In the case against Nevin Shetty, former CFO of Seattle-based e-commerce company Fabric, the government’s wire fraud charge raises questions about prosecutorial overreach and the boundaries of corporate liability. The government alleges that Shetty’s investment, though legal in structure, was criminally motivated due to his personal interest in HighTower. However, a closer analysis reveals a thinly substantiated case that could set a troubling precedent for corporate executives.
Lack of Intent to Defraud: A Misguided Fraud Allegation
According to the government, Shetty’s decision to invest $35 million of Fabric’s funds in an account at HighTower Treasury, a stablecoin treasury platform, was motivated by self-interest, as he held a co-ownership stake in the firm. The argument hinges on Shetty’s alleged failure to disclose the investment’s cryptocurrency nature and his relationship with HighTower. At its core, the government conflates omission and self-interested actions with fraudulent intent—a leap that stands at odds with legal precedent and the fundamental requirements of wire fraud. This goes beyond merely showing that a decision had negative consequences; it requires demonstrating that the defendant intended to deceive or harm the alleged victim for personal gain.
Superficially, the intent to defraud seems like a stretch. Shetty was brought in as Fabric’s CFO with much fanfare after the Series A. Rightly so, because in the twelve months as CFO, Shetty raised a $100M series B and a $140M series C for Fabric – an incredible amount of money in a short period of time. Assuming a CFO at the series A stage would get at least 1% of equity, Shetty’s stake in Fabric could be worth approximately $10M. Given how much Nevin’s equity stake in Fabric was worth, why would he risk that to invest Fabric’s money and take a spread? It appears he would only do that if he thought the investment would make money for Fabric and thereby benefit Shetty through his ownership of both HighTower and Fabric.
From a legal standpoint, the government asserts that Shetty’s investment was intended to benefit himself rather than Fabric, arguing that his stake in HighTower taints the transaction. That doesn’t seem to square with the facts. Regardless of the facts, self-dealing alone does not equate to criminal fraud. The U.S. Supreme Court has established a clear boundary around self-dealing cases in Skilling v. United States (2010). In this landmark decision, the Supreme Court ruled that an executive’s self-dealing, absent additional elements like bribery or kickbacks, does not meet the threshold for wire fraud. The allegations against Shetty’s do not include bribery, kickbacks, or any indication that he siphoned funds from Fabric for personal use. Rather, the investment was directed toward an account that was supposed to benefit both Fabric and HighTower. This distinction is critical, as it separates civilly dubious actions from criminal intent.
Further, the government’s case lacks several elements typically seen in genuine fraud charges. Notably, there are no allegations that Shetty stole or embezzled the funds for personal use. There’s also no evidence suggesting that he sought to harm Fabric financially or acted with malicious intent. In fact, as CFO, Shetty had the authority to make financial decisions on behalf of Fabric, and his actions, while controversial, fall within the realm of business judgment. Absent clear evidence of fraudulent intent, the government’s portrayal of Shetty’s decision as criminal is difficult to reconcile with established legal standards.
The Unclear Concept of “Property Interest” in the Charge
Another cornerstone of wire fraud charges is the deprivation of a “traditional property interest.” The government claims that Shetty’s failure to disclose certain information about the investment—specifically, his personal stake in HighTower and the cryptocurrency nature of the funds amounts to fraud. The government is saying that Shetty deprived Fabric of information they would need to determine the suitability of the investment themselves. In other words, the government is Shetty deprived Fabric of valuable economic information.
In Ciminelli v. United States (2023), the Supreme Court ruled unanimously, 9-0, that federal fraud statutes do not extend to cases where a defendant withholds information without depriving the victim of a traditional property interest. The Court’s decision emphasized that wire fraud applies only when a victim is deprived of actual money or property, not merely valuable information. The ruling effectively barred prosecutors from using wire fraud statutes to criminalize non-disclosures that do not involve tangible property loss—the taking of the property for personal use.
In Shetty’s case, the government’s argument appears to hinge on the notion that Fabric would have acted differently had it known about the cryptocurrency component of the investment. Yet, this reasoning does not align with the standard set forth in Ciminelli. Withholding information, even if it influences a company’s decision, does not constitute deprivation of a property interest under the law. Consequently, Shetty’s alleged non-disclosure, while potentially a breach of internal protocol, fails to meet the statutory requirements for wire fraud.
A High-Stakes Business Decision, Not a Crime
The core of the case against Shetty centers on his decision to invest in cryptocurrency—which the government calls high-risk asset and falls outside the company’s investment policy which Shetty authored. While in hindsight, the decision may have been ill-advised, it falls well within the range of corporate investment activities. Companies regularly make investment decisions that do not yield expected returns, and these decisions, though potentially damaging, are a staple of business risk-taking.
Framing Shetty’s decision as fraud risks setting a troubling precedent that could penalize executives for everyday business choices that ultimately result in losses. Such an approach ignores the reality that financial officers are routinely called upon to make judgment calls in high-stakes environments. Shetty’s choice to invest in a cryptocurrency account, though arguably flawed in hindsight, reflects a legitimate attempt to generate returns for Fabric, not a scheme to defraud the company. Moreover, there’s no evidence to suggest that he anticipated or desired the investment’s failure. In fact, the loss impacted both Fabric and HighTower, demonstrating that Shetty’s interests were aligned with those of the company.
The government’s approach could have unintended consequences for the investment and business community. By criminalizing investment choices, it sends a message that executives may face prosecution for decisions that fail to produce positive outcomes—a standard that could deter legitimate complex decision-making and undermine corporate innovation. Shetty’s decision may have been self-interested, but there is no indication he acted outside his authority or in bad faith.
Due Process Concerns: Setting a Precedent
The prosecution of Shetty carries broad implications. If prosecutors succeed in criminalizing a CFO’s investment decision, any investment professional that loses money could risk criminal prosecution if a victim claims the investment was unsafe—and obviously in hindsight the loss would seem to prove that. Moreover, prosecuting Shetty on these grounds threatens to blur the line between poor business decisions and actual fraud, eroding the protections executives have under due process.
Recent legal precedents underscore the importance of maintaining a high standard for fraud charges. The Supreme Court’s decisions in Skilling and Ciminelli reinforce the notion that wire fraud statutes are not catch-all provisions for penalizing controversial or unfavorable business decisions.
At stake in Shetty’s case is the legal clarity executives rely on when making high-stakes decisions. If prosecutors succeed in criminalizing a CFO’s judgment call in the absence of traditional fraud elements, it could embolden further overreach and open the door to charges based on mere business missteps. Holding Shetty criminally liable for an unfortunate financial decision could establish a precedent that unfairly penalizes corporate officers for decisions that, while not financially successful, fall within the scope of their role.
Conclusion: A Case Built on Unsteady Ground
The charges against Nevin Shetty raise critical questions about the boundaries of criminal liability in corporate finance. Prosecuting a CFO for making an investment decision—albeit one with a self-interested component—risks turning routine business choices into matters of criminal liability. This approach threatens to erode the line between fraud and bad business judgment, with potentially far-reaching consequences for the corporate world.
The government’s case against Shetty is built on a tenuous interpretation of wire fraud that does not align with recent Supreme Court rulings. By attempting to criminalize Shetty’s actions without demonstrating clear intent to defraud or a deprivation of traditional property, the case sets a precarious standard that could haunt corporate leaders and investment professionals in the years to come. The outcome of this case will be pivotal, not only for Shetty but for the broader landscape of corporate governance and due process in America.
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