We have all read about alleged $50 billion Ponzi schemes and massive, Enron-like scandals. And most of us are probably not too concerned about being caught up in such scandal. However, a recent article in the ABA’s Section of Business Law addresses an issue that should hit closer to home: honest services fraud.
As the article indicates, because of the vagueness of Section 1346 of Title 18 – which makes honest services fraud a federal crime – any lack of integrity or fundamental unfairness on the part of a company could possibly lead to criminal prosecution. Although some forms of services fraud are obvious, such as when a law firm fails to disclose a blatant conflict of interest, other forms of fraud are less clear. Specifically, problems arise in deciding where to draw the line because “Congress did not define the term ‘honest services.'”
To illustrate this potential confusion, the article lists a few seemingly innocent scenarios that involve some form of deception. For example, the author asks whether fraud is committed when an associate at a law firm writes a complaint letter on firm stationary to a retailer who has sold him shoddy merchandise. I’m no expert, but I’d like to think that no criminal action could be sustained without some intentional deception on the part of this imaginary associate. Still, the requisite intent under the statute is unclear, and some courts have held that “honest services fraud could be sustained only where the conduct was enforceable in tort.” But, this does little to clarify the statute, as the line that distinguishes crime from tort is often blurred.
It is debatable whether the honest services fraud statute is unconstitutionally vague. Regardless, it is obvious that in these times of heightened scrutiny, attorneys and corporate employees must represent themselves with an increased sense of cautiousness and responsibility.