Banking and Finance Law Daily Justices seem skeptical of narrow bank fraud law interpretation
Tuesday, October 4, 2016

Justices seem skeptical of narrow bank fraud law interpretation

By Richard A. Roth, J.D.

An individual convicted of bank fraud appears to have had little success in convincing the Supreme Court that he was not guilty of the charge because he did not intend to take money from the bank, if the questions from the Justices during oral arguments are an indication. The question presented in Shaw v. U.S., Dkt. No. 15-5991, is whether proving a scheme to defraud a bank in violation of 18 U.S.C. §1344(a)(1) requires proving an intent that the bank be the victim of the fraud. The defendant also challenged the specific wording of one jury instruction that defined the offense.

The bank fraud statute says that:

Whoever knowingly executes, or attempts to execute, a scheme or artifice—

  1. to defraud a financial institution; or
  2. to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;

commits bank fraud.

Shaw was convicted of violating 18 U.S.C. §1344(a)(1) by carrying out a scheme to drain a Bank of America customer’s accounts in a way that would victimize the customer but would not harm the bank. In fact, while the customer and Internet payment processor PayPal together lost more than $275,000, Bank of America suffered no loss.

Appellate court opinion. The U.S. Court of Appeals for the Ninth Circuit said that was enough to violate 18 U.S.C. §1344(a)(1). A scheme to defraud a financial institution can exist even if there was no intent to take the institution’s money (see U.S. v. Shaw).

The Supreme Court already has determined that a conviction 18 U.S.C. §1344(a)(2) does not require an intent to defraud a bank (see Loughrin v. U.S.), the Ninth Circuit noted. The difference between 18 U.S.C. §1344(a)(1) and 18 U.S.C. §1344(a)(2) is not who was harmed, the court said; rather, the difference is who was tricked.

Bank’s property rights. Deputy Federal Public Defender Koren Bell began her argument by telling the Court that bank fraud requires both an intent to deceive the bank and an intent to harm some property right of the bank. However, she was immediately forced to concede that a possessory right is enough of a property right to satisfy the statute.

Bell attempted to clarify her argument by focusing on the defendant’s intent, explaining that 18 U.S.C. §1344(a)(1) would be violated only if his intent was to victimize the bank. Otherwise, the proper charge would have been under 18 U.S.C. §1344(a)(2). In fact, she conceded that the scheme alleged would have violated 18 U.S.C. §1344(a)(2).

Ultimately, Bell was pushed by Justice Kennedy to accept that the scheme would have deprived Bank of America, "for a momentary period," of its possessory right.

Deceive v. defraud. Bell also asserted that the jury instructions incorrectly described what the government had to prove. According to her argument, the jury was instructed that the government only had to prove that the defendant intended to deceive the bank. The instruction also should have made clear that he intended deprive the bank of property through that deception.

The specific instruction told the jury to look for "Intent to deceive, cheat, or deprive a financial institution of something of value." Bell attempted to convince the Court that, under this construction, "deceive" and "cheat" were separate from "deprive," allowing a conviction for deception without deprivation. However, she then brought that argument back to the claim that a violation of 18 U.S.C. §1344(a)(1) required an intent to deprive the bank of its property.

Possessory interest is enough. Arguing for the government, Assistant to the Solicitor General Anthony Yang opened by clarifying the government’s agreement that an intent to deceive a bank alone is not enough to be a violation of 18 U.S.C. §1344(a)(1). The statute requires that the bank be deprived of some property interest.

Chief Justice Roberts expressed some confusion about the government’s position, pointing out that both the government’s brief and the Ninth Circuit opinion said that intent to deceive alone was a violation. Yang attributed the language in both places to "a problem with some brevity."

Yang also explained why the defendant was charged under 18 U.S.C. §1344(a)(1) rather than 18 U.S.C. §1344(a)(2). 18 U.S.C. §1344(a)(2) requires a false statement or a misrepresentation, which is not required by 18 U.S.C. §1344(a)(1) and might have been difficult to prove in this case.

According to Yang, whether the defendant intended to take money from the bank or the customer was irrelevant. What mattered was that he had an intent to deceive and, by that deception, to commit fraud. The specific intent to defraud the bank would be satisfied by depriving the bank of its possessory interest in the money, regardless of who the funds belonged to.

"We don’t require our defendants to have taken property law or banking law or studied the risk of loss rules when frauds occur to banks," Yang argued. It was enough that the defendant knew the money was, in some manner, in the possession of the bank.

The case is Dkt. No. 15-5991.

Supreme Court docket. For details about this and other petitions and cases pending before the Supreme Court, please consult this list of selected banking and finance law cases awaiting action in the 2016 term. Issued opinions, granted petitions, pending petitions, and denied petitions are listed separately, along with a summary of the questions presented and the current status of each case.

Attorneys: Koren L. Bell, Deputy Federal Public Defender, for Lawrence Shaw. Anthony A. Yang, Assistant to the Solicitor General, for the United States.

Companies: Bank of America; PayPal

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