The Supreme Court ruled that Percoco’s conviction could not stand because the jury instructions were too vague. Justice Alito noted that the standard of “honest services to the public” does not clearly define what conduct is permissible or impermissible, nor does it protect against arbitrary enforcement by prosecutors.
Justice Neil Gorsuch filed a separate opinion, joined by Justice Clarence Thomas, agreeing with the decision to overturn Percoco’s conviction on the grounds of vague jury instructions.
Gorsuch expressed significant concerns about the charges against Percoco, noting that “no set of instructions could have improved the situation” because the concept of “honest services” fraud is too vague and uncertain. He emphasized that this ambiguity is not the fault of the Supreme Court; instead, it is the responsibility of Congress. Even if Congress had good intentions when it passed the law, Gorsuch argued, it must do more than simply use an aspirational phrase and leave it up to prosecutors and judges to interpret it as they wish.
This issue is similar to that of I2G. The I2G instruction deemed a pyramid scheme to be an automatic scheme to defraud. However, neither Congress nor any statute has defined pyramid schemes, and there are no established standards in the multi-level marketing (MLM) industry beyond civil regulatory guidance. As a result, I2G participants lacked clarity about what conduct was permitted or prohibited. Since no distributor had ever faced prosecution for participating in a pyramid scheme, no MLM standards guide appropriate behavior.
Percoco and Ruan highlight that mens rea, or the intention to commit a crime, must be connected to each element of a charged offense. Furthermore, the criminal act needs to be clearly defined to help individuals differentiate between legal and illegal activities. A pyramid scheme described as an automatic scheme to defraud does not require mens rea or a clear definition of the criminal act. This vagueness leads to instructions and definitions that are insufficient to establish criminal liability.
The definition used in”Gold Unlimited” came from a “regulatory framework” that the Supreme Court rejects when assessing criminal liability. The Gold Unlimited Court admitted the definition of a “pyramid scheme” was inadequate. However, it based its conclusions on the mail fraud statute requiring that the owners “devised a scheme to defraud.” As a result, no distributor could have been charged under Gold.
Hosseinipour was not charged with mail fraud. Instead, she faced general charges for “participating” in I2G as an automatic scheme to defraud involving 20,000 other participants. The instructions could have applied to any I2G distributor’s participation and any MLM company, making them too vague to establish criminal liability.
The Court’s definition suggested that recruiting participants was illegal based on a nonexistent legal standard to tie “product sales” to “distributor rewards.” It also implies that certain “structures” may be unlawful. Additionally, it states that the subjective motivations of participants who join a business opportunity could be judged by a jury. The instructions lack the constitutional clarity required for legal enforcement actions. None of these actions are defined as illegal by Congress and thus cannot be used as the basis for a “scheme to defraud.”
The issue arises because multi-level marketing (MLM) systems, including recruiting rewards and product sales, are legal. However, the I2G Court definition failed to differentiate between legal and illegal practices. Requests for clarifying instruction on “internal consumption” and anti-saturation measures were denied, making it impossible for the jury to judge the fine line between legitimate and illegitimate MLMs. As a result, the jury lacked a clear standard for determining what constitutes a pyramid scheme.
As Judge Alito noted in the Percoco case, “The standard does not provide sufficient information about what conduct is permissible or impermissible and does not protect against arbitrary enforcement by prosecutors.”
Legal Arguments are attached