On May 22, 2025, the United States Supreme Court released its opinion in Kousisis v. United States. The Kousisis opinion resolved a split of the federal circuits by finding that proof of economic loss by the government is not required for a federal contractor to be convicted of wire fraud based on misrepresentations made when bidding for a contract. In Kousisis, the misrepresentation at issue was over the use of disadvantaged business enterprises, and the holding of Kousisis can be applied to misrepresentations by government contractors regarding size or socio-economic status.

In Kousisis, the Pennsylvania Department of Transportation (“PennDOT”) awarded a contract to Alpha Painting and Construction Company (“Alpha”) for repainting and restoring two bridges. As this was a federally funded project, Alpha was required to subcontract a portion of the contract to a disadvantaged business enterprise (“DBE”). As part of the bidding process, Alpha represented that it would acquire over $6 million worth of painting supplies from Markias, Inc., a “prequalified disadvantaged business.” Alpha’s representation was false. In reality, Alpha used Markias as merely a “pass-through” entity and actually acquired the paint from a non-DBE supplier. Alpha ultimately completed the project to PennDOT’s satisfaction, and made over $20 million in gross profit.

The government discovered Alpha’s fraud and charged it with wire fraud based on the premise that Alpha had induced PennDOT to award it the painting contracts under materially false pretenses – that Alpha would be acquiring paint from a DBE. Alpha was convicted at trial, and argued on appeal that there was no scheme to defraud PennDOT of “money or property” as the wire fraud statute requires because PennDOT had received the benefit of the bargain – adequate completion of the projects.

The United States Supreme Court held that a defendant who induces a victim to enter into a transaction under materially false pretenses may be convicted of federal fraud even if the defendant did not seek to cause the victim economic loss. The Supreme Court explained:

the wire fraud statute is agnostic about economic loss. The statute does not so much as mention loss, let alone require it. Instead, a defendant violates §1343 by scheming to “obtain” the victim’s “money or property,” regardless of whether he seeks to leave the victim economically worse off. A conviction premised on a fraudulent inducement thus comports with §1343.

The court also rejected the argument that economic loss is the only form of loss that could satisfy the common law requirement of injury for fraud claims:

But petitioners beg the question by assuming that economic loss alone could satisfy this common-law “injury” requirement. As the cases and treatises discussed above confirm, it was the deception-induced deprivation of property—not economic loss—that common-law courts generally deemed injurious….

To summarize, then, common-law courts did not uniformly condition an action sounding in fraud on the plaintiff ’s ability to prove economic loss. More specifically, if the action was one for rescission or a prosecution for false pretenses, the plaintiff ’s required “injury” ordinarily need not be financial. That sounds the death knell for Alpha and Kousisis’s reliance on the common law….The common law did not establish a generally applicable rule that all fraud plaintiffs must plead and prove economic loss, so we will not read such a requirement into the wire fraud statute.

Finally, the court rejected Alpha’s argument that the permitting this type of claim would unduly expand the reach of the wire fraud statute. The Supreme Court explained that fraudulent misrepresentation still need to be material, and that “[t]he “demanding” materiality requirement substantially narrows the universe of actionable misrepresentations.”

While Kousisis is not necessarily new law, in that it resolved a circuit court split, it is confirmation that small business contractors, and those that subcontract with them, need to be cognizant of the legal risks that can arise out of fraudulent misrepresentation of size or socio-economic status. In Kousisis, Alpha was convicted of a federal crime even though they properly performed the contracts. The fact that PennDOT was not financially harmed was irrelevant given the false representations made by Alpha.

This approach is aligned with the Small Business Administration presumed loss rule, under which contractors can be liable for making false misrepresentations regarding size and eligibility regardless of the quality of work or service provided.

Finally, Kousisis is also notable because of a concurrence filed by Justice Thomas. Justice Thomas viewed the DBE requirements in the PennDOT contract as not material. Justice Thomas argued that:

• • “the DBE conditions had no bearing on petitioners’ ability to complete their projects. That disconnect tends to support the conclusion that those requirements would not meet the ‘demanding’ materiality standard this Court has articulated;”
  • The fact that the contract did not tether compliance with DBE goals as a condition of payment also suggested that the DBE goals were not material;
  • The government’s “knowledge of rampant misrepresentations in the DBE program could suggest to a reasonable contractor that, contract language notwithstanding, the Government does not actually consider DBE compliance essential to its contracts. Pervasive fraud also suggests that the Government may be continuing performance on its contracts despite knowing that its counterparties frequently violate DBE requirements, further counseling against those terms’ materiality;” and
  • Citing to Mid-America Milling Co., LLC v. United States Dept. of Transp., that the DBE goals are unconstitutional racial discrimination and failure to follow an unconstitutional requirement cannot be material:

It is implausible to think that a “‘reasonable person’” would “‘attach importance’” to contract provisions that mandate constitutional violations. The same intuition applies to Government actors. Thus, if the Government cannot demonstrate the constitutionality of the DBE program, I doubt that a provision requiring compliance with the program could go to the essence of the parties’ bargain—particularly here, given that the very same provisions requiring DBE compliance simultaneously prohibit “discriminat[ion] on the basis of race, color, national origin or sex.”

While Justice Thomas ultimately concurred in the court’s decision, he did so because Alpha did not contest the materiality of their misrepresentations on appeal. Nevertheless, Justice Thomas’ concurrence is relevant because it signals that at least one Justice is willing to consider whether the DBE program is constitutional, and will likely conclude it is not.

This article summarizes aspects of the law and opinions that are solely those of the authors. This article does not constitute legal advice. For legal advice regarding your situation, you should contact an attorney.