58 F.3d 933 (4th Cir. 1995)
Elton “Butch” Bryan served as Director of the West Virginia Lottery after his appointment by Governor Gaston Caperton in April 1990.1 In early 1991 the Lottery began an open bidding process for its $2.8 million advertising contract and formed a seven-member evaluation committee that scored presentations and recommended the Arnold Agency.2 Bryan and the Governor instead selected the Fahlgren Martin Agency, directed Deputy Director Tamara Gunnoe to surrender the evaluation forms to legal counsel, and instructed her to give false testimony to the Lottery Commission on April 24, 1991, claiming the committee had recommended Fahlgren Martin without numerical scores.3
When the Department of Administration questioned the absence of quantitative data, Bryan directed Gunnoe to prepare false memoranda of support and continued the misrepresentations until the Purchasing Division approved the contract, which was signed on August 6, 1991, after which the Lottery mailed checks pursuant to its terms.4
In 1991 and 1992 Bryan also participated in planning a statewide video lottery expansion, directed the drafting of a Request for Proposals that favored Video Lottery Consultants, supplied VLC with an advance copy of the unpublished RFP, and steered the evaluation process toward VLC, although the contract was never awarded after Bryan received a federal grand jury subpoena in January 1993.5 During the same period Bryan purchased shares of IGT, GTech, and VLC on the basis of confidential nonpublic information obtained in his capacity as Lottery Director.6
In connection with the ensuing investigation Bryan appeared before a federal grand jury and answered questions about who had participated in drafting the video lottery RFP.7 A federal jury in Charleston, West Virginia convicted Bryan in September 1993 of two counts of mail fraud, one count of wire fraud, one count of securities fraud, and one count of perjury.8 The district court sentenced Bryan to 51 months in prison, and Bryan appealed to the Fourth Circuit.9
Whether a conviction under the mail fraud statute requires proof that the defendant violated some law, statute, or binding regulation independent of the mail fraud statute itself?10
The mail fraud statute contains no predicate violation requirement.11 Precedent establishes that whether a scheme to defraud violates state law does not determine its reach under the federal mail fraud provisions.12 This principle survived McNally through the codification of the honest-services doctrine.13
No. The rule applies directly to the established facts. Bryan orchestrated the advertising contract award by directing Gunnoe to surrender evaluation forms and to give false testimony to the Lottery Commission.14 He then prepared false memoranda when the Department of Administration questioned the process. All of this occurred without any independent statutory violation being alleged or proved.15
The same pattern occurred with the video lottery RFP, where Bryan supplied VLC an advance copy and steered the evaluation without reference to any other criminal statute.16
Bryan’s mail fraud convictions therefore stand without any requirement of a predicate violation.17
Whether the honest services provision of 18 U.S.C. § 1346 is unconstitutionally vague as applied to the defendant's conduct in dealing with Lottery staff, the Commission, and the Purchasing Division?18
A criminal statute is not unconstitutionally vague when it provides a person of ordinary intelligence fair notice that the contemplated conduct is illegal. Vagueness challenges that do not implicate First Amendment freedoms are examined in light of the facts of the case at hand.19
No. The honest-services provision clearly applies to Bryan’s conduct. He owed a fiduciary duty to the state and its citizens.20 The established facts show he manipulated the evaluation committee’s scores, directed false testimony before the Commission, and made repeated misrepresentations to the Purchasing Division to secure the Fahlgren Martin contract and to favor VLC.21
The statute is not vague as applied to these facts and supplies adequate notice.22
Whether the evidence was sufficient to support the wire fraud conviction based on trading in shares of companies doing business with the Lottery?23
The gravamen of wire fraud is the execution of a scheme to defraud, and the fraud need not succeed. Confidential information obtained through a fiduciary relationship constitutes property whose deprivation can support the conviction.24
Yes. The evidence is sufficient. Bryan purchased shares of IGT, GTech, and VLC on the basis of nonpublic confidential information entrusted to him as Lottery Director while those companies were bidding for contracts.25 He thereby executed a scheme to defraud the citizens of West Virginia of his honest services.26
The wire fraud conviction rests on sufficient evidence of the scheme and the use of confidential information.27
Whether criminal liability under section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 can be predicated upon the misappropriation theory of securities fraud?28
Section 10(b) prohibits only deception in the form of material misrepresentations or omissions that affect purchasers or sellers of securities or persons with a stake in an actual or proposed securities transaction.29 A mere breach of fiduciary duty without such deception falls outside the statute.
No. The misappropriation theory cannot support liability. Bryan owed no duty to the shareholders of IGT, GTech, or VLC.30 The established facts show only that he misappropriated information from his position as Lottery Director, a source unconnected to any securities transaction. The theory therefore requires no deception of a market participant as the statute demands.31
Criminal liability under section 10(b) and Rule 10b-5 cannot rest on the misappropriation theory, and Bryan’s securities fraud conviction must be reversed.32
Whether the evidence was sufficient to support the perjury conviction arising from grand jury testimony about the drafting of the video lottery RFP?33
A perjury conviction requires proof that the defendant knowingly made a false material declaration under oath. The questioner must pin the witness down so that the literal truth does not evade the inquiry.34
Yes. The evidence is sufficient. Bryan was asked repeatedly whether anyone else had input into the RFP and answered that only the assigned Lottery employees had participated.35 Yet the established facts show VLC representatives had reviewed and shaped the document. The jury could conclude he understood the question and deliberately lied.36
The perjury conviction rests on sufficient evidence that Bryan gave false testimony about participation in drafting the RFP.37