petitions of the week
Israeli citizen challenges U.S. wire-fraud conviction for foreign financial scheme
on May 26, 2023 at 10:52 am
The Supreme Court has issued a number of decisions in recent years limiting the reach of the federal wire-fraud statute, which outlaws the use of “the wires” – including internet and phone lines – to commit fraud. This week, we highlight cert petitions that ask the court to consider, among other things, whether the reach of that law extends to a fraudulent scheme that was devised abroad by a foreign citizen but involved digital communications to the United States.
Lee Elbaz lived and worked in Israel as the CEO of Yukom Communications. During her tenure, Yukom was allegedly involved in swindling more than $100 million from investors around the globe through so-called binary-option investments. These vehicles set a “strike price” for an asset, like an individual stock, and a deadline in the near future. If the asset is worth more than the strike price at the deadline, the purchasers net a profit; if not, they forfeit their investment.
The scheme involved the use of false advertisements to entice investors to deposit funds to purchase binary options. Once customers had committed, Yukom would then encourage them to deposit more money and refuse to let them withdraw funds. Some of the victims of the scheme were U.S. investors. As part of its retention efforts, Yukom employees emailed two investors in Maryland and contacted a third by phone call.
Federal prosecutors arrested Elbaz while she was on vacation in New York and charged her with three counts of conspiracy to commit wire fraud related to the Maryland communications. Elbaz sought unsuccessfully to have the charges dropped, arguing that the wire-fraud statute does not apply “extraterritorially” to conduct outside the United States. A jury ultimately found Elbaz guilty on all three counts; she was sentenced to 22 years in prison and ordered to pay $28 million in restitution.
The U.S. Court of Appeals for the 4th Circuit upheld Elbaz’s conviction. Although it agreed with her that the wire-fraud statute does not apply to foreign conduct, the court of appeals held that her convictions were nonetheless “permissible domestic applications of the wire-fraud statute.” The court reasoned that the focus of the wire-fraud statute is the misuse of U.S. wires, rather than the creation and execution of a fraudulent scheme. Despite the foreign nature of both the scheme itself and Elbaz’s involvement in it, the 4th Circuit concluded that Yukom’s emails and phone call to the three Maryland victims fell within the reach of federal prosecutors because they involved domestic wires.
In Elbaz v. United States, Elbaz asks the justices to grant review and reverse the 4th Circuit’s ruling. She argues that the courts of appeals are divided over both whether the federal wire-fraud statute applies extraterritorially and, if not, whether and when punishing the use of domestic wires in a foreign scheme is a domestic application of the statute. “The th Circuit’s decision,” Elbaz writes, “effectively turns the United States into a global law enforcement officer over foreign financial crimes — all that is necessary is for the scheme to touch one person in the United States or travel through one U.S. wire.”
A list of this week’s featured petitions is below:
ABKCO Music, Inc. v. Sagan
Issue: Whether direct liability for copyright infringement is limited to the person who actually “presses the button” to make the infringing copies.
Elbaz v. United States
Issues: (1) Whether the federal wire-fraud statute, 18 U.S.C. § 1343, applies extraterritorially or is limited to domestic applications; and (2) whether, if the wire-fraud statute is limited to domestic applications, it can be applied to foreign conduct by foreign actors as part of a foreign scheme so long as the scheme involves an incidental domestic wire transmission, or whether the scheme must involve substantial domestic conduct, such as the use of domestic wires as an essential component of the fraudulent scheme.
Washington Alliance of Technology Workers v. Department of Homeland Security
Issues: (1) Whether the statutory terms defining nonimmigrant visas in 8 U.S.C. § 1101(a)(15) are mere threshold entry requirements that cease to apply once a noncitizen is admitted, or whether they persist and dictate the terms of a noncitizen’s stay in the United States; and (2) whether, when Congress has enacted a statutory scheme governing a class of noncitizens in the Immigration and Nationality Act, the Department of Homeland Security’s power to extend employment authorization to that class of noncitizens through regulation is limited to implementing the terms of that statutory scheme.
Warner Chappell Music, Inc. v. Nealy
Issue: Whether the Copyright Act’s statute of limitations for civil actions, 17 U.S.C. § 507(b), precludes retrospective relief for acts that occurred more than three years before the filing of a lawsuit.