SCOTUS Rules That Fraudulently Claiming DBE Credit Is Not a Victimless Crime
In a highly anticipated United States Supreme Court decision in the construction sector, the Supreme Court recently affirmed a wire fraud conviction of a Pennsylvania contractor who falsely claimed to use a disadvantaged business enterprise (“DBE”) subcontractor on federally funded transportation projects. Kousisis v. United States, 605 U.S. ___ (2025). The main point of contention boiled down to the following question: is there sufficient loss by a government agency to prove wire fraud when the contractor wins the contract by scheming to circumvent DBE requirements but nonetheless completes the actual project to the satisfaction of the government agency with no resulting economic loss?
Facts of Kousisis v. United States
As most public contractors are aware, when the U.S. Department of Transportation provides funding to state agencies for transportation projects, the agency must include DBE participation goals in the contract. Here, Stamatios Kousisis and his company, Alpha Painting & Construction Co. (“Alpha”), were awarded over $85,000,000 through two PennDOT contracts. The contract requirements, of course, included certain DBE participation goals. Alpha, after being declared the lowest bidder on the two contracts, claimed that a certified DBE, Markias, Inc., would supply paint for the project.
To receive DBE credit, the DBE subcontractor must perform a “commercially useful function,” which is defined by the federal government as being “responsible for execution of the work of the contract and is carrying out its responsibilities by performing, managing, and supervising the work involved.” The DBE “must also be responsible, with respect to materials and supplies used on the contract, for negotiating price, determining quality and quantity, ordering the material, and installing (where applicable) and paying for the material itself.” 49 USC §26.55. The DBE contractor may not act merely as a pass-through entity subcontracting its work out to its own non-DBE subcontractors.
Here, Alpha concocted a scheme where Markias, Inc. would appear to be performing a commercially useful function, but instead simply subcontracted all its work to non-DBE subcontractors, while charging a 2.25% markup.
Although the work product was satisfactory, the government discovered the parties’ scheme to falsely earn DBE credit under the contract. At trial, Kousisis and Alpha were convicted of various criminal offenses, including making false statements, conspiracy to commit wire fraud, and wire fraud. Kousisis and Alpha appealed the conviction up to the Supreme Court, arguing that they cannot be convicted of wire fraud absent the element of inflicting economic harm on the alleged victim.
Federal Wire Fraud Statute (18 USC §1343)
To be found guilty of wire fraud, the prosecution must prove each of the following elements:
Supreme Court’s Decision
Kousisis and Alpha argued that fraudulent inducement into a contract, absent any economic harm, fails to satisfy the first prong of the wire fraud statute. The government argued that Kousisis’s and Alpha’s deception to win the contract satisfied the first element of wire fraud even if it were not intended to deprive PennDOT of any economic interests. The government insisted that giving a portion of the contract work to DBE contractors was the same as a property interest, and such deprivation of property interest satisfied the statute.
Prior to the Supreme Court’s decision, Circuit Courts around the country were split as to whether misrepresenting DBE attainment to secure a construction contract without providing any economic harm could sustain a wire fraud conviction.
Here, the Supreme Court found that Kousisis’s and Alpha’s actions did satisfy the first prong of the wire fraud statute:
“A defendant who induces a victim to enter into a transaction under materially false pretenses may be convicted of federal fraud even if the defendant did not seek to cause the victim economic loss.”
This decision now means that inducing a contract through lies – regardless of the value received – may qualify as criminal fraud if it deprives the victim of money or property. The Supreme Court emphasized its focus on whether deceptive deprivation of property occurred and not whether the government received equal value.
Analyzing Kousisis’s Holding in Connection With “Right-to-Control” Cases
The defendants in Kousisis based much of their defense on a 2023 Supreme Court decision, Ciminelli v. United States, in which the Supreme Court rejected a theory of wire fraud based upon depriving the victim of information. In Ciminelli, the defendant was a developer who conspired with a board member of a nonprofit organization in a scheme to generate requests for proposals that would favor the defendant’s company, virtually ensuring that the nonprofit would select the defendant’s company.
While the government alleged the defendant deprived the nonprofit of the “right to control its assets by depriving it of information necessary to make discretionary economic decisions,” the Supreme Court rejected the “right-to-control” theory. The Supreme Court held that the right-to-control theory lacked any legal basis to establish “potentially valuable economic information” as a recognized property interest.
In Kousisis, the Supreme Court differentiated its holding from “right-to-control” by stating that “fraudulent inducement does not treat ‘mere information as the protected interest.’ Rather it protects money and property.” While not entirely clear, the distinction may boil down to how one frames the facts. In Kousisis, PennDOT was deprived of its property interest of awarding a certain percentage of the contract to a DBE. If the non-profit organization in Ciminelli framed its loss as a monetary loss resulting from the lack of a fair procurement, as opposed to merely a lack of full information to base its decision upon, perhaps Ciminelli also could have resulted in a finding of wire fraud, as well.
Andrew J. Mundo, Esq., MURTAGH, COHEN, BYRNE & MURDY