Wire Fraud and Material Misrepresentation in Allocation of Project Funds

Introduction

United States v. Arthur Fayne, decided by the Sixth Circuit on May 21, 2025, clarifies the contours of wire‐fraud liability when a project manager diverts grant‐funded payments intended for contractors. The defendant, Arthur Fayne, owner of Business Development Concepts, LLC (BDC), oversaw redevelopment of a community center and grocery store project funded by state, city, and county grants. Fayne was convicted on nine counts of wire fraud after allegedly misdirecting payments due to two contractors—Albert M. Higley Company (AMHigley) and Crescent Digital. On appeal, Fayne challenged evidentiary rulings, the sufficiency of the evidence, and the district court’s restitution order. The Sixth Circuit affirmed in full, reinforcing the principle that material misrepresentations about the destination of funds, even if temporary or on an installment basis, can sustain wire‐fraud convictions and support restitution under the Mandatory Victims Restitution Act.

Summary of the Judgment

The Sixth Circuit held:

1. No abuse of discretion occurred in the district court’s evidentiary rulings, including limitations on cross‐examination and exclusion of an untimely expert report.
2. Sufficient evidence supported Fayne’s convictions on nine counts of wire fraud:
   • Counts One through Seven: Fayne invoiced NEON for $2.63 million intended for AMHigley but diverted over $759,000.
   • Counts Eight and Nine: Fayne misdirected a $125,923.86 payment intended as an escrow for Crescent Digital.
3. The restitution order—$840,074.96 total ($329,006.32 to Cuyahoga County, $478,704.20 to the City of Cleveland, and $32,364.44 to Crescent Digital)—was proper under the Mandatory Victims Restitution Act because governmental grantors had compensated NEON’s loss.

Analysis

Precedents Cited

The court relied on well‐established decisions to frame its analysis:

• United States v. Hazelwood (979 F.3d 398): Standard for reviewing district‐court evidentiary rulings for abuse of discretion.
• United States v. Ralston (110 F.4th 909): Limits on cross‐examination reviewed for abuse of discretion.
• United States v. Fisher (648 F.3d 442): Harmless‐error standard in criminal cases.
• United States v. Kettles (970 F.3d 637): Harmless‐error and substantial‐rights inquiry under Rule 52(a).
• Musacchio v. United States (577 U.S. 237): “Light most favorable” test for sufficiency of the evidence.
• United States v. Ledbetter (929 F.3d 338): No re‐weighing of evidence on appeal.
• United States v. Vichitvongsa (819 F.3d 260): Drawing reasonable inferences in support of the verdict.
• United States v. Robinson (99 F.4th 344): Elements of wire fraud—scheme, use of wires, intent.
• United States v. Daniel (329 F.3d 480): Definition of a scheme to defraud; material misrepresentation requirement.
• United States v. Bravata (636 F. App’x 277): Intent to deprive even in the short term suffices.
• United States v. Hopkins (357 F.2d 14): Intent is a factual determination reserved to the jury.
• United States v. Rathburn (771 F. App’x 614): Common‐sense standard for material misrepresentation.
• United States v. Lang (717 F. App’x 523): Rule 16(b)(1)(C) expert‐disclosure requirements.
• United States v. Church (731 F.3d 530): Restitution must be authorized by statute.
• United States v. Patel (711 F. App’x 283): District court’s broad discretion in calculating restitution under 18 U.S.C. § 3664(f).

Legal Reasoning

The Sixth Circuit’s reasoning traversed three critical inquiries:

1. Evidentiary Rulings

• Limiting testimony that AMHigley was eventually paid in full was harmless: Fayne himself elicited testimony to that effect during opening, cross‐examination, and closing.
• Restricting the relevant timeframe to January 2017–January 2018 did not prejudice Fayne: He repeatedly informed the jury that all vendors had been paid, and his expert confirmed AMHigley’s net payment exceeded its invoices.
• Excluding the untimely expert report was proper under Fed. R. Crim. P. 16(b)(1)(C): Disclosure one day before trial denied the government a fair opportunity to respond.

2. Sufficiency of the Evidence

The court applied the standard from Musacchio and related cases, viewing all evidence in the light most favorable to the Government:

• Scheme to defraud: Fayne knowingly submitted invoices indicating payments to contractors that he did not forward.
• Material misrepresentation: NEON relied on Fayne’s invoiced amounts “influencing” its decision to disburse funds.
• Intent to deprive: Personal expenditures immediately after receipts and persistent nonpayment of contractors demonstrated fraudulent intent.
• Crescent Digital scheme: Directing a conditional refund into a personal account, then diverting it, fit the same scheme/ar­tifice framework.

3. Restitution under the MVRA

Restitution was authorized by 18 U.S.C. §§ 3663A and 3664:

• NEON suffered a pecuniary loss of $759,105.92 when Fayne failed to pay AMHigley.
• The City of Cleveland and Cuyahoga County, having compensated NEON’s shortfall, “stepped into NEON’s shoes” under § 3664(j)(1) and are entitled to restitution.
• Crescent Digital’s remaining unpaid balance ($32,364.44) was proved by invoice and testimony, justifying its portion of the award.

Impact

United States v. Fayne sharpens several aspects of wire‐fraud jurisprudence:

• Reinforcement that misrepresentation about the allocation of funds—even if temporary or part of an ongoing payment process—can constitute a “scheme to defraud.”
• Confirmation that government grantors who step in to cover losses may invoke restitution as “victims” under the MVRA.
• Guidance on timely expert disclosures and the scope of cross‐examination in fraud trials.
• Affirmation of a common‐sense materiality test in contexts involving complex financial transactions and grant proceeds.

Complex Concepts Simplified

• Scheme to Defraud: Any plan to cheat or trick someone out of money or property by lying about facts important to the victim’s decision.
• Material Misrepresentation: A false statement that would influence a person of normal judgment. Here, Fayne’s invoices said “Pay AMHigley $X,” which induced NEON to send that money.
• Intent to Deprive: The defendant’s plan to keep or use someone else’s money without permission, even temporarily—proof often comes from not repaying or using the funds on personal expenses.
• MVRA Restitution: If a crime causes financial loss, the court must order the defendant to pay back the victim. If a third party (e.g., a government entity) compensates the victim, that third party can get restitution instead.

Conclusion

United States v. Fayne reaffirms that wire fraud encompasses any deceptive course of conduct by which a defendant induces payment through false representations about fund recipients. It underscores the courts’ wide discretion in restitution calculations and the importance of timely expert disclosures. For project stakeholders—especially in publicly funded development—this decision signals that transparency and precise disbursement of funds are essential to avoid criminal liability. The Sixth Circuit’s opinion will guide lower courts in assessing materiality, intent, and proper restitution in complex financial‐fraud cases.