Admission To College Is Valuable, But Is It “Property”?

The process of gaining admission to an elite college can generate anxiety and worry. It can also lead to prison. In 2019, the Department of Justice charged dozens of parents, coaches and others in several indictments in a scandal, known as “Varsity Blues,” for using false information about applicants to secure coveted admission offers at elite colleges and universities. In October 2021, the first two defendants to go to trial – approximately 50 defendants have pled guilty – were convicted of conspiracy to commit mail and wire fraud and honest services mail and wire fraud and other charges. Yesterday, private equity investor and former Staples executive, John Wilson, was sentenced to 15 months in prison, and last week former casino executive Gamal Abdelaziz was sentenced to a year and a day in prison. 

One of the principal charges against Abdelaziz and Wilson was wire fraud. The government argued that Abdelaziz and Wilson used fraud and bribery to deprive universities of their “property” – namely, “admission slots” at the schools. The defense argued in pre-trial motions, and in motions for acquittal during and after trial, that admission to a school does not constitute property because inter alia it is not a “traditional” form of property cognizable under the mail and wire fraud statutes. The district court held for the government. United States v. Sidoo, 468 F. Supp. 3d 428 (D. Mass. 2020); United States v. Abdelaziz, No. 19-cr-10080-NMG (Dec. 20, 2021), ECF No. 2489.

Two aspects of the “property” issue in the Varsity Blues cases stand out. First, litigation of the issue followed the Supreme Court’s decision in Kelly v. United States, 140 S.Ct. 1565 (2020), and the parties disagreed about the impact of Kelly on the “property” question. See Abramowitz and Sack, “Property in Mail and Wire Fraud Cases: ‘Kelly v. United States’ and Its Aftermath,” New York Law Journal (Jan. 6, 2022).  Second, district judges in the District of Massachusetts, where the Varsity Blues cases were filed, reached different conclusions about whether the use of false information to secure admission to college amounts to a deprivation of property. Below, we discuss the cases United States v. Sidoo and United States v. Ernst, decided in the months following Kelly, and United States v. Khoury, decided just over one year later, and the judges’ different approaches to the issue. 

In June 2020, in United States v. Sidoo et al., 468 F. Supp. 3d 428 (D. Mass. 2020) — the case in which Abdelaziz and Wilson were indicted – Judge Nathaniel M. Gorton denied pre-trial motions to dismiss mail and wire fraud charges. The court held that that the “definition of ‘property’ extends readily to encompass admission slots,” relying heavily on a ruling in the Sixth Circuit, which held that university degrees were property cognizable under the mail and wire fraud statutes. See United States v. Frost, 125 F.3d 346 (6th Cir. 1997). In December 2021, during and after the Abdelaziz and Wilson trial, Judge Gorton again rejected defendants’ argument that admissions slots are not property. 

In Frost, graduate students and professors were convicted of mail fraud for a scheme to defraud the University of Tennessee of the honest services of its employees by permitting students to submit plagiarized work as their own to obtain advanced degrees. The Sixth Circuit held that the professors had a fiduciary duty to their employer, the university, to protect its property. The court further held that the university had a property right in its unissued degrees because (1) the “university is a business: in return for tuition money and scholarly effort, it agrees to provide an education and a degree;” (2) the number of degrees the university issues is finite and, therefore, issuing degrees is a business decision; and (3) awarding degrees to undeserving students may decrease the value of degrees by hurting the university’s reputation and impairing its ability to attract students and donors.

Judge Gorton found that the “logic of Frost applies neatly” to admissions slots, which he found “constitute an intangible property interest cognizable under the mail and wire fraud statutes.” Other defendants in the case were charged with conspiring to pay standardized test proctors and administrators to cheat on their children’s college entrance exams, which the government argued deprived the testing companies of their property – tests and test scores. Judge Gorton also held that testing companies have cognizable property rights in standardized tests and score reports and denied defendants’ motion to dismiss the wire fraud counts arising from the test cheating scheme.

Judge Gorton’s pre-trial ruling in Sidoo was decided six weeks after Kelly v. United States, 140 S.Ct. 1565 (2020), yet that decision, and the decisions during and after trial in 2021, barely mention Kelly, except to state that it reaffirmed that the “exercise of regulatory power . . . fails to meet the statutes’ property requirement.” 

