Federal Fraud Charges

If you or someone you love is facing a federal fraud investigation or charge, you are probably trying to figure out what the charge means and how serious it is. Federal fraud covers a wide range of economic crimes, many of them called white-collar crimes. Put simply, fraud is a criminal lie: a lie told to get money, property, or some other gain. Below we explain the most common federal fraud charges, the penalties they carry, and how judges decide sentences.

This article was first published on May 13, 2019. The cases and figures below are described as they were reported at the time, with later updates noted where we could confirm them.

It is easy to think of white-collar crime as something that happens in boardrooms and beach resorts, far from everyday life. It isn't.

In 2017, the credit agency Equifax failed to protect people's most sensitive data, and millions of people were exposed to the risk of fraud. Fraud in that setting looks like this: a hacker takes your personal information (identity theft) and then pretends to be you (fraud) to take your money. Fraud touches everyone's life, especially now that so much of life is online.

Read about federal identity theft

What are the most common federal fraud charges?

Federal law has many fraud statutes, and most carry 20 years or more in prison. Which law is charged depends on how the fraud was carried out and who lost money.

• Mail fraud, 18 U.S.C. § 1341: a scheme to defraud that uses the mail or a private carrier. Up to 20 years.
• Wire fraud, 18 U.S.C. § 1343: a scheme to defraud that uses phone, email, the internet, or other interstate wires. Up to 20 years.
• Bank fraud, 18 U.S.C. § 1344: a scheme to defraud a financial institution. Up to 30 years and a $1,000,000 fine.
• Health care fraud, 18 U.S.C. § 1347: a scheme to defraud a health care benefit program, such as Medicare or a private insurer. Up to 10 years, more if someone is hurt or dies.
• Securities fraud, 18 U.S.C. § 1348: a scheme to defraud in connection with stocks or other securities. Up to 25 years.
• Conspiracy or attempt, 18 U.S.C. § 1349: agreeing or trying to commit any of the above. Same penalty as the fraud itself.

Mail and wire fraud jump to 30 years and a $1,000,000 fine if the fraud affects a financial institution or involves disaster relief benefits.

The cases described below fall into three main categories: (1) violations of the Foreign Corrupt Practices Act, (2) health care fraud, and (3) securities and financial fraud.

What is the Foreign Corrupt Practices Act (FCPA)?

The FCPA is a 1977 law that makes it a crime to bribe a foreign government official to get or keep business (15 U.S.C. §§ 78dd-1, 78dd-2, 78dd-3). It applies to conduct anywhere in the world.

It reaches more than publicly traded companies (called "issuers") and their officers, directors, employees, stockholders, and agents. It also covers "domestic concerns," meaning U.S. citizens and residents and U.S. businesses, and their officers, employees, and agents. Foreign companies and people can be covered too if they act in the United States to further a bribe. A person who willfully breaks the law faces up to 5 years in prison per violation, and the company may not pay that person's fine (15 U.S.C. § 78dd-2(g)).

Congress passed the law after investigations by the U.S. Securities and Exchange Commission in the mid-1970s found that U.S. companies were often paying bribes to foreign officials for business and influence. In many countries, that was how business was done. The FCPA aimed to stop the practice and protect public trust in the honesty of U.S. business.

Here is one FCPA case from around the time this article was first written:

• Petroleos de Venezuela, S.A. (PDVSA): In this 2016 case, the owners of two U.S.-based energy companies paid more than $150 million in bribes to officials at PDVSA, Venezuela's state-owned oil company. The bribes were meant to get the companies onto bidding panels for PDVSA contracts, win PDVSA contracts, and get paid first on existing contracts. As part of the penalty, each defendant had to forfeit the money made from the bribes.

What does federal health care fraud look like?

Health care fraud has become a billion-dollar business for people who take money from public programs such as Medicare. Some estimates put the cost as high as $100 billion a year. To fight it, the federal government uses a team approach across agencies.

The Justice Department works with the FBI, the Department of Health and Human Services Office of Inspector General, and the Centers for Medicare & Medicaid Services. Together they run "strike forces" that investigate and prosecute health care fraud. Two cases from that period:

• National Medicare Fraud Takedown: In 2016, the Attorney General and the Secretary of Health and Human Services announced what was then called the largest national health care fraud takedown in history. It led to charges against 301 people, including about 60 doctors and other medical professionals, for Medicare and Medicaid fraud schemes involving about $900 million in false billings. In many cases, patients who needed care got no treatment, while the people behind the schemes were paid by Medicare or Medicaid.
• United States v. Philip Esformes, et al.: Esformes and two others were charged in a $1 billion scheme involving health care providers in the Miami area. Prosecutors said the defendants paid bribes to get access to Medicare and Medicaid patients, billed the programs for services that were not needed, and took kickbacks from providers so the providers could bill for those services. When this article was first written, the case was waiting for trial. Update: Esformes was convicted in 2019 and sentenced on September 12, 2019, to 240 months (20 years) in prison. On December 22, 2020, President Trump commuted his prison sentence. According to the Justice Department's clemency list, the offense was conspiracy to defraud the United States and to pay and receive health care kickbacks (Southern District of Florida).

Justice Department list of commutations granted 2017–2021 (includes Esformes)

Read about federal health care fraud

What counts as securities and financial fraud?

This category covers many kinds of financial fraud, including corporate fraud, government contracting fraud, investment fraud, telemarketing fraud, and insider trading. Two cases from that period:

• Volkswagen: In September 2016, a Volkswagen engineer pleaded guilty for his part in a 10-year conspiracy to cheat U.S. regulators and customers. The scheme put software in diesel Volkswagen cars that let them cheat U.S. emissions tests. Volkswagen agreed to pay a total of $4.3 billion in criminal and civil penalties.
• Deutsche Bank: In 2016, two senior traders at Deutsche Bank were charged as part of a long-running scheme to manipulate the London InterBank Offered Rate (LIBOR), a key interest rate benchmark. In 2015, Deutsche Bank paid $775 million in criminal penalties in connection with the LIBOR scheme. Update (January 2022): the two traders, Matthew Connolly and Gavin Black, were convicted by a jury in federal court in New York, but on January 27, 2022, the U.S. Court of Appeals for the Second Circuit reversed both convictions. It held the evidence was not enough to prove the LIBOR submissions were false, and ordered judgments of acquittal. United States v. Connolly, 24 F.4th 821 (2d Cir. 2022).

Why should fraud cases matter to everyone?

Federal fraud is a broad area of criminal law, and the examples above show that fraud schemes affect all of us, directly or indirectly. The Medicare takedown matters because money stolen from Medicare and Medicaid is, in the end, taxpayer money. And the Volkswagen case shows that a company can deceive U.S. customers for a full decade.

How do judges decide a fraud sentence?

The statute sets the maximum. The actual sentence is usually driven by the federal sentencing guidelines — the rules a federal judge must consult when choosing a sentence — which raise the range as the dollar loss goes up (U.S.S.G. § 2B1.1(b)(1)).

How federal sentences are calculated (Sentencing.net)

Where can you read more?

• Federal wire fraud
• Federal mail fraud
• Mortgage and bank fraud
• Federal fraud conspiracy
• Identity theft (Wikipedia)
• Justice Department Fraud Section document
• SEC: Foreign Corrupt Practices Act

What should you do next?

Book a consultation to talk it through with Brandon Sample.

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