For nearly 40 years, regardless of whether confidential information belonged to a governmental entity or a private-sector business, its misappropriation could be prosecuted as a property crime. Lower federal courts relied on Carpenter v. United States,[1] a well-known Supreme Court decision that unanimously affirmed the federal mail and wire fraud convictions of a reporter and his co-conspirators who schemed to trade securities based on pre-publication information belonging to the reporter’s employer, the Wall Street Journal. Carpenter held that the misappropriated information constituted intangible “property” within the meaning of those statutes because the employer was deprived of its confidential information’s exclusive use.
But in 2021, the U.S. Department of Justice abruptly changed its position, maintaining that the misappropriation of confidential government information generally could no longer be prosecuted as a property crime. The DOJ was responding to the Supreme Court’s decision in Kelly v. United States.[2] More commonly known as the “Bridgegate” case, Kelly overturned the wire fraud convictions of two public officials appointed by then-New Jersey Governor Chris Christie. These officials tricked public transit workers into realigning traffic lanes on the George Washington Bridge, causing massive gridlock that infuriated the constituents of a rival politician. Although the Court recognized that the officials acted deceptively and corruptly, it unanimously held that the officials’ scheme to alter the exercise of an agency’s regulatory authority did not deprive the government of a “property” interest.
For many observers, the notion that confidential government information did not constitute “property” was stupefying because Kelly did not involve any use of confidential government information, and such information often has an exceptionally high market value – which is why unscrupulous securities traders sometimes scheme to obtain and use such information.[3] Yet, in United States v. Blaszczak,[4] a divided panel of the Second Circuit deferred to the DOJ’s post-Kelly position and reversed the wire fraud and other property crime convictions of four defendants who had been found guilty and sentenced to prison.
But even if years ago there were alternative, plausible ways to construe Kelly, there are now two reasons why the Court’s May 2025 wire-fraud decision in Kousisis v. United States[5] leaves little doubt that the DOJ and Second Circuit have been incorrectly extrapolating from Kelly. First, Kousisis clarifies that the precedent in Kelly precludes property-crime prosecutions only when a defendant’s interference with the exercise of regulatory authority was the actual “object” of the fraudulent scheme. Second, Kousisis held explicitly that governmental entities can be victims of wire fraud regardless of whether they suffer an “economic loss.”
The Blaszczak Prosecution and Decisions
The high-profile prosecution in Blaszczak went up once to the Supreme Court and twice to the Second Circuit, ending with a dismissal of all charges in December 2023. At the heart of the case was confidential information pertaining to upcoming changes in health-insurance reimbursement rates, which was obtained from the U.S. Centers for Medicare and Medicaid Services (CMS). The four defendants were the CMS official who leaked the confidential information, a political intelligence consultant who was the information’s initial recipient, and two hedge-fund analysts who generated more than $5 million in trading profits when they used the material nonpublic information to sell short the stock of several companies that would be negatively affected. In Blaszczak I, a 2-1 panel affirmed the jury verdict that convicted the defendants of crimes including wire fraud in violation of 18 U.S.C. Section 1343 and conversion of federal government property in violation of 18 U.S.C. Section 641.[6]
After the defendants successfully petitioned the Court to vacate Blaszczak I, the defendants on remand predictably argued that Kelly’s intervening precedent precluded their interference with CMS’ regulatory authority from being prosecuted as a property crime. But what happened next was surprising. Although the prosecutors initially sought to argue that Kelly was irrelevant to the property status of confidential government information, they were instructed by the U.S. Solicitor General not to do so. Instead, the SG construed Kelly to mean that an agency’s “predecisional” information is generally not “property” because the confidential information’s “value” to the agency is “based entirely on its relationship to an upcoming exercise of regulatory authority.”[7]
Blaszczak II split a different, but overlapping, three-judge panel. This time, though, the majority reversed the defendants’ property crime convictions. Concluding that the DOJ’s reversal request was “appropriate and owed deference,” the majority reasoned that if the Kelly defendants did not deprive the transit authority of its property by “altering a regulation,” then the Blaszczak defendants did not deprive CMS of its property by “merely obtaining advance information as to what the agency’s preferred regulation would be, and when it would be announced.”[8]Blaszczak II also construed Carpenter narrowly, emphasizing that the premature disclosure of CMS reimbursement-rate determinations had “no direct impact on the government’s fisc, although it [could] impact CMS’s subsequent regulatory choices.”[9]
Blaszczak II’s Dissent
As Judge Richard Sullivan emphasized in a powerful dissent, which built on his majority opinion in Blaszczak I, the fraudulent scheme at issue in Kelly to alter a regulatory decision about bridge-lane alignment was markedly different from the defendants’ scheme in Blaszczak to obtain CMS’ confidential information so that hedge fund analysts could use the information in securities trading. Although the Blaszczak II majority asserted that “altering” and “obtaining” meant much the same thing for purposes of interpreting the federal statutes for wire fraud and conversion,[10] as he observed, “‘[a]ltering’ suggests the exertion of power upon another, whereas ‘obtaining’ suggests the acquisition of a thing from another.”[11]
The Supreme Court’s recent decision in Kousisis should leave no doubt that Judge Sullivan – and the DOJ prosecutors’ initial position – correctly construed Kelly.
