Fraudulent Inducement, Not Right-to-Control: Fifth Circuit Holds § 1348 Reaches Social‑Media Pump‑and‑Dump Schemes Without Proof of Victim Net Loss

Introduction

In United States v. Constantinescu, the Fifth Circuit reversed a district court’s dismissal of a securities-fraud indictment arising from an alleged social‑media “pump and dump” scheme. The court held that an indictment charging securities fraud under 18 U.S.C. § 1348 is sufficient where it alleges a fraudulent‑inducement theory: namely, that defendants used material misrepresentations to induce victims to part with money to buy securities. The panel emphasized that, after the Supreme Court’s decisions in Ciminelli v. United States and, crucially, Kousisis v. United States, it is enough that obtaining money or property was an object of the deceit; prosecutors need not show that defendants intended to inflict a net economic loss on victims.

The case features a group of high‑profile traders with large online followings. The government alleges they purchased thinly traded securities, “pumped” prices by misrepresenting their positions and touting inflated prospects across social platforms, and then “dumped” their holdings for substantial profits, netting approximately $114 million. The district court dismissed, reasoning the indictment merely alleged deprivation of “valuable economic information” rather than a traditional property interest. The Fifth Circuit disagreed, holding the indictment adequately alleged both a scheme to defraud and an intent to defraud by fraudulently inducing followers to purchase securities—thereby parting with money—regardless of any net-loss theory.

Summary of the Opinion

Posture: Appeal by the United States from a district court order dismissing a superseding indictment charging conspiracy to commit securities fraud (18 U.S.C. § 1349) and substantive securities fraud (18 U.S.C. § 1348 & § 2).
Key Holdings:
- The indictment sufficiently alleges a “scheme to defraud” under § 1348 by charging that defendants used false and misleading social‑media statements to induce followers to buy securities—i.e., to part with money.
- The indictment sufficiently alleges “intent to defraud”: under Kousisis, the fraud statutes do not require that defendants sought to cause net pecuniary loss; it suffices that obtaining money or property was an object of the deceit.
- The right‑to‑control theory rejected in Ciminelli does not bar a fraudulent‑inducement theory. The latter protects traditional property interests (money) and is not a repackaged right‑to‑control claim.
Result: Reversal of the dismissal and remand for further proceedings.

Background and Issues

According to the superseding indictment, defendants—Edward Constantinescu, Perry “PJ” Matlock, John Rybarczyk, Gary Deel, Stefan Hrvatin, Tom Cooperman, Mitchell Hennessey, and Daniel Knight—each cultivated large followings across social‑media platforms, branding themselves as skilled traders. The government alleges that defendants would acquire a security; “pump” its price by posting false or misleading statements about their trading positions and the stock’s prospects; induce followers to buy; and then “dump” their shares for profit, all while concealing their sales. Knight pleaded guilty; the remaining defendants moved to dismiss, arguing the indictment failed to allege deprivation of a traditional property interest or any intent to harm victims as required by fraud statutes.

The core issues on appeal:

Does an indictment grounded in fraudulent inducement (inducing purchases through misrepresentation) allege deprivation of money or property, or does it impermissibly rely on a “valuable information”/right‑to‑control theory barred by Ciminelli?
Must the government allege that defendants intended to cause victims a net economic loss, or is it sufficient that defendants intended to obtain money or property by deceit?

