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The U.S. Attorney's Office in Philadelphia recently brought a criminal indictment against the former Dean of Temple University's business school, Moshe Porat, for submitting false numbers to U.S. News to help the school's ranking. I posted a long thread over at Twitter when the indictment was announced about legal challenges I see raised by the prosecution. My friend Michael Levy, who is the former First Assistant U.S. Attorney and Interim U.S. Attorney in that office, and is now retired, also wrote in with some thoughts.
I thought Mr. Levy's views were worth a post of their own, and I am posting them with his permission. His analysis follows:
The indictment of Moshe Porat, the former dean of the Temple University business school (the Fox School of Business), by the U.S. Attorney's Office in Philadelphia raises several interesting issues about mail and wire fraud. Some of these depend upon the facts, while others are purely questions of law.
The indictment charges that Porat conducted a scheme to defraud Fox applicants, students, and donors of money and property. He allegedly did this by providing false information about the school's applicants and students to U.S. News and World Report to boost the school's ranking in the publication's school ratings. The indictment states that as the school's ranking rose, so did the size of its class.
This raises factual questions about whether the victims were defrauded. Even if the students opted to go to Fox because of the fraudulently obtained rating, they got what they paid for – a Fox business school education and MBA. The indictment even alleges that in one program the price of tuition decreased during the scheme, while in the other, it remained about the same. The false increase in the school's standing did not prompt the school to charge more for its product. The indictment does not suggest that the donor's money did not go to the coffers of the business school and it does not allege that Porat siphoned any money for his personal use.
The indictment implies that the students would not have applied to or matriculated at the school and that the donors would not have contributed, were it not for the false rating. However, it never states so. That will have to await testimony at trial. It does raise the question, whether this conduct is covered by the wire fraud statute. If a person is tricked into entering a transaction but gets what s/he pays for, has s/he been defrauded?
Cases such as United States v. Takhalov, 827 F.3d 1307, 1314 (11th Cir.), as revised (Oct. 3, 2016), opinion modified on denial of reh'g, 838 F.3d 1168 (11th Cir. 2016), would suggest that the answer is no. In Takhalov, a bar hired attractive women to hang out in the bar, acting as if they were patrons, to induce male patrons to buy them drinks. The government argued that the male patrons were defrauded because they were not aware that the women were in fact employees. The fraud was giving the men the impression that a drink might lead to a more romantic encounter. The court held that this was not a fraud and presented the following two hypotheticals to illustrate why.
Consider the following two scenarios. In the first, a man wants to exchange a dollar into four quarters without going to the bank. He calls his neighbor on his cell phone and says that his child is very ill. His neighbor runs over, and when she arrives he asks her to make change for him. She agrees; the quarters pass to the man; the dollar passes to the woman; and they part ways. She later learns that the child was just fine all along. The second scenario is identical to the first, except that instead of giving the woman a true dollar, he gives her a counterfeit one.
The first scenario is not wire fraud; the second one is. Although the transaction would not have occurred but-for the lie in the first scenario – the woman would have remained home except for the phony sickness – the man nevertheless did not intend to deprive the woman of something of value by trick, deceit, and so on. But in the second scenario he did intend to do so.
Id, at 1313.
I expect that problem will be an issue in the Porat trial. If the students paid for a Fox education and degree, then they got it.
A second, legal issue is whether the object of the scheme was to obtain money and property, or if it was merely to obtain higher ratings and increased student enrollment (with its increase in tuition payments) was an incidental benefit. After the Bridgegate case (Kelly v. United States, 140 S.Ct. 1565 (2020)), it should be clear that obtaining property has to be the object of the scheme, and not just an incidental result of the scheme. Higher ratings could have resulted in an increase in the quality of the students without any increase in enrollment. Again, those students would have gotten what they paid for.
A third issue is what the courts have called the convergence problem – does the person deceived have to be the person defrauded? If A lies to B and as a result C loses money to A, is this conduct covered by the wire fraud statute. For example, a person lies to a regulatory agency and, as a result, the agency allows her to continue her occupation. Are the fees she obtains from her clients because of the continuing authorization, covered by the mail and wire fraud statutes? E.g., United States v. Lew, 875 F.2d 219, 221 (9th Cir. 1989). The courts are split on this issue and the Third Circuit has noted the split but never chosen sides. United States v. Bryant, 655 F.3d 232, 249-50 (3d Cir. 2011).
In this case, the lie to U.S. News and World Report was translated into a rating and passed on to the victims. If that is the government's theory, then there may be no convergence problem; the magazine was the unwitting transmitter of the false statements to the victims and the people deceived and the people defrauded were the same.
All of this will have to await the filing of motions, the development of a record, and even a trial.
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