The federal wire fraud statute has a far-reaching scope, allowing prosecutors to go after conduct as varied as investor fraud to college admissions scandals. In late June, the Fourth Circuit U.S. Court of Appeals arguably broadened that scope even further by affirming a wire fraud conviction for a defendant who devised the scheme from Israel. Although the statute only applies domestically, the Fourth Circuit held that a foreign defendant can be convicted of wire fraud as long as U.S. wires were used to transmit the fraudulent messages.
In United States v. Elbaz, No. 20-4019 (4th Cir., June 30, 2022), the defendant, Lee Elbaz, ran a global investment fraud scheme that duped victims out of $100 million. Elbaz and her partners solicited investors via false internet ads, lied to investors about the nature of their highly risky investments, and refused to allow investors to withdraw their funds. Elbaz was in Israel when she sent the false statements to victims around the world, including some in Maryland, where she was prosecuted and convicted.
The Fourth Circuit rejected Elbaz’s argument that her conviction relied on an extraterritorial application of the statute. Courts generally agree, as the Fourth Circuit reaffirmed in this case, that the wire fraud statute does not apply to foreign conduct. So the question in the case was whether Elbaz’s conviction—for a scheme devised in Israel that targeted U.S. victims—rests on domestic conduct. As the Fourth Circuit framed the analysis, the Court first “determine[d] the statute’s ‘focus,’” and then decided “whether the conduct relevant to the statute’s focus occurred inside the United States.”
The Court had two options for what could qualify as the “focus” of the statute: the focus could either be the scheme to defraud or the use of a wire to execute the fraud. Relying in part on decisions holding that venue in a wire fraud prosecution is proper where the wire was received, the Fourth Circuit held that the focus of the statute is the use of the wire. The Court then had little problem affirming the conviction given Elbaz’s use of internet and phone wires in Maryland as part of her scheme.
Two other Circuits have recently addressed somewhat analogous facts, and both reached conclusions similar to the Fourth Circuit. See United States v. Hussain, 972 F.3d 1138, 1143–45 (9th Cir. 2020); United States v. McLellan, 959 F.3d 442, 469 (1st Cir. 2020).
These decisions give the government additional tools to investigate and prosecute foreign defendants for a wide range of conduct that could be covered by the U.S. wire fraud statute. Foreign companies with U.S. customers should be aware of the expansive scope of the statute as well as the apparent trend of federal prosecutors pursuing foreign defendants for alleged frauds affecting U.S. citizens.
