Snyder v. United States: Will Public Servants Be Next to Put Out a Tip Jar?

Posted On Wednesday, May 1, 2024
By: Scott A. Coffina

Takeaway

Who would have thought politicians can work for tips? Well, that is what Portage, Indiana Mayor Jim Snyder argued (more or less) before the Supreme Court last month, when he sought to overturn his conviction under 18 U.S.C. § 666 on the grounds that the law prohibits bribery, but not gratuities, involving state and local officials. If observers of the April 15, 2024, oral arguments are correct, Mayor Snyder is likely to prevail in yet another decision by the Supreme Court narrowing the scope of public corruption laws. And a decision in his favor may resonate beyond the sphere of public officials.

The Facts

In late 2012, and in late 2013, Mayor Snyder, on behalf of Portage, purchased two garbage trucks through a public bidding process. The contracts, totaling more than $1.1 million, were awarded to Great Lakes Peterbilt (GLPB). Snyder put a friend in charge of the bidding process, who tailored the specifications in both procurements to make them easy for GLPB to meet. Moreover, Snyder had been in contact with GLPB’s owners during the bidding process. Approximately two weeks after the second contract was awarded, GLPB paid Snyder $13,000, supposedly for consulting services that Snyder was to provide, although Snyder provided varying explanations for the purpose of this payment. According to the testimony of one of the GLPB owners, Snyder had requested the payment because he was tight on funds.

In November 2016, Snyder was indicted for federal funds fraud under 18 U.S.C. § 666(a)(1)(B). After he was convicted and then granted a new trial on the bribery charge, he was convicted a second time in March 2021.[1] Snyder appealed his conviction, and argued before the Seventh Circuit that Section 666 applies to bribery, but not “gratuities” like what he received from GLPB. He claimed that there was no quid pro quo agreement for the payment prior to Portage awarding the contracts to GLPB, and therefore, Section 666 does not apply. The Seventh Circuit rejected that argument, affirming his conviction.

The Statute(s)

As described by the Seventh Circuit, 18 U.S.C. § 666(a)(1)(B), “in relevant part . . . makes it a crime for an agent of a state or local government receiving federal funds to ‘corruptly solicit[ ] or demand[ ] for the benefit of any person, or accept[ ] or agree[ ] to accept, anything of value from any person, intending to be influenced or rewarded in connection with” any government business or transaction worth $5,000 or more. The court noted that although the statutory language does not use the terms “bribe” or “gratuity,” the language “‘influenced or rewarded’ easily reaches both bribes and gratuities.” 

The Court of Appeals further observed that it has repeatedly held that § 666(a)(1)(B) forbids taking gratuities as well as bribes and has refused to import a quid pro quo requirement into the elements of the offense. It noted that “many” other Circuits have taken the same position, but the First and Fifth Circuits have held that § 666 does not apply to gratuities. 

Also relevant to the Supreme Court’s analysis of the scope of Section 666 is 18 U.S.C. § 201, which criminalizes bribery of federal officials, and gratuities paid to or received by federal officials. The Seventh Circuit turned to United States v. Sun-Diamond Growers of California, 526 U.S. 398, 405 (1999), which under Section 201(c) defined an illegal gratuity as “a reward for some future act that the public official will take . . . or for a past act that he has already taken,” to support its conclusion that “§ 666 covers gratuities as well as bribes.” 

What’s at Stake

Aside from the obvious impact on the 21-month prison sentence that former Mayor Snyder is facing, the Supreme Court’s consideration of this case will resonate widely. The Bureau of Labor Statistics identifies approximately 20.3 million state and local government employees as of March 2024. Moreover, Section 666 is quite an elastic statute used by prosecutors to reach all manner of alleged fraud and corruption. Snyder, as the mayor of Portage, was a local official, but the statute extends to the private sector by covering not just state and local government agencies, but also “any organization” that receives over $10,000 in a year in federal funds, through a contract, grant, etc. Hospitals, universities, government contractors, other nonprofits, and their patrons, all will be watching this case closely.

What’s The Issue?