Altering vs. Obtaining
The Kousisis petitioners were convicted of wire fraud for fraudulently inducing a state transportation agency to award them lucrative construction contracts. The petitioners, a painting company and its project manager, urged the Court to vacate their convictions in part because, as they saw it, their prosecution for wire fraud was “premised on mere interference with ‘the State’s sovereign power to regulate.’”[12] But the Court in Kousisis flatly rejected their claim, ruling that Kelly applied to a scheme that “target[ed] the exercise of the Government’s regulatory power,”[13] whereas, in Kousisis, there was no evidence that the petitioners had “concocted their scheme with the goal of thwarting [the state’s] business initiative.”[14] Instead, the actual “object” of the petitioners’ fraud was “to line their pockets” with the construction monies that the state would award based on their false representations.[15] Accordingly, the Court concluded that in Kousisis, “undermining the Government’s regulatory interests [was] merely ‘an incidental (even if foreseen) byproduct’ of obtaining its money or property.”[16] In other words, the petitioners’ interference with the exercise of regulatory authority was “a result [that] was downstream of their ‘object,’” which was to fraudulently “induce the Government into a transfer of its money or property.”[17]
The defendants’ scheme in Blaszczak, like the petitioners’ scheme in Kousisis, did not “target the exercise of the Government’s regulatory power,” nor did the Blaszczak defendants “concoct[ ] their scheme with the goal of thwarting” or altering CMS’ decision to disclose its new reimbursement rates via a prepared public announcement. Instead, the Blaszczak defendants set out to obtain CMS’ predecisional information, “to line their pockets” with the profits from their secret use of that confidential information (and any alteration of CMS decisions or its disclosure timetable could have jeopardized the hedge funds’ ability to profit from the short sales). Thus, while the Blaszczak defendants may have foreseeably “undermin[ed] the Government’s regulatory interest” in allocating and controlling predecisional CMS information, that result was an “incidental byproduct” and a “downstream” result of their actual “object,” which was to secretly obtain and use CMS’ intangible property for personal profit in securities transactions.
Property Fraud Does Not Require Economic Loss
Blaszczak II’s suggestion that the misappropriation of confidential government information can constitute a property crime only when its use would result in an economic loss has likewise been put to rest. Indeed, after emphasizing the wire fraud statute’s “broad, generic language,” the Kousisis Court concluded that “the wire fraud statute is agnostic about economic loss,” emphasizing that “[t]he statute does not so much as mention loss, let alone require it.”[18]Kousisis thus clarifies that the secret use of CMS’ confidential information by the Blaszczak defendants did not have to have affected “the government’s fisc” for its misappropriation to constitute a property crime.
Conclusion
The DOJ and the Second Circuit’s decision to carve-out most confidential government information from property crimes was the result of an unfortunate misreading of the Supreme Court’s ruling in Kelly, which should have had little relevance for prosecutions of misappropriation schemes designed to obtain and use confidential government information for personal profit, as opposed to schemes designed to alter an exercise of regulatory authority. The Court’s clarifications in Kousisis are timely. Especially now, when confidence in government officials is at an all-time low, restoring the property status of confidential government information should be a high priority for courts and the DOJ.
ENDNOTES
[1] 484 U.S. 19 (1987).
[2] 590 U.S. 391 (2020).
[3] See, e.g., John C. Coffee, Jr., The Blaszczak Bombshell and What It Will Mean, Colum. L. Sch. Blue Sky Blog (Jan. 26, 2023
[4] 56 F.4th 230 (2d Cir. 2022) (Blaszczak II).
[5] 145 S. Ct. 1382 (2025).
[6] 947 F.3d 19 (2d. Cir. 2019). The four defendants were found not guilty on the insider trading charges brought under Exchange Act Rule 10b-5’s misappropriation theory (likely because the prosecution may not have proven beyond a reasonable doubt that the CMS official had received a personal benefit for his tips).
[7] See Letter Brief for the United States in Blaszczak II at 5 (June 4, 2021).
[8] Blaszczak II, 56 F.4th 242-44.
[9] Id. at 244.
[10] Id.
[11] Id. at 254 (Sullivan, J., dissenting).
[12] Id. at 1397 (quoting Kelly, 590 U.S. at 401).
[13] Kousisis, 145 S.Ct. at 1390–91.
[14] Id. at 1397.
[15] Id.
[16] Id. (quoting Kelly, 590 U.S. at 403).
[17] Id.
[18] Id. at 1391, 1392.
This post comes to us from Professor Donna M. Nagy at Indiana University Maurer School of Law—Bloomington. It reflects views drawn from her recent article, “Misappropriation of Confidential Government Information as a Property Crime,” forthcoming in the Florida Law Review and available here.