The recent college cheating scandal is a salacious topic that has become the subject of massive public scrutiny within popular culture.
Olivia Jade is ‘devastated’ by college cheating scandal
‘SNL’ spoofs Michael Avenatti and Lori Loughlin
And while it is easy to view this particular news story as yet another example of privilege and favoritism for the affluent and famous, it should not be ignored that it involves a legitimate federal prosecution involving some of the most powerful tools of the United States Attorneys’Offices. That is, they involve allegations of conspiracy to commit wire fraud and money laundering.
These terms are often used in various tv shows, movies, and news reports. However, they are not as often explained as they should be. Below is a description of these federal crimes and how they are usually applied in this criminal prosecution.
Conspiracy: The term conspiracy simply describes a scenario where two or more persons enter an agreement to violate the law. Sometimes the agreement itself is sufficient for a conviction and sometimes there must also be an “overt act” performed in furtherance of the conspiracy.
For example, imagine a person named John devises a plan to defraud people where he would sell a nonexistent sports car to unsuspecting customers. Then John reaches out to a person named Sam who joins the ruse by placing an ad online showing a picture of a Lamborghini with
banner stating “Car for Sale: $50,000!” At this point John and Sam have entered a conspiracy to commit fraud. This offense can be found in the United States Code under 18 USC 371 and 18 USC 1349.
Wire Fraud: This offense criminalizes devising “a scheme or artifice to defraud” using telephonic, radio, television, or internet devices. Taking the example of John and Sam above, this scheme constitutes wire fraud because the ad was posted online and customers were solicited “through the wires.” This offense can be found in the United States Code under 18 USCIt is worth noting that if the ad was placed through the postal system, then the offense would be mail fraud which is outlawed under 18 USC 1341. These offenses carry a possible term of imprisonment of up to 30 years and a fine of up to $1,000,000.
Deprivation of Honest Services: This describes a form of fraud whereby an organization or an employer is deprived of the honest services of one of its members or employees. The United States Code makes it clear that persons who devise a scheme to deprive honest services has also developed “a scheme or artifice to defraud” as that term is used under the wire fraud and mail fraud statutes. This clarification is described in 18 USC 1346.
Money Laundering: This offense criminalizes financial transactions which are designed to either conceal proceeds of crime or promote crime. For example, if John and Sam ensnare a customer who actually sends $50,000 for the nonexistence Lamborghini, then they will obviously want to
be able to use that money. If either John or Sam attempt to transfer or deposit this money, whether it be cash, wire, money order, or some other form of payment, into a back account they will engage in a financial transaction with proceeds of a crime (wire fraud). If they attempt to put the money into an account under someone else’s name whether it is a phantom company or the name of a loved one or simply a fake name, then the Government will interpret this transfer as an attempt to conceal the source of such criminal proceeds. This act would be
called “concealment money laundering.” It is also a violation of the “spending” statute of money laundering which criminalizes financial transactions of more than $10,000 in criminal proceeds. There is also a form of money laundering which prohibits financial transactions to further promote crime. For example, if Sam or John buy computers which will be used to post more fake ads, then criminal proceeds are being used to promote more fraud. This is called “promotion money laundering.” Concealment money laundering and promotion money laundering are outlawed under 18 USC 1956 which carries up to 20 years imprisonment. Spending statute violations are outlawed under 18 USC 1957 which carries up to 10 years
It is also important to recognize that money laundering only occurs where proceeds of certain crimes are deposited, transferred, or spent. In other words, not all criminal proceeds can form the basis of a money laundering charge. To form such a basis, an offense must be labeled as a“specified unlawful activity (sua).” The list of offenses which qualify as an SUA is listed under 18USC 1956(c)(7).
So how do wire fraud, deprivation of honest services, and money laundering apply to the college cheating scandal? As one of the overt acts within the Indictment against Lori Loughlin and 15 others in the U.S. District Court in the District of Massachusetts the Government alleges that various participants within the conspiracy took steps to get test proctors to unfairly adjust test conditions to give an advantage to certain students. As another example, certain bribe payments were made to falsely classify students as athletic participants to allow admission. Either of these deceptions could be characterized as dishonest services by college employees
and thus a fraud against the college. With respect to money laundering, the Government alleges that certain bribe payments by parents were characterized as contributions to various charities. Because such a false characterization conceals the true nature of the payments, the Government alleges that such payments constitute illegal laundering transactions.
Ultimately, the Department of Justice through the United States Attorney’s Office in the District of Massachusetts, does not view these activities as the mere philanderings of the rich and famous. Instead, these are being treated as serious federal felonies that can potentially carry significant prison time.
For people or companies facing a critical federal prosecution or arrest it is important that they immediately seek the advice of an attorney experienced in federal criminal practice. Typically, by the time a particular person or company becomes aware that he is a target, the Government will have already done months of investigation. Time is of the essence.
Steve Jumes is a former federal prosecutor with experience handling complex white-collar cases as well as federal firearms and narcotics cases. If you or a loved one has been contacted by a federal agency or arrested, contact him.