Detailed Analysis

Precedents and Authorities Cited

Kousisis v. United States, 145 S. Ct. 1382 (2025): The Supreme Court recognized and sharpened the fraudulent‑inducement theory across the federal fraud statutes. The Court held that a defendant commits fraud when he engages in deception and obtaining the victim’s money or property is an object of the scheme—“regardless of whether he seeks to leave the victim economically worse off.” Kousisis clarified that fraudulent inducement is distinct from and permissible after Ciminelli because it protects traditional property interests. The Fifth Circuit relies on Kousisis to confirm that net‑loss intent is not required and that inducing a victim to enter a transaction that transfers money is enough.
Ciminelli v. United States, 598 U.S. 306 (2023): The Supreme Court rejected the “right‑to‑control” theory, which treated deprivation of “potentially valuable economic information necessary to make discretionary economic decisions” as property. Because the right to control assets via access to information is not a traditional property interest, convictions premised solely on that theory fail. The Fifth Circuit distinguishes Ciminelli, explaining that the indictment here does not plead a right‑to‑control theory but rather fraudulent inducement that caused victims to part with money.
United States v. Greenlaw, 84 F.4th 325 (5th Cir. 2023): Recognizes that § 1348 “borrows key concepts” from mail and wire fraud and that courts therefore treat § 1348 terms similarly. Establishes that § 1348 requires a “scheme to defraud” and an “intent to defraud,” aided by Fifth Circuit mail/wire fraud jurisprudence.
United States v. Evans, 892 F.3d 692 (5th Cir. 2018): Defines “scheme to defraud” as material misrepresentations intended to deceive to obtain something of value, and “intent to defraud” as intent to deceive and to cause harm resulting from the deceit. These standards shape § 1348’s elements as applied here.
United States v. Baker, 923 F.3d 390 (5th Cir. 2019): Rejects a strict “mirror‑image” requirement tying a victim’s loss dollar‑for‑dollar to a defendant’s gain. Fraud focuses on deprivation of money or property under false pretenses; exact congruence of loss and gain is unnecessary. The panel cites Baker to reinforce that no “net‑loss” or mirror‑image showing is required at the pleadings stage.
Indictment Sufficiency Cases:
- United States v. Rafoi, 60 F.4th 982 (5th Cir. 2023) (de novo review);
- United States v. Fontenot, 665 F.3d 640 (5th Cir. 2011) (allegations taken as true);
- United States v. Gaytan, 74 F.3d 545 (5th Cir. 1996) (three sufficiency requirements);
- United States v. Guzman‑Ocampo, 236 F.3d 233 (5th Cir. 2000) (must allege each material element).
Seventh Circuit Alignment: United States v. Smith, Nos. 23‑2840, 23‑2846, & 23‑2849, 2025 WL 2406104 (7th Cir. Aug. 20, 2025) (applying Kousisis in a similar context), indicating emerging inter‑circuit agreement that fraudulent‑inducement theories survive Ciminelli.

The Court’s Legal Reasoning

1) Scheme to Defraud under § 1348

The indictment alleged that defendants purchased securities and then used “false and misleading” statements about their trading positions and the securities’ prospects to induce followers to purchase—thereby “artificially” inflating prices—before secretly dumping their holdings. Taking those allegations as true at the Rule 12 stage, the panel concluded the government pleaded a classic fraudulent‑inducement scheme: victims were tricked into parting with money to buy securities. This directly implicates traditional property interests (money), and thus falls squarely within § 1348’s protection.

By contrast, a right‑to‑control theory would claim only that victims lost the chance to make optimally informed decisions; here, the indictment alleges that victims actually paid money to purchase securities because of defendants’ lies. That is the very distinction Ciminelli draws and that Kousisis reaffirms: the fraudulent‑inducement theory is not a repackaged right‑to‑control claim precisely because it targets the transfer of money or property.

2) Intent to Defraud

Defendants argued that the indictment alleged they sought only to enrich themselves, not to harm followers, and that many victims received market‑price securities. The Fifth Circuit rejected this contention as inconsistent with Kousisis. The Supreme Court has now clarified that fraud liability does not hinge on whether the scheme aims to leave the victim worse off on net; the touchstone is whether obtaining money or property is an object of the deceit.

The indictment alleges defendants “had money in mind” by orchestrating a pump‑and‑dump designed to generate profits from induced purchases. Even if followers received securities with market value, “a fraud is complete when the defendant has induced the deprivation of money or property under materially false pretenses” (Kousisis). The panel further underscored that there is no “mirror‑image” requirement: the government need not show that the victims’ loss equals defendants’ gain or even that defendants intended a net loss at all (Baker).

3) Translating Mail/Wire Fraud Principles to § 1348

Echoing Greenlaw, the panel imported mail and wire fraud concepts to § 1348’s “scheme” and “intent” elements. The court reiterated:

“Scheme to defraud” requires material misrepresentation intended to obtain something of value.
“Intent to defraud” requires intent to deceive and to cause harmful consequences flowing from the deceit—harm here being the compelled transfer of money under false pretenses, not necessarily a net financial loss.

