Honest Services Fraud – Is It Hanging in Limbo as a Statute?

Less than two weeks ago, New York federal court judge, Judge Oetken, dismissed Bribery charges against New York’s former Lieutenant Governor, Brian Benjamin. Two charges did survive, but the Court made it clear that without quid pro quo- an exchange of benefits- the charge could not survive. The Bribery charge was dropped. One cannot help but wonder if the Court had in mind the November 2022 SCOTUS decision to hear an appeal of Honest Services Fraud. That case also stemmed out of New York State and out of the political realm. Prosecutors in the Southern District of New York (SDNY) charged former Governor Andrew Cuomo’s top aide, Joseph Percoco, with violations of the Honest Services Fraud statute. Percoco allegedly left his powerful position to run Cuomo’s campaign. While on leave, he stepped into the fray, allegedly, to find and advocate for a solution to a standstill and was compensated for that.

Unlike property crimes and financial crimes, this crime centers on a fraud committed against citizens. Honest Services Fraud, Section 1346 of Title 18, stands amidst standard fraud charges like wire fraud, but is said to be uncertain and vague. The premise and policy of Honest Services Fraud are that government officials owe citizens honest services when they act in their governmental capacity. And if they benefit from these services and fail to disclose that benefit, they are committing Honest Services Fraud.

When Percoco’s attorneys argued and briefed this to SCOTUS, they stressed the danger of such a wide-reaching statute. The Justices also asked questions, arguably showing skepticism during oral argument. This felony statute is often criticized for being vague yet powerful, a dangerous combination in a democracy.

But Percoco was a private citizen when he participated in these activities that the SDNY prosecuted. His attorney criticized the potential danger of allowing a statute so vague to exist that could be the subject of political attacks. He argued that Percoco did not owe a fiduciary duty to the citizens of New York because he was a private citizen. Further, he warned that this statute enforced against a private citizen could affect lobbyists, who leave office and promote a mission or a cause to better government.

The scenarios posed in questions formed by the SCOTUS Justices can be argued to be Kafka-esque. Vague and shocking. After all, lobbyists earn their living in this way. They leave government offices and because they understand inside baseball and have relationships with current government employees, they can be successful when they try to advocate for private sector interests. All of which is legal.

It seems that the New York District Court could also be aware of the conflict inherent when an official or citizen act to help society and get stung with criminal enforcement of Bribery or the Honest Services statute as a private citizen. Hopefully, SCOTUS clears up the conditions to prosecute this felony, Honest Services Fraud.

Next week: FTX – if it walks like a duck…

For questions related to white collar criminal defense matters, please contact Laurel F. Grass at lgrass@leechtishman.com or 212.603.6300. Laurel is Counsel with Leech Tishman and a member of the Litigation & Alternative Dispute Resolution, White Collar & Government Investigations, Corporate, and Data Privacy & Cybersecurity Groups.

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