The White Collar Appeal: Fifth Circuit Reinstates Pump-and-Dump Indictment Based on Kousisis

• Reversing a rare pretrial dismissal of indictment, the Fifth Circuit in United States v. Constantinescu recently clarified the elements of securities fraud under 18 U.S.C. § 1348. 
• The district court had dismissed the indictment on the basis that it alleged a right-to-control theory that the Supreme Court rejected in Ciminelli.  Following the Court’s 2025 decision in Kousisis, however, the Fifth Circuit identified a permissible fraudulent-inducement theory underlying the charges.
• But Constantinescu seems to raise as many questions as it purports to answer, chief among them being how a court is supposed to determine what the all-important “object” of an alleged scheme is.

Background

The Department of Justice Criminal Division Fraud Section obtained an indictment of Edward Constantinescu and several other defendants based on their involvement in an alleged “pump and dump” scheme.  According to the government, the defendants had large social media followings across various platforms, held themselves out as skilled stock traders, and frequently posted about their trading activities.  The alleged scheme involved (1) purchasing a security; (2) pumping the price of that security by posting favorable, but false, information on their social media platforms that induced their followers to purchase the security; and then, (3) dumping the security for a profit. 

The district court took the uncommon step of dismissing the indictment before trial.  The fatal flaw in the court’s view was that the indictment did not allege that the object of the alleged scheme was to obtain money or property from the targets of the fraud.  For example, the district court pointed to the indictment’s allegation that “the defendants used their credibility to maximize their own trading profits through their [social media posts], often at the expense of their” social media followers.  For the district court, this language indicated the victims’ losses were merely incidental, not the object the alleged scheme.  Instead, according to the court, the object was to deprive the victims “of information regarding the Defendants’ true trading intentions….  Thus, the scheme did not deprive investors of their money or property through any misrepresentation; the misrepresentations deprived them only of accurate information necessary to make discretionary economic decisions.”  Framed this way, the district court concluded that the indictment alleged an improper right-to-control fraud theory that the Supreme Court rejected in Ciminelli v. United States, 598 U.S. 306 (2023).  (See our prior discussions of Ciminelli here and here.)

Holding

The Fifth Circuit reversed and reinstated the indictment.  Relying heavily on Kousisis v. Untied States, 145 S. Ct. 1382, 1388 (2025), a decision the Supreme Court issued only after the district court’s dismissal, the Fifth Circuit held that the indictment sufficed because it alleged “that defendants induced their followers, through misrepresentations, to purchase securities—that is, to part with their money or property.”  Such a fraudulent-inducement theory satisfies the standard because it alleges a scheme to defraud by means of a material misrepresentation to trick a victim into a transaction by which she hands over money or property—a theory the Supreme Court blessed in Kousisis.  The Fifth Circuit thus rejected the district court’s framing of the indictment as a right-to-control case that Ciminelli prohibited.

The Fifth Circuit also rejected the defendants’ argument that the indictment failed because it did not allege that defendants intended to harm the victims.  The court relied again on Kousisis, which held that a defendant violates the fraud statutes when he “schem[es] to ‘obtain’ the victim’s ‘money or property,’ regardless of whether he seeks to leave the victim economically worse off.” Kousisis, 145 S. Ct. at 1392.  The Fifth Circuit thus explained that the defendants’ alleged intent to profit, rather than intent to harm victims, is a “distinction without a difference”:  “The indictment’s allegation of defendants’ fraudulently inducing their followers to purchase securities is sufficient to allege an injury.”

Key Takeaways 

Cash is king.  By the Fifth Circuit’s reasoning, Kousisis dictates that a scheme that has as its object obtaining money from someone through the use of material misrepresentations will fall within the ambit of the federal fraud statutes.

But that only begs the question.  It would seem that the vast majority of fraudulent schemes seek, ultimately, to obtain something of value.  In Ciminelli, the real estate developers who manipulated the state development company’s requests for proposal so that only one company would be eligible sought to obtain money in exchange for a construction contract.  The Supreme Court held, however, that the object of the scheme was the information available to the state development company in deciding who should receive the contract.  But the defendants hardly cared about depriving anyone of “information necessary to make discretionary economic decisions.”  They cared about the money.  Constantinescu, for its part, held that the object of the scheme was obtaining money from the defendants’ social media followers.  But the decision provides little guidance about how to identify what the object of the scheme really is.  The Fifth Circuit rejected the district court’s framing of the scheme, but it provides no explanation beyond the fact that Kousisis blessed a fraudulent-inducement theory.

Nor does Constantinescu shed light on “traditional property interests.”  Ciminelli held that the federal fraud statutes apply only to “traditional property interests.”  Both Constantinescu and Kousisis involved efforts to obtain money—from investors in Constantinescu and from government appropriations in Kousisis.  Cash certainly must be a traditional property interest (and thus is king).  As a result, neither Constantinescu nor Kousisis helps to define the boundaries of less clearcut property interests, such as what the Second Circuit recently faced in United States v. Chastain, 145 F.4th 282, 295 (2d Cir. 2025).  As we discussed in a prior post, a split Second Circuit panel held, over a spirited dissent, that “confidential information” does not qualify as a traditional property interest unless it has commercial value to the company that holds it. Courts facing knotty issues of what is, and isn’t, “property” will find little guidance in Constantinescu about how to resolve those questions.