933 F.3d 548
6th Cir.2019Background
- Between 2006–2008 Banyan (mortgage broker) and Puckett (homebuilder) ran a scheme using straw buyers and fraudulent mortgage applications to obtain >$5 million from two mortgage companies (SunTrust Mortgage Company and Fifth Third Mortgage Company).
- The mortgage companies were wholly owned subsidiaries of federally insured banks (SunTrust Bank and Fifth Third Bank), but the mortgage companies themselves did not hold federally insured deposits, and the record contains no proof the parent banks funded the loans.
- The FBI investigated beginning in 2009; the government waited until 2014 to indict Banyan and Puckett for bank fraud (18 U.S.C. § 1344) and conspiracy (18 U.S.C. § 1349), after the limitations periods for mail/wire fraud had expired.
- At trial the government did not prove that the defendants knew loans were funded by the parent banks, nor that misrepresentations reached bank personnel or that banks had custody/control of the loan funds.
- A jury convicted both defendants on two counts of bank fraud and one count of conspiracy; the district court sentenced each to six months and released them pending appeal.
- The Sixth Circuit reversed, holding the government failed to prove the defendants intended to obtain or did obtain "bank property" or to defraud a federally insured bank as required by § 1344(1) and (2), and directed entry of judgments of acquittal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether mortgage-company losses can qualify as "bank property" under § 1344(2) | Parent banks effectively owned or controlled subsidiary funds; jury could infer funds belonged to banks | Mortgage companies are distinct entities and did not hold federally insured deposits; no evidence banks funded loans | Rejected plaintiff: mortgage companies were not "financial institutions" under § 20, and parent ownership alone does not make subsidiary assets bank property |
| Whether defendants intended to obtain bank property or defraud a bank (specific intent element of § 1344) | Circumstantial evidence (checks payable to bank, defendants' mortgage experience, testimony) permitted inference of intent to obtain bank property | No direct evidence banks funded loans or that defendants knew of bank funding; checks and testimony insufficient | Rejected plaintiff: government failed to prove defendants intended to obtain bank property or to cause a bank to transfer funds |
| Whether misrepresentations "naturally induced" a bank or custodian to part with money (§ 1344(2) means element) | Misrepresentations to mortgage companies could be deemed to reach or affect parent banks; economic loss would flow up to bank | No proof misrepresentations ever reached bank personnel or that banks were custodians of the funds; Loughrin requires natural reach to the bank or its custodian | Rejected plaintiff: no evidence misrepresentations were mechanism inducing a bank to part with money |
| Sufficiency of conspiracy conviction under § 1349 (derivative of § 1344 claims) | Conspiracy conviction supported by underlying bank-fraud evidence | Same insufficiency arguments as to substantive counts | Rejected plaintiff: conspiracy conviction fails for same reasons as § 1344 counts |
Key Cases Cited
- Jackson v. Virginia, 443 U.S. 307 (standard for sufficiency of evidence)
- Loughrin v. United States, 573 U.S. 351 (interpreting § 1344 intent and "by means of" element)
- Dole Food Co. v. Patrickson, 538 U.S. 468 (corporate separateness principle)
- United States v. Bouchard, 828 F.3d 116 (rejecting parent-owns-subsidiary-assets argument in § 1344 context)
- United States v. Bennett, 621 F.3d 1131 (same; parent does not own subsidiary assets by virtue of ownership alone)
- United States v. Hall, 613 F.3d 249 (pre-Loughrin view that loss to subsidiary could be loss to parent bank)
- United States v. Chittenden, 848 F.3d 188 (sustaining § 1344(2) where bank funded loans via parent credit line)
- United States v. Edelkind, 467 F.3d 791 (upholding conviction where bank approved or signed off on loans)
- United States v. Everett, 270 F.3d 986 (§ 1344(1) requires intent to cause a bank to transfer funds)