Ethan Farid Jinian was convicted on thirteen counts of wire fraud under 18 U.S.C. § 1343 for defrauding his employer, Bricsnet FM America, Inc., by diverting company profits to a shell company. The defendant argued that the wire communications between California banks and the Federal Reserve Bank were routine and not initiated for the purpose of fraud. The panel rejected this, asserting that Jinian's ongoing scheme to defraud Bricsnet necessitated the use of interstate wires to complete the fraud. The court clarified that there is no mens rea requirement regarding the jurisdictional aspect of the wire fraud statute, which simply requires the use of interstate wires in furtherance of the fraudulent scheme. The panel upheld the validity of § 1343 under the Commerce Clause, dismissing Jinian's Tenth Amendment challenge as unfounded. Additionally, Judge Christen's concurrence highlighted that the crime is not complete until the intended victim has been swindled, countering Jinian's argument that the offense concluded upon the deposit of each check.
Insufficient evidence was found to establish that an interstate wire communication was foreseeable between two California banks, and the wire fraud statute was claimed to be unconstitutional as applied to Jinian. These arguments were rejected, affirming Jinian’s conviction and sentence. Jinian served as CEO of Bricsnet FM America, Inc. from 2004 to 2008, with authority to manage the company's finances and operations from its San Francisco office, while the board was based in Europe. In 2006, Jinian misrepresented to finance manager Leon Brown that he had authorization to receive extra compensation, leading Brown to issue nearly 100 checks totaling over $1.5 million from Bricsnet’s account to Jinian’s account at Mechanics Bank. The checks were processed through the Federal Reserve Bank, utilizing interstate wire communications for payment. Jinian was indicted on fourteen counts of wire fraud related to these checks. After the government presented evidence, Jinian's motions for acquittal were denied, and he was found guilty on thirteen counts. The district court sentenced him to 64 months in prison, three years of supervised release, and ordered restitution of $1,587,860.04. Jinian appealed, and the court has jurisdiction under 28 U.S.C. 1291. The review of the district court's statutory interpretation and acquittal motion denial is conducted de novo.
Sufficient evidence for a conviction exists if, when viewed favorably to the prosecution, a rational fact-finder could find the crime's essential elements beyond a reasonable doubt. The adequacy of jury instructions is reviewed de novo, ensuring the defendant's theory is fairly presented alongside all crime elements. If the instructions adequately cover the offense, precise formulations are examined for abuse of discretion. Questions regarding the constitutionality of federal statutes are also reviewed de novo.
The wire fraud statute (18 U.S.C. § 1343) criminalizes schemes to defraud involving the transmission of communications via wire in interstate or foreign commerce. It targets specific instances where wire use is integral to the fraud, leaving other frauds to state law. The elements of wire fraud include: (1) a scheme to defraud; (2) the use of wire to further the scheme; and (3) specific intent to defraud. Specific intent is essential to establishing a fraudulent scheme. The use of wire communication is considered to be 'caused' even if not specifically intended, as long as it can be reasonably foreseen. Communications are deemed 'in furtherance' of a fraudulent scheme if they occur as part of executing the scheme, not necessarily as essential elements.
A wire communication cannot be part of a transaction that, although foreseeable, does not further the fraudulent scheme. The determination is not purely based on timing. Subsequent communications can still provide representations relevant to the scheme, and the wire fraud statute is interpreted in conjunction with mail fraud law. The critical inquiry is whether the wire communication was part of the scheme as conceived by the perpetrator at the time, irrespective of whether the defendant had already obtained the expected funds.
Defendant Jinian argues that his case is legally indistinguishable from the Supreme Court's decision in Kann, which involved a scheme to defraud an employer by diverting profits to a shell company through which the defendants distributed those profits. Jinian contends this precedent necessitates a reversal of his conviction and a judgment of acquittal.
Defendants were indicted on three counts of mail fraud related to banking transactions, with one count abandoned during trial. Kann was convicted on two counts but argued that the mailing of checks by banks could not execute the fraud scheme since the defendants had irrevocably received the money upon cashing or depositing the checks. The Supreme Court agreed, stating that the scheme was complete once the defendants received the funds, and the banks became holders in due course, entitled to collect payment without defense from the drawer. The Court concluded that subsequent banking transactions were incidental and not part of the fraud execution, leading to the reversal of Kann’s conviction. However, the Court dismissed Kann's claim of lacking intent under the mail fraud statute, inferring that he knew the banks would mail the checks, thus sharing the knowledge of the scheme. In contrast, Jinian's case involved an ongoing scheme to defraud Bricsnet, with evidence of nearly 100 checks deposited over two years. The government charged him with fourteen counts of wire fraud, arguing that the wire communications were essential for completing and concealing the fraud, unlike the discrete transactions in Kann.