In United States v. Ernst, 502 F. Supp. 3d 637 (D. Mass. 2020), Judge Indira Talwani, in November 2020, held that admission slots are not property under the mail and wire fraud statutes. In Ernst, the government charged university athletic coaches who allegedly took bribes from Rick Singer (the ringleader of the scheme who became a government cooperator) in exchange for designating students as recruited athletes for college admission purposes. Although she acknowledged that the government’s arguments “have some persuasive force” and that “another judge in this court” had agreed with the government’s arguments in a “carefully reasoned opinion in a related case,” Judge Talwani rejected the government’s three arguments: “1) that admission to universities is a form of property, 2) that the federal property fraud statutes are implicated where a defendant has interfered with a victim’s ‘right to control’ the use of its assets, and 3) that the Defendants defrauded the universities of money or property by depriving them of their employees’ services.” 

Judge Talwani did not specifically distinguish Judge Gorton’s holding in Sidoo except to say that “at minimum, there is a serious question as to whether the property fraud statute reaches the conduct alleged” in the indictment and, where such serious disagreement exists, the court must consider the rule of lenity. She then held that “even if the court were persuaded that admission to universities could constitute ‘property,’ the principle of lenity would require the court’s ruling here today.” 

First, the court distinguished Frost, noting that its “discussion of property in the context of honest services fraud is of little help in defining ‘property’ after the Supreme Court’s subsequent rulings in Cleveland [v. United States, 531 U.S. 12 (2000),] and Kelly emphatically rejected novel and expansive interpretations of the term.” The court further warned that extending Frost to property fraud “runs contrary to the Supreme Court’s admonishment in Kelly that it is not enough that the scheme incidentally causes a loss of property; instead the question is whether the loss of property was the object of the fraud.”

Second, the court rejected the government’s argument that the scheme deprived universities of the right to control the use of their assets. The court explained that the “right to control” theory of property fraud requires “that the government show that the defendant deprived the victim of “potentially valuable economic information” and “‘[t]he fraudulent scheme must implicate tangible economic harm,’” neither of which was alleged in the case. (Emphasis in original.)

Third, the court rejected the government’s argument that the defendants wrongly obtained access to the “university’s extensive, highly trained workforce,” noting that in Kelly, the Supreme Court emphasized that employees’ time and labor may constitute the basis for property fraud only when it is the object of the fraud. The object of the fraud in the case, however, was admissions to the universities making the “wrongful taking of the time of labor of the universities’ staff . . . the ‘incidental byproduct’ of the charged scheme, not the scheme’s object.”

In the end, although the court rejected the government’s theory of property fraud, it permitted the government to proceed on the theory that the defendants committed mail and wire fraud by depriving the universities of the honest services of their employees.

Unlike Judge Gorton’s reference to Kelly in passing, Judge Talwani in Ernst discussed Kelly in detail and attached weight to the Supreme Court’s statement “that courts should not extend the reach of the federal property fraud statutes beyond cases where the object of the fraud was a victim’s money or property,” and to the Supreme Court’s rejection of a “novel and expansive” interpretation of property.

In July 2021 in United States v. Khoury, 2021 WL 2784835, No. 20-cr-10177-DJC (D. Mass. July 2, 2021), in which the defendant allegedly paid the Georgetown University tennis coach Gordon Ernst to designate his daughter as a tennis recruit to increase her chances of admission to the university, Judge Casper followed the reasoning of Sidoo, holding that admissions slots are property that have tangible value due to their limited nature and because of what an admission slot offers a prospective student in terms of the benefits offered by the university. Judge Casper held that the scheme deprived Georgetown of the “right to control” its property because it facilitated the withholding of information that may have caused Georgetown not to offer an admission slot to the defendant’s daughter.  Judge Casper wrote that Kelly “did not alter [Supreme Court] precedent regarding what constitutes property” but rather affirmed the Court’s holding in Cleveland that a scheme to “alter [the government’s] regulatory choice is not one to appropriate the government’s property.” He also disagreed with Judge Talwani, who, in Judge Casper’s view, had “construe[d] Frost too narrowly.”  Judge Casper also found no “‘genuine ambiguity’ in the statutory language at issue [] that warrants the rule of lenity.”

In Kelly, the Supreme Court made clear that “property” in the mail and wire fraud statutes does not encompass the regulatory activity of the government. But, as the Varsity Blues decisions illustrate, the concept of property in mail and wire fraud remains elastic and subject to expansive interpretation by prosecutors and courts. Kelly will certainly not be the last word on the meaning of property in federal fraud prosecutions. 

Kefira R. Wilderman assisted in the preparation of this article.

To read more from Jonathan S. Sack, please visit www.maglaw.com.