985 F.3d 196
3rd Cir.2021Background
- Wilmington Trust used a longstanding internal "waiver practice": certain matured commercial real estate term loans that were current on interest and in the process of extension were treated as current (not "past due") in internal records and external reports.
- Regulators (SEC, Federal Reserve via call reports, and OTS) required banks to report "past due" loans but provided no uniform definition; their instructions used similar language (e.g., "contractually past due") and contained potential internal ambiguities about loans that were current on interest but past maturity.
- Prosecutors charged four Wilmington Trust executives with conspiracy, securities fraud (18 U.S.C. § 1348), false statements to regulators (18 U.S.C. § 1001, 15 U.S.C. § 78m), and related counts, alleging the exclusion of waived loans (the Waiver Practice) produced false reports; the government also pursued an alternative "mass-extension" ("extend-and-pretend") theory tied to a 2009 capital raise.
- The district court excluded OTS Q&A evidence as to falsity, declined defendants' requested jury instruction that the government must prove falsity under every reasonable interpretation, and instructed the jury using the government’s preferred readings; the jury convicted on all counts.
- The Third Circuit held that where a reporting requirement is ambiguous the government must prove beyond a reasonable doubt that the defendant’s statement was false under each objectively reasonable interpretation (or that the government’s interpretation is the only reasonable one); applying that standard, the court reversed the false-statement and certification convictions (judgments of acquittal) and vacated Counts One and Two (conspiracy and securities fraud) for retrial limited to the mass-extension theory.
Issues
| Issue | Government's Argument | Defendants' Argument | Held |
|---|---|---|---|
| Burden to prove falsity when reporting requirement is ambiguous | Prosecution need only show the defendant understood and intended to lie under the government’s interpretation; ambiguity goes to scienter. | Government must prove statement objectively false; if requirement ambiguous, gov't must prove falsity under every reasonable interpretation. | Government must prove falsity under each objectively reasonable interpretation, or that its interpretation is the only reasonable one. |
| Role of judge vs. jury in assessing reasonableness of interpretations | Judge should resolve legal interpretation questions; jury limited to fact issues. | Reasonableness (whether alternative readings are objectively reasonable) is a fact question for the jury. | Reasonableness is for the jury; judge decides threshold ambiguity and admissibility but not final reasonableness determination. |
| Admissibility and weight of alternative regulatory guidance (OTS Q&A) | OTS Q&A irrelevant or unreasonable as an interpretation of the reporting rules. | OTS Q&A shows a reasonable alternative interpretation (waived loans not "past due"); should be considered on falsity. | Other agency guidance can bear on ambiguity and reasonableness; omission of such evidence prejudiced defendants' ability to defeat falsity element. |
| Sufficiency of evidence on alternative theories (Waiver Practice vs. Mass-Extension) | Waiver Practice supported convictions; mass-extension also an independent basis for fraud so convictions on conspiracy/securities fraud survive. | Waiver-based false-statement convictions fail because of ambiguity; mass-extension theory was charged but evidence thin. | False-statement counts reversed for insufficiency under the correct standard; mass-extension evidence sufficed to allow retrial on conspiracy and securities fraud, but those convictions vacated and remanded for a new trial because the erroneous falsity theory was interwoven and not harmless. |
Key Cases Cited
- United States v. Castro, 704 F.3d 125 (3d Cir. 2013) (literal truth defeats falsity even if defendant believed statement was false)
- In re Winship, 397 U.S. 358 (U.S. 1970) (prosecution must prove beyond a reasonable doubt every element of the offense)
- United States v. Lanier, 520 U.S. 259 (U.S. 1997) (due process requires fair warning before novel construction of criminal statutes)
- FCC v. Fox Television Stations, 567 U.S. 239 (U.S. 2012) (regulated parties must have fair notice of obligations)
- FTC v. Wyndham Worldwide Corp., 799 F.3d 236 (3d Cir. 2015) (agencies must communicate interpretations with sufficient certainty to permit regulated parties to conform conduct)
- United States v. Whiteside, 285 F.3d 1345 (11th Cir. 2002) (government must prove falsity beyond a reasonable doubt under a reasonable interpretation of the law)
- United States v. Prigmore, 243 F.3d 1 (1st Cir. 2001) (no crime if statements are not false under an objectively reasonable interpretation of the law)
- United States v. Migliaccio, 34 F.3d 1517 (10th Cir. 1994) (government must negate reasonable interpretations that make a statement factually correct)
- United States v. Syme, 276 F.3d 131 (3d Cir. 2002) (alternative theories and jury questions about the meaning of reporting terms)
- United States v. Hird, 913 F.3d 332 (3d Cir. 2019) (fundamental ambiguity can undermine scienter and requires careful review)