Crime in the Suites: An Analyis of Current Issues in White Collar Defense
Posts Tagged ‘Bank fraud’
Dec 17
2013

Supreme Court Grants Cert to Resolve Circuit Conflict on Intent Required to Prove Federal Bank Fraud

On December 13, 2013, the United States Supreme Court granted a certiorari petition in a case that squarely poses the question of what the government must prove with respect to intent in order to convict a defendant of federal bank fraud.  There is wide agreement among the Courts of Appeal that, in order to secure a conviction under Title 18, United States Code section 1344(1) (making it illegal “to defraud a financial institution”), the government must prove that the defendant intended to defraud the government and to expose it to a risk of loss.  With respect to subdivision 2 of the statute, however (making it illegal to obtain money and the like of a financial institution “by means of false or fraudulent pretenses, representations, or promises”), the Circuits are split six to three – with the First, Second, Third, Fifth, Seventh and Eighth Circuits holding that the same intent requirement applies under either subsection of the statute, and Sixth, Ninth and Tenth Circuits holding that subsection 2 establishes an independent crime that requires only intent to defraud someone (and not necessary a bank) and some nexus between the fraudulent scheme and a financial institution.

In the case in question, Kevin Loughrin v. United States, the defendant was convicted of bank fraud arising from a scheme to make fraudulent returns at a Target store despite the undisputed fact that he did not intend to cause (nor actually caused) any risk of financial loss to the bank.  The Tenth Circuit acknowledged that it took the minority view of split Circuits, but nevertheless upheld the conviction, and Loughrin filed a petition for certiorari to the Supreme Court.  In his petition, Loughrin emphasized that having different standards for each subsection regularly led to opposite results in factually similar cases.

The Court’s decision in this case could be a game-changer for the way in which prosecutors use the federal bank fraud statute.  In many cases – for example, the Black Friday poker cases in the Southern District of New York – bank fraud charges pose the most serious consequences for a criminal defendant but are asserted in cases in which there is no intent to expose the financial institution to loss.  A change in the law will change the way such cases are charged by prosecutors, and alter the dynamics of how such cases are negotiated and tried.  Whatever the Court’s ultimate decision on the  issue, it will bring badly needed clarity to this area of the law.

Dec 11
2012

Court’s Strict Interpretation of Bank Fraud Law May Rein In Prosecutors

A recent interpretation of the federal bank fraud statute by the United States Court of Appeals for the Second Circuit may prove to be a useful check to overreaching by federal prosecutors, who have tended to use that statute in the past as a catch-all law enforcement tool.

In United States v. Nkansah, the Court reviewed the conviction of a defendant for bank fraud and other crimes arising from a scheme in which the defendant and others stole identification information and used that information to file fraudulent tax returns from which they obtained tax refunds. The depositing of the refund checks involved forgery of endorsements and/or the use of false identification.

On appeal, the defendant challenged his bank fraud conviction on the ground that the government had failed to carry its burden of proof that he intended to victimize the banks, as opposed to the U.S. Treasury that issued the refund checks. Defendant argued that no such evidence of intent to defraud a bank was presented, nor did the government prove that the banks themselves actually lost any money.

The court agreed. In its opinion reversing the bank fraud conviction, the appeals court noted that “the bank fraud statute is not an open-ended, catch-all statute encompassing every fraud involving a transaction with a financial institution” but rather “a specific intent crime requiring proof of an intent to victimize a bank by fraud.” For this reason, the court specifically held that “[t]he government had to prove beyond a reasonable doubt that appellant intended to expose the banks to losses,” and noted that, if that intent were proved, there was no need for proof of actual or even possible loss.

The court noted that the evidence upon which the government relied – conversations among the participants about avoiding detection by the banks – was not sufficient to satisfy this required element of proof. The court acknowledged that, in some cases, the fact that a bank may suffer a loss based on the negotiation of a check with a forged endorsement permits an inference of intent. But, in this case, given that the checks at issue were genuine Treasury checks, the actual exposure of a bank to losses is “unclear, remote, or non-existent” because the banks could be deemed to be holders in due course of the checks, with the risk of loss borne entirely by the Treasury. Under such circumstances, the permissible inference urged by the government was far from sufficient to constitute proof beyond a reasonable doubt of the defendant’s intent.

The Second Circuit’s holding in this case is significant because of federal prosecutors’ frequent use of bank fraud charges when banks were part of the transactions included in the allegedly wrongful conduct but were not the intended victims of that conduct. Prosecutors like the bank fraud statute because it carries a hefty maximum statutory sentence of 30 years imprisonment. Bank fraud can also form the predicate (as it did in Nkansah) for other charges such as aggravated identity theft – a crime for which probation is prohibited and for which a defendant must receive a consecutive sentence to the punishment he receives for conviction of any other offense. By holding prosecutors to the strict requirements of the bank fraud statute, the Second Circuit may limit the ability of federal law enforcement to use that statute as leverage in its prosecutions.

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About Ifrah Law

Crime in the Suites is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

Ifrah Law focuses on federal criminal defense, government contract defense and procurement, healthcare, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys and internet marketing attorneys are leaders in internet advertising, data privacy, online fraud and abuse law, iGaming law.

The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen, David Deitch, and associates Rachel Hirsch, Jeff Hamlin, Steven Eichorn, Sarah Coffey, Nicole Kardell, Casselle Smith, and Griffin Finan. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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