Neder, Ellis E. v. U.S. (06/10/1999)

By: Roxana Saberi, Medill News Service

Questions presented

1. Whether the trial court's failure to instruct the jury on the materiality element in this case was harmless error because materiality was not in dispute at trial. 2. Whether materiality is an element of the crimes set forth in the federal mail fraud (18 U.S.C. sec. 1341), wire fraud (18 U.S.C. sec. 1343) and bank fraud (18 U.S.C. sec. 1344) statutes.

Brief

Ellis E. Neder deposited about $7 million in checks into his personal bank account between 1984 and 1988. The problem was that the money was part of more than $30 million he fraudulently obtained from various lending institutions.

Neder's activities involved condominium and land sales. He lied to lending institutions about the amount of financial backing he had and sometimes forged people's signatures. Neder also bought land, overvalued it to the institutions, then resold it at highly inflated prices. In addition, he failed to report more than $5 million in income on two of his personal income tax returns.

Neder was indicted in 1991 for making illegal false statements and formail, wire, bank and tax fraud.

The federal district judge told jurors that on the bank fraud, false statement and tax counts, they did not need to decide the issue of materiality, or whether Neder's actions in fact caused others to be defrauded. On the wire and mail fraud offenses, the court did not include materiality as an element. After Neder's objection that the court should have submitted the issue of materiality to the jury, the court found that materiality existed beyond a reasonable doubt on all the counts.

Neder was convicted of various false statement, fraud, conspiracyand racketeering offenses. He was sentenced to more than 12 years inprison, to be followed by five years' supervised release, and ordered to pay about $25 million in restitution.

Neder appealed to the 11th Circuit Court of Appeals, claiming that thejury, not the judge, should have decided whether or not materiality was an element of the crime on all the offenses.

Neder also claimed that materiality should have been considered underthree federal statutes that deal with mail, wire and bank fraud.

A unanimous appeals court affirmed the convictions, finding that the judge did not commit a reversible error by failing to instruct the jury about materiality on the tax fraud offense. The appeals court conducted a harmless error review and found that Neder would have been convicted on that count even if materiality had been in dispute.

The appeals court also held that materiality was not an element of the false statement offense and the mail, wire and bank fraud offenses. The appeals court found that the three federal statutes, which did not include the word ""materiality,"" were similar to federal bank fraud statute, which prohibits people from making false statements to federally insured banks.

The U.S. Supreme Court granted certiorari on Oct. 13, 1998.

On June 10, 1999, the Court ruled unanimously that prosecutors have to prove that the allegedly fraudulent act in federal bank, wire or mail fraud cases actually affected the outcome of the transaction. In so ruling, the Court reversed the 11th Circuit's judgment on the bank, wire and mail fraud issues and remanded to the appeals court to decide if the jury-instruction error was harmless.

However, a majority of 6 also concluded that in tax fraud cases, where proof of legal relevance also is required, a judge's failure to submit that question to the jury sometimes can be considered harmless, and further concluded that it was harmless in this case.

On that count, Justices Antonin Scalia, David Souter and Ruth Bader Ginsburg dissented, arguing that the failure to have a jury rule on an essential element of a charge can never be considered harmless.