The Supreme Court will decide whether 18 U.S.C. § 666(a)(1)(B) criminalizes gratuities, i.e., payments in recognition of actions a state or local official has already taken or committed to take, without any quid pro quo agreement to take those actions.

The Government argues, and the Seventh Circuit agreed, that the terms “influenced or rewarded” signals Congress’ intention to extend the statute to gratuities, thereby covering after-the-fact payments “intended to ‘make a return . . . for a service.’” It contends that if the statute is limited to quid pro quo bribery, the term “rewarded” essentially would be surplusage. Mayor Snyder, on the other hand, argues that § 666(a)(1)(B) criminalizes only bribery, requiring a quid pro quo, and asserts that “rewarded” was added to ensure that a recipient of a bribe paid after the recipient  acts could not escape accountability, and to thwart a defense that the recipient of the bribe wasn’t influenced by it, and would have taken the same action anyway.

Both sides also offer their own perspective on the importance of the term “corruptly” in the statute. Snyder argues that “corruptly” accepting money intending to be influenced to act in the payor’s favor suggests that the quid pro quo is necessary whether it influences the action (before) or rewards the action (after). And if there is no quid pro quo, and the recipient is merely rewarded by the payor, then neither party is acting “corruptly,” and the statute does not apply; the official is merely receiving a gift of appreciation. “Unquestionably, corruptly intending to be influenced requires specific intent to exchange official conduct for money.”

The government’s interpretation of “corruptly,” by contrast, is that Congress included that “stringent mens rea as a means of excluding innocuous gifts that the ban on gratuities might reach.” At Synder’s trial, however, the government and district court seemed to water down this “stringent” mens rea, instructing the jury that “corruptly” means acting with the understanding that something of value is to be offered or given to reward the defendant in connection with his official duties.” This seems more akin to a quid pro quo than a straight gratuity, but Snyder argues that “corruptly” was transformed to mean the defendant was acting with mere knowledge that something is given as thanks for official conduct.

Supreme Court Argument

The Supreme Court heard oral argument on Mayor Snyder’s case on April 15, 2024. The consensus among observers is that a majority of the Justices – while not especially sympathetic to the facts of Snyder’s case, and his request for and receipt of $13,000 from GLPB soon after GLPB won a second contract to sell Portage a garbage truck – seemed skeptical that Section 666 applies to gratuities, and concerned that “corruptly” was too vague a mens rea standard. Justices Gorsuch and Kavanaugh spun out several hypotheticals illustrating the difficulty of well-intended gift recipients knowing where the line is drawn – can accepting a restaurant gift card run afoul of the law? How about sports tickets? How about a large donation to a hospital that treated a wealthy individuals loved one? Even political contributions can be considered gratuities under the breadth of the statute.

Assistant U.S. Solicitor General Colleen Sinzdak struggled to articulate an interpretation of “corruptly” that had sufficient clarity to satisfy the Justices’ concerns. She thus tried to reassure the Court that the statute has built in constraints with its applicability limited to transactions of $5,000 or more, and the discretion that prosecutors would exercise in not pursuing de minimis cases. That reassurance, however, fell flat with Chief Justice Roberts, who remarked that “We’ve had several cases where we’ve made the very clear point that we don’t rely on the good faith of the prosecutors in deciding cases like this.”

Chief Justice Roberts could have been hinting at the novel theories that have been deployed against former President Donald Trump and in some of the prosecutions of January 6 defendants, which are presently before the Court. More likely, the Chief Justice was referring to the line of public corruption cases with novel prosecution theories that the Supreme Court has overturned in recent years, including the prosecutions of former Virginia Governor Bob McDonnell (overturning bribery conviction where Governor and his wife accepted gifts from a constituent but never performed an “official act” on his behalf) and Joseph Percoco (overturning conviction for honest services fraud of former New York official who used his influence with state government agencies on behalf of a paying client). 

Section 666 was itself the subject of the infamous “Bridgegate” case, where the government charged two New Jersey officials with wire fraud and federal program fraud for ordering the closing of two lanes of the George Washington Bridge as an act of political retribution. The Court unanimously overturned the officials’ convictions, holding that fraud statutes were intended to apply to cases where the object of the fraud scheme was to obtain property, and not to all instances of dishonesty by government officials.