Jinian’s fraudulent scheme relied on the successful clearing of checks deposited into his Mechanics Bank account over two years. The analysis incorporates the limitations established by the case of United States v. Kann, while also considering the Supreme Court’s decision in United States v. Schmuck, which did not overrule Kann but clarified its application. In Schmuck, the defendant’s fraudulent operation involved rolling back odometers of used cars, which required dealers to mail title applications to complete sales. The Supreme Court ruled that these mailings were integral to the scheme’s execution, as they facilitated the transfer of title necessary for the fraud's continuation.
In contrast, the mailings in Kann were deemed less critical since they involved post-fraud accounting and did not affect the overall success of the fraud. The court concludes that Jinian’s actions are more similar to Schmuck’s, as his scheme also remained incomplete until wire communications finalized each check deposit, rendering those communications essential to the fraud. This interpretation aligns with the understanding of both Schmuck and Kann in previous rulings, such as United States v. Shipsey, which similarly recognized the importance of wire transfers in the execution of fraudulent activities.
The Ninth Circuit analyzed the distinction between various fraud cases, emphasizing the role of mailings and wire communications in facilitating fraudulent schemes. In Lack, the Seventh Circuit differentiated between mailings that were integral to a money laundering operation and those in Kann, which did not serve a similar purpose. The Third Circuit, in Tiller, affirmed a mail fraud conviction based on an ongoing scheme to falsify reports for additional bonuses, aligning it with Schmuck rather than Kann. The Fifth Circuit, in Mills, also referenced Schmuck, concluding that the defendant's actions constituted an ongoing venture rather than a one-time operation, and acknowledged that in specific circumstances, the clearing of checks could establish federal jurisdiction under the wire fraud statute, as highlighted in Kann.
The Supreme Court recognized exceptions to the Kann ruling, particularly when mail or wires are utilized as means of concealment for further fraudulent acts. The court concluded that in Jinian's case, the interstate wire communications essential for check clearing were integral to his fraudulent scheme. Unlike in Kann, Jinian did not have irrevocable possession of the funds upon deposit; the checks were not fully cleared until processed through multiple banks. Evidence indicated that Jinian's actions—including directing the issuance of multiple smaller checks—were designed to evade detection and create the illusion of legitimate transactions. Consequently, the jury could reasonably infer that these wire communications were crucial to executing Jinian's scheme, supporting his conviction for wire fraud.
Jinian argues that the government must prove a defendant's intent to use interstate wire communications as part of a fraudulent scheme under 18 U.S.C. § 1343, asserting that the jury should have been instructed that the interstate component must be foreseeable. The district court's jury instructions required the government to establish that the defendant knowingly devised a scheme to defraud, acted with intent to deceive, and used wire communications in interstate commerce to further the scheme. The instructions clarified that the use of interstate wires is essential, but it is not necessary for the information transmitted to be false or for the scheme to have succeeded. The court recognized a presumption favoring intent requirements in criminal statutes but distinguished between general conduct and conduct subject to federal regulation. It concluded that the interstate nexus serves as a jurisdictional requirement rather than a substantive element of wire fraud. Thus, the government does not need to prove that the defendant reasonably foresaw the interstate aspect of the communication, as the statute does not condition guilt on such knowledge. The interstate requirement is therefore jurisdictional and not integral to the crime itself.
The legal standards surrounding wire fraud statutes, specifically 18 U.S.C. § 1343, emphasize that while the government must prove a defendant's knowledge of wrongful conduct, it is not required to demonstrate the defendant's awareness of the interstate nature of the wire communication involved. Key cases, including Blassingame and Lindemann, support this interpretation, stating that knowing about the interstate communication is irrelevant to the statute's purpose. The only necessary mens rea under the wire fraud statute is the specific intent to defraud. Conversely, the Supreme Court's decision in Pereira clarifies that a defendant 'causes' an interstate wire if they act with knowledge that the wire use will typically follow in business, regardless of intent. Jinian's argument, referencing Fowler, which pertains to witness tampering and the necessity of proving a federal nexus, is deemed misplaced. Fowler required proof of a reasonable likelihood of communication with federal officers, establishing a foreseeability standard due to the hypothetical nature of communications in that context. Thus, while foreseeability is critical in witness tampering cases, it does not apply similarly in wire fraud cases under § 1343.
