U.S. Supreme could overturn Kaloyeros wire fraud conviction

The case is unique in that prosecutors in the case never accused Kaloyeros or any of his co-conspirators of defrauding anyone out of money or property.

They simply hoodwinked people responsible for overseeing money and property at a quasi-government nonprofit that is in charge of real estate projects at Albany Nanotech.

 Michael Dreeben of the Washington, D.C., law firm of O’Melveny & Myers, will  argue on behalf of Ciminelli and Kaloyeros, as well as two other defendants in the case, Steven Aiello and Joseph Gerardi, who worked for the Syracuse real estate development firm COR Development Co.

Dreeben is a former U.S. deputy solicitor general who has argued cases before the Supreme Court on behalf of the Justice Department. 

If Dreeben wins the case, all four men will likely have their convictions overturned.

All four were convicted on a specific theory of the federal wire fraud statute called the right-to-control theory, which includes a broad definition of what property is under the law.

Under the right-to-control theory, property can be defined as not only money or physical property — say, real estate for example — but also financial information.

In the Buffalo Billions case involving Kaloyeros and the developers, prosecutors alleged that Kaloyeros worked with Ciminelli and the other defendants in the case to manipulate the construction bidding process at an Albany Nanotech affiliate that controlled its real estate.

Prosecutors alleged — and a federal jury in New York agreed — that Kaloyeros and his co-conspirators rigged the bidding process to ensure that  Ciminelli’s firm and COR, the Syracuse firm, would be awarded nearly $1 billion in state construction contracts for high-tech manufacturing projects in Buffalo and Syracuse from an Albany Nanotech affiliate known as Fort Schuyler Management Corp.

The bid-rigging was subtle. Kaloyeros, who helped to craft the so-called requests-for-proposals that detailed what the Fort Schuyler board of directors was looking for in a developer for the projects, inserted certain requirements into the documents that were veiled references to LPCiminelli and COR without telling the Fort Schuyler board what he had done.

The defendants from LPCiminelli and COR were accused of working in concert with Kaloyeros on the bid documents, although at times they complained that the effort was too obvious since the bidding process was supposed to be competitive and above-board. They also had a leg up because they knew exactly what the Fort Schuyler board was looking for, through Kaloyeros, and they knew when the bids would be advertised in the newspaper.

Prosecutors convinced the jury Kaloyeros and the other defendants had tricked members of the Fort Schuyler, most of whom had been hand-picked by Kaloyeros himself, thereby denying them their “right-to-control” their own bidding process and the eventual awarding of hundreds of millions of dollars in construction awards.

Kaloyeros and the others were found guilty in the summer of 2019. Kaloyeros was later sentenced to 3 1/2 years in federal prison. Kaloyeros, as well as two of his co-defendants, appealed to the Second Circuit Court of Appeals, which considers the right-to-control theory to be established.

Given that, Kaloyeros and his three co-conspirators only had one place to turn — the U.S. Supreme Court.

All four men were released from federal prison over the summer after the Supreme Court agreed to hear the case. The Supreme Court takes up less than 1 percent of all appeals that are sent its way, meaning the case is one that the justices are extremely interested in considering

What makes the case unique is that the right-to-control theory of wire fraud is allowed to be used in the Second Circuit, which includes the Manhattan courthouse where the case was tried, based on previous court decisions in the Second Circuit, creating what is known as case law.

But it is not recognized as a valid theory of prosecution in most other parts of the federal court system, meaning there is an imbalance in how the federal wire fraud statute is applied across the country.

In fact, the federal wire fraud statute mentions nothing about the right-to-control intangible property like financial information, which is the type of ambiguity that the Supreme Court doesn’t like in the legal system, said Albany Law School professor Vincent Bonventre, an expert on the court.

“If the law doesn’t say that these people are guilty of wire fraud, that can be a problem. It better say that.”

But the federal wire fraud law only mentions “money or property” being taken through fraudulent means — not financial information like the prosecutors in the Buffalo Billions case allege Kaloyeros and his co-defendants denied the Fort Schuyler Management board. Fort Schuyler is a nonprofit that Kaloyeros created to oversee projects in the Utica area initially before he began using it for other economic development projects across upstate.

Bonventre says that when a judge or court is faced with legal ambiguity in a criminal case, the so-called rule of lenity is supposed to be applied. That  means that the court should lean in favor of the defendant instead of the government when ambiguity in the law arises. Otherwise, the defendant’s right to due process could be violated.

“If you want to make something illegal, make it clear,” Bonventre explained.

Asked if he thought the convictions of Kaloyeros and the three others in the case could be overturned, Bonventre said it was a strong possibility, especially since the right-to-control theory is so central to the convictions and they were not accused of stealing money or property directly.

Still, prosecutors in the case, represented by the U.S. solicitor general before the Supreme Court, are fighting to convince the nation’s highest court that the right-to-control theory, which is commonly used in complex wire fraud cases, should remain in place, arguing it all boils down to stealing property either way.

The defendants “successfully schemed to obtain hundreds of millions of dollars in public-development funding, charging prices higher than a competitor’s might have been, by lying about the manipulation of the process through which his company was selected as the best-qualified developer,” attorneys for Solicitor General Elizabeth Prelogar wrote in a brief filed with the court last month. “That scheme was property fraud.”

The government’s defense of the convictions has been criticized by a number of business and legal organizations that want the right-to-control theory to be overturned.

That includes organizations like the U.S. Chamber of Commerce, which wrote a “friend of the court” brief to the court to weigh in on the case.

Attorneys for the U.S. Chamber of Commerce say that while the nonprofit does not have an opinion on whether Ciminelli and the others are guilty of wire fraud, they believe that the right-to-control theory gives prosecutors too much leeway in bringing such cases, especially racketeering cases that target both gangsters and businesses.

“Creative plaintiffs’ lawyers could use the government’s interpretation to transform every breach-of-warranty dispute into a racketeering claim,” the brief states. “The chamber has an interest in ensuring that this court rejects the government’s atextual and overbroad interpretation of federal criminal law.”

So when would the case eventually be decided? The court’s decision will likely take at least three to four months, Bonventre said, which means it will be sometime before the court takes its summer recess next year.