosecuted as federal fraud (albeit likely resulting in a low sentence). The hypothetical highlighted the potential sweep of the fraud statute if any lie inducing a transaction can trigger criminal charges. It underscored the defense’s point that not every deception in a commercial setting should be treated as a federal crime.
Chief Justice John Roberts and Justice Samuel Alito also expressed concerns about over-federalizing ordinary business disputes. Chief Justice Roberts mused that “you don’t have to federalize every jot and tittle” of contract law, suggesting that not all breaches or deceptions belong in criminal court. Justice Alito noted that the Court “really doesn’t like the federalization of white-collar prosecutions,” hinting that some matters could be left to state law remedies (such as civil suits for fraud or breach of contract) rather than making them federal crimes.
The Justices explored various hypotheticals – from charity donation lies, to a contractor painting the wrong room in a house, to a purchaser receiving coal instead of the gold bars he was promised – seeking a principled line between criminal fraud and lesser falsehoods. Much of the debate centered on what qualifies as a cognizable harm versus a mere disappointment of expectations. By the end of the argument, the Court seemed to be wrestling with how to articulate a rule that filters out trivial lies yet doesn’t give a free pass to more serious schemes like the one at issue.
Implications Beyond Government Contracting
Although Kousisis directly involves a public procurement scenario, the Court’s ruling could shape how white-collar defendants in many industries are prosecuted for alleged misrepresentations. Modern business transactions often include certifications and assurances—about compliance, qualifications, or intended uses. If the Supreme Court ultimately holds that fraud requires a focus on tangible economic harm or intent to cause such harm, individuals and companies in other sectors could benefit from clearer limits on federal fraud liability.
Conversely, if the Court affirms that obtaining property through a lie—even if the victim receives what was paid for—amounts to fraud, more business disputes could transform into criminal matters. Companies claiming they met certain regulatory or contractual standards when they did not might be vulnerable to wire or mail fraud charges. This underscores how broadly the case’s outcome could affect white-collar enforcement well beyond infrastructure contracting.
Practical Takeaways for Businesses and Counsel
Reevaluate Compliance Protocols: In regulated sectors (government contracting, healthcare, finance), misrepresentations about required certifications are potential fraud triggers—even if the ultimate goods or services match the contract. Conduct thorough internal audits to ensure accuracy of all statements made to secure contracts or licenses.
Distinguish Material Contract Terms: If the Court signals that trivial lies aren’t criminal fraud, but significant misrepresentations about the “essence of the bargain” are, businesses should identify which contractual obligations are truly central (like DBE participation). Ensure these are strictly followed to avert allegations of fraud.
Stay Alert to Shifts in Federal Enforcement: Even if Kousisis leads to a narrower reading of federal fraud statutes, state-level fraud laws and regulatory enforcement remain potent. In high-stakes or high-visibility contracts, companies and their counsel should proactively mitigate risks around any representation that could later be deemed a “material” lie.
Monitor Supreme Court Trends: With past decisions in Kelly v. United States and Ciminelli v. United States, the Court has shown a willingness to rein in overly expansive fraud theories. Kousisis fits neatly into this pattern and may further limit fraud’s scope—or affirm the government’s ability to prosecute fraudulent inducement robustly. Either direction will inform how prosecutors and defense attorneys handle future white-collar matters.
Implications for Fraud Prosecutions and What’s Next
The outcome of this case could have significant implications for federal wire fraud prosecutions and white-collar criminal law. If the Supreme Court sides with Kousisis and rules that a fraud conviction requires an intent to cause economic harm (or an actual loss) to the victim, it would narrow the scope of the mail and wire fraud statutes. Such a decision would build on the Court’s recent trend of reining in expansive fraud theories – for instance, the unanimous decisions in Kelly v. United States (2020) and Ciminelli v. United States (2023), both of which overturned convictions where the defendants did not obtain money or traditional property.
A ruling requiring a tangible harm or loss would constrain prosecutors from using the “fraudulent inducement” theory in cases where the victim received the expected goods or services in exchange for their payment. On the other hand, if the Court upholds the Third Circuit and allows fraud charges to stand without proof of monetary loss, it will affirm the government’s ability to police deceit in obtaining contracts and other deals. Such an outcome would signal that material lies (such as false certifications of compliance) are enough to constitute criminal fraud, even absent a calculable financial injury.
It is also possible the Court could chart a middle path. Some Justices discussed focusing on whether a misrepresentation goes to the “essence of the bargain.” An opinion adopting that approach might hold that fraud requires the lie to undermine the core nature of the deal (for example, the product or service was not what was promised), rather than requiring proof of a financial loss. Such a standard could exclude cases like the trivial babysitter fib, yet still capture more serious procurement fraud schemes where the deception is fundamental to the transaction.
The Supreme Court is expected to issue its decision in Kousisis v. United States by mid-2025. Whatever the outcome, the ruling will clarify the federal fraud landscape – either by further limiting the scope of fraud prosecutions or by endorsing the current broad approach to fraudulent inducements. For white-collar defense and compliance professionals, this decision is crucial. It may shape how vigorously prosecutors pursue allegations of fraudulent statements in both government contracting and broader commercial contexts—an issue that goes to the heart of modern business practice and regulatory compliance.
If you have any questions about federal fraud statutes or how these developments could impact your organization, please reach out to our white-collar defense team for guidance. We’re here to help you navigate evolving legal standards and protect your interests.
NB: This article is for informational purposes only and does not constitute legal advice. It is intended for clients and friends of our firm. Every situation is unique, and you should not act or refrain from acting on the basis of any information contained herein without seeking professional counsel.