The wire fraud statute mandates that an actual wire communication occurs, differing from the broader intent standard under 18 U.S.C. 1512(a)(1)(C). The Fowler Court's 'reasonable likelihood' standard pertains to the likelihood of communication to a federal officer, which must exceed mere hypothetical scenarios. In contrast, the wire fraud statute requires an intent to defraud rather than an intent to utilize interstate wire communications. Jinian's claims for overturning his conviction due to insufficient evidence of foreseeability in using interstate wires are rejected, as no mens rea requirement exists concerning the jurisdictional aspects under 18 U.S.C. 1343. The government demonstrated that (1) Jinian had the specific intent to defraud Bricsnet, (2) it was foreseeable he would use wire communications between Mechanics Bank and Silicon Valley Bank in his scheme, and (3) such communications occurred. The district court correctly instructed the jury and appropriately denied Jinian’s proposed instruction. Additionally, Jinian's argument against the statute based on congressional authority under the Necessary and Proper Clause and the Tenth Amendment is dismissed. The Necessary and Proper Clause allows Congress broad legislative power, and the wire fraud statute is within the scope of the Commerce Clause, permitting regulation of interstate commerce channels and instrumentalities, including activities that substantially affect interstate commerce.
Facilities and means of commerce, including railroads, trucks, ships, rivers, and highways, are subject to congressional regulation, as established in United States v. Carnes. Telecommunications are also recognized as instrumentalities of interstate commerce. Criminal statutes that penalize the transmission of materials in interstate commerce necessitate that the materials cross state lines. Consequently, 18 U.S.C. § 1343 is considered a valid exercise of congressional power under the Commerce Clause, and its analysis does not require consideration under the Necessary and Proper Clause. Challenges based on the Tenth Amendment fail if Congress acts within its enumerated powers.
The court concludes that Jinian’s fraudulent activities closely mirror those in Schmuck rather than the one-time fraud depicted in Kann. The interstate requirement in 18 U.S.C. § 1343 is deemed jurisdictional rather than a substantive element of wire fraud. Thus, Jinian’s constitutional challenges to the wire fraud statute are rejected, leading to the affirmation of his conviction and sentence.
Judge Christen concurs, highlighting that Jinian’s scheme was ongoing and dependent on the eventual loss borne by the victim, which distinguishes it from one-time fraud cases. The comparison between Schmuck and Kann clarifies that the completion of a fraudulent scheme, particularly for federal wire fraud, hinges on whether the perpetrator intends to repeat the fraud. In Schmuck, the ongoing scheme involved tampering with odometers, with the transfer of titles via mail being part of executing the fraudulent endeavor.
Schmuck's case was determined to fall under the federal mail fraud statute as his scheme required used car dealers to successfully re-sell vehicles and transfer titles, with their cooperation being essential for the scheme's continuation. If the dealers could not re-sell the cars, they would likely cease doing business with Schmuck, potentially exposing the scheme. In contrast, the mail fraud statute did not apply to the one-time scheme in Kann, where businessmen simply cashed or deposited fraudulent checks without concern for who ultimately bore the loss, completing their crimes at that point. Similarly, in Parr v. United States, the fraudulent transactions were completed before the credit card bill was sent, as the collection method by the oil company was irrelevant to the scheme's consummation.
In the case of Jinian, he misled an employee at Bricsnet to receive funds beyond his regular compensation, depositing checks into his Mechanics Bank account. His scheme relied on Bricsnet bearing the loss, as failure to clear the checks would have implicated Mechanics Bank and jeopardized Jinian’s relationship with them. The ongoing nature of Jinian's scheme hinged on every check clearing, making the wiring of check images to the Federal Reserve part of the scheme's execution. The majority opinion and the district court referenced United States v. Franks, asserting that Jinian's transactions were not complete until the checks cleared since the funds were not irrevocably his until that point. While agreeing with the conclusion that completion occurred upon clearance, it was noted that the majority's claim regarding the hold or cancellation of Jinian’s funds by Mechanics Bank was unsupported by the record.
No testimony was provided by Mechanics Bank employees regarding when deposited funds were credited to customer accounts and made available for withdrawal. It is plausible that a customer like Jinian, with a substantial and active account, might have had early access to funds prior to the clearance of checks via wire transfer to the Federal Reserve. Without clarity on Mechanics Bank’s policies, it remains uncertain whether the bank could have recovered Jinian’s fraudulent checks. Consequently, reliance on the reasoning established in Franks is inappropriate in this context. Furthermore, the outcome of Jinian's case would remain unchanged even if he had cashed the checks at Mechanics Bank instead of depositing them. The focus of Schmuck is not on retrievability but on whether the fraud was completed as conceived by the perpetrator before the victim suffered a loss. In instances where the victim's identity affects the perpetrator's ability to continue the fraudulent scheme, the crime remains incomplete until the intended victim is defrauded. In this case, the wires to the Federal Reserve were integral to Jinian's scheme, as they ensured that it was Bricsnet's funds that were fraudulently acquired, as established in Pereira v. United States.