Prediction

Mayor Snyder does not appear to the Court as a sympathetic public official who unwittingly accepted sports tickets from a grateful constituent. Indeed, the Seventh Circuit suggested that his case approached the quid pro quo standard for which he has been arguing. Nevertheless, the Justices seemed to recognize that the vagueness and breadth of this provision can make it a trap for the unwary and leave millions of people at the mercy of discretion of prosecutors, who have shown a propensity in corruption cases to find their defendant first, and then try to shoehorn a statute into the relevant facts to determine the crime. Given the questioning of the Justices across the Court’s ideological spectrum, it appears that the Court will limit the applicability of Section 666 to quid pro quo bribery cases.


[1] Snyder was convicted on a tax charge, too, but that charge is not the subject of his Supreme Court appeal.

Did the Southern District of Texas Just Legalize Securities Fraud?

Posted On Friday, March 22, 2024
By: Alexander M. Owens

In December 2022, the Department of Justice indicted eight individuals for securities fraud for allegedly operating a $114 million social media pump and dump scheme. United States v. Constantinescu, No. 4:22-CR-00612 (S.D. Tex. Mar. 20, 2024). According to the government, the defendants promoted stocks on Twitter and Discord to increase the price of the shares they owned and sold their shares as their social media followers piled into the stocks and drove the share prices higher. The indictment painted the picture of a classic securities fraud scheme. For decades, stock promoters used boiler rooms and newsletters to pump the prices of stocks that the promoters then sold as the assets appreciated. The only twist here was that the government alleged a pump-and-dump campaign through the more modern channels of social media. 

Yesterday, Judge Andrew Hanen of the Southern District of Texas dismissed the superseding indictment in full. The Court’s opinion reflects a stunning expansion of the Supreme Court’s Ciminelli v. U.S., 598 U.S. 306 (2023) ruling and a potentially devasting blow to federal securities law enforcement. 

In Ciminelli, the Supreme Court rejected the right-to-control theory in wire fraud cases. Ciminelli held that the government cannot premise wire fraud on schemes to merely “deprive a victim of potentially valuable economic information necessary to make discretionary economic decisions.” Rather, money or property must be the object of a wire fraud scheme. 

Judge Hanen was tasked with determining whether Ciminelli applies to securities fraud charges under 18 U.S.C. §§ 1348 and 1349, and, if so, how. Judge Hanen reasoned that Ciminelli’s teachings apply to all federal fraud statutes and so Ciminelli must govern securities fraud charges. He then held that because the alleged victims did not purchase their shares directly from the defendants, the defendants could not have engaged in a scheme to deprive them of property or money:

Unlike a traditional fraud cause, in which the victim directly surrenders their property to the defendant (or an entity in the defendant’s control), the investors here surrendered their property to the stock market at market prices, and in return, received the benefit of the bargain in the form of securities.

Put another way, Judge Hanen found that the government had only alleged a scheme to deprive victims of information which, under Ciminelli, is insufficient.

The implications here are far-reaching. This same intermediated sale structure is present in virtually all securities transactions that take place on stock exchanges and similar markets. In stock trading, for example, there will be a market maker between the seller-fraudster and the purchaser-victim. And the holding begs the question as to how its logic may apply outside the securities markets (e.g., to non-securities fraud prosecutions where a buyer and a seller are one or more steps removed from one other). An inordinate array of goods and services are sold through intermediaries every day. Manufacturers sell goods to Amazon and brick-and-mortar stores which then sell them to consumers. Auto sales play out in much the same way. 

If other courts embrace Judge Hanen’s decision, Constantinescu may spark a sea of change in federal fraud prosecutions. But it seems unlikely that the Supreme Court in Ciminelli sought to effect such a breathtaking change in the law. Those involved in the securities markets should not take Constantinescu’s holding as gospel. Plus, the case addressed securities fraud charges under 18 U.S.C. §§ 1348 and 1349 only. It did not, for example, address Ciminelli’s application to 15 U.S.C. §§ 78j and 78ff, which are worded far more capaciously. Time will tell whether Constantinescu is a turning point or a blip on the radar for federal fraud prosecutions.      

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