Wire Fraud and Victims
Michael Baker was the chief executive officer of ArthroCare, a publicly traded medical-device company. He, along with other senior executives, engaged in a “channel-stuffing scheme” that involved sending excess products to various distributors who didn’t need the products. ArthroCare reported the shipments as legitimate sales, which inflated its revenues. Baker hid the scheme from the board and financial auditors, and made false statements to investors and the SEC. When the scheme was uncovered, ArthroCare was required to restate its earnings and revenues, causing its stock price to drop. He was convicted by a jury.
On appeal, he complained that the wire-fraud statute, 18 U.S.C. 1343, required the Government to prove that he “intended to obtain money or property from the deceived investors.” The district court had, instead, instructed the jury that it could find guilt based upon a scheme “to bring about some financial gain to the person engaged in the scheme.” Baker argued that this instruction violated United States v. Skilling, which states that under “traditional” fraud, “the victim’s loss of money or property supplied the defendant’s gain, with one the mirror image of the other.” The Fifth Circuit rejected this argument, holding that Skilling did not impose a “mirror image” requirement, but had merely commented on the differences between traditional fraud and honest-services fraud. Section 1434, the Court said, does not require an intent to obtain property directly from a victim.