483 U.S. 350, 107 S. Ct. 2875, 97 L. Ed. 2d 292 (1987)
In the 1970s petitioners James E. Gray, a former Kentucky public official, and Charles J. McNally, a private individual, along with Howard P. "Sonny" Hunt, participated in arrangements involving the Commonwealth's insurance contracts.1 After Democrat Julian Carroll was elected Governor in 1974, Hunt became chairman of the state Democratic Party and obtained de facto control over selecting the insurance agencies from which Kentucky would purchase its policies.2 In 1975 the Wombwell Insurance Company agreed with Hunt that, in exchange for continuing as the Commonwealth's agent for a workmen's compensation policy, it would share commissions exceeding $50,000 a year with other agencies designated by Hunt.3 Between 1975 and 1979 Wombwell funneled $851,000 in commissions to 21 agencies specified by Hunt, including Seton Investments, Inc., a company controlled by Hunt and Gray and nominally owned and operated by McNally, which received approximately $200,000.4
Gray served as Secretary of Public Protection and Regulation from 1976 to 1978 and as Secretary of the Governor's Cabinet from 1977 to 1979.5 Prior to his 1976 appointment, Hunt and Gray had established Seton for the purpose of receiving the commission payments, which were used to benefit Gray and Hunt.6 Pursuant to Hunt's direction, Wombwell also made payments through the Snodgrass Insurance Agency that ultimately went to McNally.7 Hunt later pleaded guilty to mail and tax fraud charges and received a three-year prison sentence.8
Petitioners were charged with one count of conspiracy and seven counts of mail fraud; six of the mail fraud counts were dismissed before trial.9 The remaining mail fraud count was based on the mailing of a commission check to Wombwell by the insurance company that had secured coverage for the State.10 It alleged that petitioners had devised a scheme to defraud the citizens and government of Kentucky of their right to have the Commonwealth's affairs conducted honestly.11 The count also charged that petitioners sought to obtain money and other things of value by means of false pretenses and the concealment of material facts.12 The conspiracy count alleged that petitioners had conspired to violate the mail fraud statute through that scheme.13 It further alleged that they had conspired to defraud the United States by obstructing the collection of federal taxes.14
After trial in the District Court the jury convicted petitioners on both the mail fraud and conspiracy counts, and the Court of Appeals for the Sixth Circuit affirmed the convictions in 1986.15 The Supreme Court granted certiorari in 1986.16
Whether the federal mail fraud statute, 18 U.S.C. § 1341, reaches schemes to defraud citizens of their intangible right to honest government?17
The mail fraud statute, 18 U.S.C. § 1341, protects property rights but does not reach schemes to defraud citizens of intangible rights such as the right to honest government, because the statute's text and history limit it to deprivations of money or property and because ambiguous criminal statutes must be construed narrowly.18
No. The established facts show that petitioners Gray and McNally, along with Hunt, arranged for Wombwell to share over $851,000 in commissions with Seton and other agencies.19 There was no allegation or jury finding that Kentucky paid higher premiums, received inferior insurance, or lost control over its funds.20 The jury instructions permitted conviction solely on the theory that petitioners deprived citizens of honest government by concealing Hunt's and Gray's financial interests in the designated agencies.21 The Court of Appeals affirmed on the basis of intangible-rights precedents.22
Yet the Supreme Court reversed because the mail fraud statute, as interpreted from its 1872 enactment through the 1909 amendment codifying Durland, requires a scheme to obtain money or property.23 It does not criminalize undisclosed self-dealing that produces no pecuniary loss to the state.24 The facts further establish that the single remaining mail-fraud count rested on the mailing of a commission check.25 The conspiracy count incorporated the same intangible-rights theory.26 Both convictions fall once the statute is limited to property deprivations.27
The federal mail fraud statute does not reach schemes to defraud citizens of their intangible right to honest government.28
Related opinions on this issue
Justice Stevens dissented, arguing that the statute's plain language prohibiting any scheme or artifice to defraud is not limited to money or property.29 Decades of uniform circuit precedent correctly applied the statute to public officials who secretly profit from their offices.30 He emphasized that Congress enacted the mail-fraud provision to protect the integrity of the mails rather than to regulate state ethics.31
Analogous constructions of the conspiracy-to-defraud statute in Haas and Hammerschmidt confirm the broad meaning of defraud.32 The majority's narrowing construction improperly invokes lenity to shield sophisticated public officials who knew their conduct was unlawful.33 Stevens concluded that the convictions should stand because the scheme to funnel commissions to sham agencies controlled by Hunt and Gray constituted a classic fraud on the public even without proof of monetary loss to Kentucky.34