With defendants conceding deception, the only remaining questions were whether the indictment alleged a scheme to obtain money or property and an intent that those consequences follow. The answer to both, the court concluded, is yes.

Impact and Implications

A. Criminal Securities Fraud in the Social‑Media Era

Constantinescu is a significant application of Kousisis to modern “influencer”‑driven markets. It confirms that § 1348 reaches schemes where promoters misrepresent their trading positions or the basis for their bullishness to trigger followers’ purchases. Prosecutors can proceed on a fraudulent‑inducement theory without pleading a right‑to‑control property interest or an intent to inflict net losses.

Practically, this lowers a frequent defense bar at the pleading stage in online touting and pump‑and‑dump cases: the argument that victims received market‑value securities, so there was no “harm.” Post‑Kousisis, that argument does not defeat the intent element. The relevant “harm” is the coerced transfer of money by means of deception.

B. Drafting and Challenging Indictments Post‑Ciminelli/Kousisis

For the Government: Indictments should expressly allege the transaction by which victims were induced to part with money (e.g., purchasing securities) and identify the misrepresentations that caused that transfer. Doing so situates the case within fraudulent inducement, not right‑to‑control.
For Defendants: Reliance on Ciminelli will be unavailing where indictments allege a concrete money or property transfer. More promising challenges focus on whether alleged statements are non‑actionable puffery/opinion, immaterial, or not false; or whether the connection “in connection with” securities is inadequately pleaded. Those issues, however, are fact‑intensive and rarely resolved on a motion to dismiss.

C. Alignment Across Circuits and Doctrinal Stability

The opinion cites the Seventh Circuit’s Smith decision, indicating cross‑circuit convergence around Kousisis’s clarification. As courts recalibrate fraud doctrines after Ciminelli, Constantinescu illustrates the durable viability of fraudulent‑inducement theories in both procurement and securities contexts.

D. Relationship to Civil Securities Regimes

While Constantinescu concerns criminal § 1348, its reasoning tracks familiar securities‑fraud concepts: materiality, scienter, and deception. Unlike many civil Rule 10b‑5 suits, however, criminal § 1348 claims do not hinge on investor reliance or loss causation at the indictment stage. The decision underscores that criminal liability can attach where influencers knowingly misstate facts about their trading or the basis of their promotion to trigger purchases.

Complex Concepts Simplified

Right‑to‑Control (rejected): A theory that treated access to “valuable economic information” as a property interest; it allowed fraud convictions based solely on depriving victims of decision‑making information. The Supreme Court in Ciminelli held this is not a traditional property interest and cannot support federal fraud convictions.
Fraudulent Inducement (approved): A theory that the defendant used a material lie to induce the victim into a transaction that transfers money or property. It is actionable because it targets traditional property deprivations.
Scheme to Defraud: A plan to obtain money or property through material misrepresentations or deceitful conduct.
Intent to Defraud: The purpose to deceive and to cause the victim to part with money or property as a result of that deceit. Under Kousisis, the government need not prove the defendant sought to leave the victim worse off on net.
Material Misrepresentation: A false statement or omission important enough that a reasonable investor would view it as altering the “total mix” of information—e.g., lying about one’s holdings or secret plans to sell.
“Mirror‑Image” Loss: The idea that a victim’s dollar loss must match a defendant’s gain. Fifth Circuit law (Baker) does not require such symmetry for fraud.

Conclusion

United States v. Constantinescu cements an important post‑Ciminelli path for criminal securities‑fraud prosecutions: fraudulent inducement is alive and well under § 1348. By holding that the indictment adequately alleged both a scheme and intent to defraud where defendants purportedly used lies to induce followers to buy securities, the Fifth Circuit confirms that the deprivation of money through deception suffices—even if victims received market‑value securities and even if defendants framed their aim as self‑enrichment rather than victim harm.

In the social‑media trading era, the decision provides clear guidance: misrepresenting one’s trading positions and motives to spark buying activity is not immunized by market pricing or by characterizing the wrong as “withholding information.” As long as obtaining money is an object of the deceit, and the scheme is alleged with material misstatements in connection with securities transactions, an indictment states an offense under § 1348. Constantinescu thus offers a structured template for charging online pump‑and‑dump schemes and sets a durable precedent in the Fifth Circuit consistent with the Supreme Court’s recalibrated fraud jurisprudence.