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Use of Mail Fraud Statute Muddied by 2 Court Rulings

November 22, 1987|KIM MURPHY | Times Staff Writer

"The law does not define fraud; it needs no definition. It is as old as falsehood and as versatile as human ingenuity," a federal appeals court once suggested in the hope of laying to rest centuries of argument over what it means to dupe a man out of his horse.

Laws proscribing all manner of pyramid schemes, lottery devices, tax "savings" plans and miracle cures have passed on and off the books. But in a world where the boundaries of fraudulent activities are constrained only by the limits of criminal imagination, it has been illegal for more than 100 years to use the U.S. mails to perpetrate them.

Since 1872, when postal officials determined that the mails should not be used by "thieves, forgers and rapscallions generally" to carry on their work, the federal mail fraud statute has become one of the most important and commonly used tools available to prosecutors for attacking a wide range of devilry not necessarily spelled out in state law.

Armed with the mail fraud law, which carries stiff penalties for any "scheme or artifice to defraud" utilizing the U.S. mails, prosecutors have imprisoned legions of boiler room operators and credit card scammers, and in the last 10 years they have moved into the broader arena of defense industry kickbacks, insider trading and political corruption.

Payment Checks

By the simple task of tracing payment checks sent through the mails, an erroneous campaign contribution statement mailed to a county registrar or a fraudulent document posted to unsuspecting investors, a seemingly limitless range of frauds have been prosecuted as federal crimes.

"To federal prosecutors of white-collar crime, the mail fraud statute is our Stradivarius, our Colt .45, our Louisville Slugger, our Cuisinart--and our true love," former federal prosecutor Jed S. Rakoff wrote in a 1980 law journal article.

But two recent U.S. Supreme Court decisions redefining the scope of the mail fraud law have prompted legal experts to reexamine the old statute, raising questions about whether prosecutors can continue pursuing modern-day fraud cases that the court said may never have been envisioned by the founders of the Postal Service.

Ruling in June in the case of a Kentucky businessman, Charles J. McNally, and a top government official accused of funneling state insurance commissions to a business they controlled, the Supreme Court concluded that the mail fraud statute is directed at the loss of money and property but is not intended to cover "intangible rights," such as the right of citizens to honest government.

Stock Market

Then last week, ruling in the case of former Wall Street Journal reporter R. Foster Winans, accused of profiting in the stock market on the basis of Winans' knowledge of future Journal columns, the high court backtracked somewhat.

The court concluded that while mail fraud must indeed involve a loss of money or property, that property can include such "intangibles" as information--the Journal's "property right" to its own articles and publication schedules.

Taken together, the two decisions have elicited a deluge of applications to set aside convictions in political corruption and defense fraud cases and prompted federal prosecutors to reevaluate the kinds of cases that they can call mail fraud.

At least one of the scores of convictions in Chicago's wide-ranging investigation into court corruption, Operation Greylord, has been set aside. Two weeks ago, former Maryland Gov. Marvin Mandel's 10-year-old conviction for conspiring to influence race track legislation in return for $380,000 in bribes was voided by a federal judge.

Breach of Duty

In Los Angeles, a former supervisor at Rockwell International, Ralph Affinito, convicted of directing subcontracts to a company he secretly controlled, on Monday will appeal his mail fraud conviction based on a breach of his duty of honesty and loyalty to his employer--one of the "intangibles" he claims that the Supreme Court was addressing in the McNally case.

Although the U.S. attorney's office in Los Angeles denies it, defense lawyers and politicians widely credit the McNally case with bringing an abrupt end to the most intensive political corruption probe in recent California history: the investigation into the activities of former fireworks manufacturer W. Patrick Moriarty that led to the convictions of 10 state and local politicians and bankers on a variety of corruption charges, most prosecuted as mail fraud.

Moriarty has already had two of the seven mail fraud counts against him dismissed. Former Carson City Councilman Walter Egan is challenging his conviction on 10 counts of mail fraud for funneling campaign contributions from Moriarty to get a political ally elected in 1981.

Reversal Expected

Former Democratic Assemblyman Bruce Young, the highest-level figure convicted in the probe, said he expects to have all five mail fraud counts against him reversed on appeal.

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