Wire Fraud and Stealing Confidential Business Information

Employees of corporations have varying levels of access to the corporation's information that the business may consider confidential. One significant source of criminal prosecutions is the use of confidential information by employees for their own personal gain and to the detriment of the company. When does benefiting from confidential business information cross the legal line? The Fifth Circuit Court of Appeals recently tackled the issue of whether the mail and wire fraud statutes protect against the theft of confidential business information.

Does the Wire Fraud Statute Protect Against the Theft of Confidential Business Information?

The mail and wire fraud statutes include any "scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses." In the case of Carpenter v. United States, the Supreme Court issued an opinion that included confidential business information within the definition of "property" for purposes of prosecuting mail and wire fraud crimes. In explaining how intangible information might be considered a form of "property," the Supreme Court reasoned that the information was "acquired or compiled [by the corporation] in the course and conduct of its business."

The Facts of United States v. Hager

In United States v. Hager, the defendant was convicted of using confidential business information regarding his employer's profit margins and client account needs on sales accounts for computer parts to form his own company. The defendant earned approximately $1.16 million by selling computer parts that he specifically knew that his client accounts would purchase to his own company at a profit margin that would not trigger any internal alerts. The defendant's employer required that employees, including the defendant, sign an agreement that they understood profit margins were considered confidential business information by the employer. He was sentenced to serve a total of 42 months in prison on various mail and wire fraud convictions.

The defendant appealed his conviction by arguing that Skilling v. United States, a recent Supreme Court case, held that confidential business information was not covered as "property" under the mail and wire fraud statutes. He argued in the alternative that the mail and wire fraud statutes only protect select "trade secrets" held by the company.

The Fifth Circuit upheld his convictions. It held that the case of Skilling v. United States was inapplicable because it involved the issue of whether the mail and wire fraud statutes protected "intangible right of honest services." In that case, the Supreme Court held that the "provision of honest services" was too nebulous to be included among the activities covered by the mail and wire fraud statutes. On the other hand, Carpenter v. United States was appropriately applied to this case because it does not reject the Supreme Court's ruling in Skilling. The Carpenter decision merely identified confidential business information as one of the types of property contemplated by the mail and wire fraud statutes.

Appeals for Crimes Involving the Theft of Confidential Business Information

While the Fifth Circuit's ruling in Hager v. United States is not necessarily encouraging for those facing charges involving the misuse of confidential business information for personal gain, it does not eliminate all hope. The facts of that case could be important to distinguish. For example, the multiple agreements that Hager signed during the course of his employment specifically laid out what information that the company considered to be confidential business information. In other cases, it could be far less cut and dry what type of information is indeed protected under the mail and wire fraud statutes.

Another issue that came up in Hager was that the defendant appealed the district court's decision to exclude certain evidence he wanted to raise regarding allegations against the company's founders about their own theft of confidential business information. While this evidence may not have changed the outcome of the case, any redeeming facts that the court has to consider can be helpful in sentencing decisions.

If you or a loved one are facing criminal charges involving confidential business information, it is important to retain an experienced criminal defense advocate right away to fight against the charges. There are many complex evidentiary issues at play in mail and wire fraud cases. The sooner a defense attorney examines any exculpatory evidence that you may have regarding allegedly confidential business information, the better chance you have of getting that evidence admitted at trial and to mitigating your sentencing liability.