Wire Fraud, Mail Fraud, and Conspiracy—San Diego

Five former and current city pension board officials have been indicted in federal court in San Diego on allegations that they approved an investment scheme that “has left the city struggling with a $2 billion pension deficit.”^[1] According to the 20-count indictment charging the individuals with the federal crimes of wire fraud, mail fraud, and conspiracy, the defendants used “their positions to approve pension boosts for themselves and others while saddling the system with a ‘dangerous practice’ that depended on a bull market on Wall Street to keep the pension plan solvent.”^[2] Rather than increasing payments from the city budget, the City Council would rely on the investment plan; one of the people indicted allegedly “received a pension boost of $25,000 a year in exchange for voting to endorse [the] plan.”^[3] However, increasing payments to the plan would have meant cutting services to San Diego’s residents.^[4]

According to US Attorney Carol Lam—who is the subject of a recent San Diego Union Tribune profile piece^[5]—the five allegedly “violated their duty to protect the pension system ‘by engaging in self-dealing, ignoring conflicts of interest, and exploiting their positions, to the detriment of the retirement system.’”^[6] However, we wonder whether the indictment is, as one of the defendants’ attorneys puts it, a “reckless misuse of federal law.”^[7] What US Attorney Lam describes can perhaps be deemed “honest services” fraud, which is a statutory definition of the “scheme or artifice to defraud” component to wire and mail fraud,^[8] but it seems the publicly available information on the indictment suggests that some sort of corporate mis- or malfeasance is being alleged, accusations that would be more appropriately addressed in a civil suit covering a breach of fiduciary trust.

Furthermore, it is a fair question to ask whether the investment plan was actually a scheme or artifice to defraud. To convict a defendant on an honest services mail fraud charge, the government must prove each of the following three elements beyond a reasonable doubt:

1. the defendant made up a scheme or plan to deprive the victim of his or her right to honest services;
2. the defendant acted with the intent to deprive the victim of his or her right to honest services; and
3. the defendant used, or caused someone to use, the mails or the nations’ telecommunications system to carry out the scheme or plan.^[9]

Therefore, as applied to this case, is up to the government to prove that the investment plan was somehow devised to deprive people of honest services, that the pension board acted with the intent to deprive people of their honest services, and that the mails or telecommunications of the US were used to implement it.

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[1] Tony Perry, San Diego Officials Indicted for Fraud, Chicago Tribune, Jan. 8, 2006.
[2] Id.
[3] Id.
[4] Id.
[5] Onell R. Soto, In the War on White-Collar Crime, a Huge Gun, San Diego Union-Tribune, Jan. 9, 2006.
[6] Perry, supra note 1.
[7] Id.
[8] See 18 U.S.C. § 1346.
[9] See, Office of the Circuit Executive, Ninth Circuit Model Criminal Jury Instructions—8.102 Mail Fraud—Scheme to Defraud—Deprivation of Right to Honest Services, Revised Sep. 2003.