New York is no stranger to white-collar crime. In this recession, post-Madoff era it is no wonder that District Attorney’s throughout the greater New York City area are coming down hard on white-collar criminals. In today’s blog post I’d like to discuss one of the laws often at the center of many white-collar prosecutions: Scheme to Defraud. New York Penal Law 190.65 defines Scheme to Defraud in the First Degree (summarizing in my own language – follow the highlighted link for our legal our more detailed legal analysis) as an ongoing plan to obtain property by false pretenses/fraud from multiple people. Usually, the schemer devised the plan with the express purpose of gaining property from multiple victims and executes the plan continuously (often over an extended period of time).
Now, for purposes of the Scheme to Defraud law, property does not have to be a tangible thing (e.g. money, antique stamps or electronics). Case law throughout the years has expanded what constitutes property under NY Penal Law 155.00 to include intangibles. For instance, some intangibles that constitute property are: contractual rights (e.g. a contract to renovate a hotel), a tenant’s legal right to posses an apartment, the right to conduct business (e.g. right of a waste management company to service a restaurant), and a right to be employed (e.g. a union official’s right to a position that he held). However, there are limits as to these intangibles that are included, and today I’d like to discuss one such limitation.
I want to highlight an important New York County (Manhattan) case, People v. Cohen, 187 Misc.2d 435, 720 N.Y.S.2d 731, (Sup. Ct. New York County 2000). This case took up the question of whether a license and registration, which had been obtained through a scheme/fraud, constituted property within the meaning of the scheme to defraud statute. Specifically the case dealt with “broker-dealer” licenses and registration. It involved a group of individuals who ran a securities firm called Renaissance Financial Securities Corporation. Through fraud perpetrated on the Security Exchange Committee (SEC), the National Association of Securities Dealers (NASD), and the State of New York the Renaissance Corp., Cohen (defendant Cohen is the first named member) obtained broker-dealer licenses. On appeal, and in light of a then recently decided Supreme Court decision Cleveland v. United States, 531 U.S. 12 (2000), the defendants made a motion to dismiss the Scheme to Defraud charges on the grounds that the broker-dealer licenses could not be considered “property.”
In order to understand the New York County decision in Cohen we must start with a discussion of the Supreme Court’s reasoning in Cleveland. The defendants in Cleveland were charged with a federal statue similar to NY’s Scheme to Defraud statute for fraudulently obtaining a license to operate video poker machines from the state of Louisiana. The US Supreme Court held that for purposes of the mail fraud statute (the law at issue), the thing obtained must be property in the hands of the victim. Although State and municipal licenses may become “property” in the recipient’s hands, (once the defendants got the license they could run their poker machine business) they do not qualify as “property” in the licensor’s hands (state of Louisiana).
In other words, the licensor is a regulator concerned only with granting a license to those deserving, but the license itself only becomes valuable in the hands of the actor committing the fraud. Contrast this with another intangible that has been deemed property for purposes of Scheme to Defraud: a contract. A contract has value in all instances. For instance, a contract to renovate a hotel (People v. Capparelli, 158 Misc.2d 996, 603 N.Y.S2d 99 (1993), is not tangible, but has value to all parties involved.
Similarly, a broker-dealer license (like the video poker machine license) is unique because in the hands of NASD (the regulating body) the license has no inherent value. As the Cohen court put it: “the broker-dealer registrations and approvals are merely an embodiment of NASD and the State of New York’s regulatory interest.” Thus, the court in Cohen, on the back of the Supreme Court decision in Cleveland, ruled definitively that this license does not constitute property for purposes of scheme to defraud. This of course does not mean that committing fraud to obtain a license does not violate other laws. However, this New York case does make it clear that while many intangibles may constitute property for the purposes of larceny and Scheme to Defraud, licenses and registrations may not be amongst them.
The above analysis of Cohen as well as the description of Scheme to Defraud is merely a brief review of the case and statute respectively. A further analysis of the actual language and elements of the crime can be found by following the link above. Not a substitute for a consultation with a New York criminal defense attorney experienced in white collar, theft and fraud crimes in New York, this blog, as well as the NewYorkCriminalLawyerBlog.Com and New-York-Lawyers.org website, all have significant information – from cases to statutes – for review on all New York crimes. Their links can be found below.
Saland Law PC is a New York criminal defense firm that represents clients in all white collar, theft and larceny crimes in the greater New York City area. Saland Law PC was founded by two former Manhattan prosecutors.