Seventh Circuit Court of Appeals Reverses Wire Fraud Conviction

The U.S. Court of Appeals for the Seventh Circuit ordered a judgment of acquittal for a convicted former bank employee charged with wire fraud. The employee negotiated a deal between his employer and an outside party, in which the employee ended up participating as a principal, based in part on the employee telling his employer that the third party would not proceed without the employee's involvement. The question raised by the case is whether the employee's report to his employer that the third party insisted on the employee's involvement in the deal, if false, would give rise to a wire fraud claim.

Judge David Hamilton made the following findings:

• all terms of the transaction, including the employee's participation as a buyer, were disclosed to all interested parties;

• the government's evidence of deception addressed not material facts or promises but rather parties' negotiating positions, which are not material for purposes of mail and wire fraud;

• a breach of fiduciary duty combined with a mailing or wire communication is insufficient alone to establish mail or wire fraud – the government still must demonstrate a scheme to defraud; and

• the employee negotiating for a position in the deal was no different than his negotiating for his own compensation with the corporation.

The dissent disputed the framing of this three-part transaction as a permissible employment compensation strategy, asserting that a salary negotiation is clearly a counterparty negotiation where neither side is required to disclose his ultimate position; whereas, here, the employee was acting as an agent in his negotiations with the third party and, therefore, had a duty to provide accurate information to his employer with respect to the counterparty's actual negotiating position.