66 F.4th 406
3rd Cir.2023Background
- Defendants Stamatios Kousisis and Alpha Painting & Construction Co., Inc. were indicted for DBE-related fraud on two DOT-funded Philadelphia contracts (Girard Point and 30th Street) and convicted by a jury of conspiracy to commit wire fraud, wire fraud, and false statements; acquitted on two wire-fraud counts.
- Contracts required DBE participation (6% and 7%); defendants’ bids represented that Markias, Inc. (a certified DBE) would supply paint materials ($4.7M for Girard Point; $1.7M for 30th Street).
- In fact Markias did not perform a commercially useful function: it acted as a pass-through, received invoices, added a 2.25% fee (kickback), and forwarded payments to actual suppliers; defendants submitted false certifications to PennDOT and obtained DBE credits and payments.
- District Court sentenced Alpha (probation, fine) and entered a $10,906,553 forfeiture order (one-half of gross profits); defendants appealed convictions, jury instructions, sentencing loss calculation, and forfeiture.
- Third Circuit: affirmed convictions and jury instructions; vacated and remanded the loss calculation and vacated the forfeiture order for further proceedings on appropriate loss measurement and Eighth Amendment proportionality.
Issues
| Issue | U.S. Argument | Kousisis / Alpha Argument | Held |
|---|---|---|---|
| Property element of wire fraud (judgment of acquittal) | Scheme sought PennDOT money; contract rights and kickback funds are property and were the object of the fraud. | No deprivation of property—work was performed; DBE status is an intangible/regulatory interest and incidental to performance. | Affirmed conviction: the object was to obtain PennDOT funds; contract rights and the kickback constitute property for §1343 purposes. |
| Jury instructions | Instructions properly explained that contract rights and deprivation of a bargain can be property and noted loss may include payments for services not received. | Instructions permitted conviction on invalid theories and failed to require net economic loss. | Affirmed instructions: they correctly stated law and did not improperly equate DBE credits alone to property. |
| Sentencing loss calculation under U.S.S.G. §2B1.1 | District Court’s use of defendants’ ill-gotten profits was a permissible surrogate where victim loss is hard to compute. | Loss should be zero or substantially lower because work/materials were provided and there was no net pecuniary harm. | Vacated sentence and remanded: Note 3(F)(ii) (government-benefits rule) does not apply; correct starting point is face value of DBE-designated portion (~$6.4M) minus fair market value of services rendered (paint supplies); remand for fact-finding. |
| Forfeiture order and excessiveness | Forfeiture of proceeds traceable to wire fraud is authorized; government must prove forfeiture by a preponderance. | Forfeiture of entire profit amount is excessive under the Eighth Amendment. | Vacated forfeiture order and remanded for district court to apply Bajakajian proportionality factors and make findings. |
Key Cases Cited
- McNally v. United States, 483 U.S. 350 (limits mail/wire fraud to protection of money or property)
- Skilling v. United States, 561 U.S. 358 (honest-services statute construed to bribery/kickback core)
- Kelly v. United States, 140 S. Ct. 1565 (property requirement: incidental regulatory harms insufficient for wire/mail fraud)
- Cleveland v. United States, 531 U.S. 12 (fraudulent procurement of a state license is regulatory, not property, deprivation)
- United States v. Nagle, 803 F.3d 167 (3d Cir.) (DBE-procurement fraud loss framework: contract face value minus fair-market-value of performance)
- United States v. Banks, 55 F.4th 246 (3d Cir.) (Guidelines "loss" focuses on actual loss; use defendant gain only when victim loss cannot be determined)
- United States v. Bajakajian, 524 U.S. 321 (Excessive Fines Clause proportionality test for forfeiture)