*1 Attorney, Of- (argued), Daniel J. Graber America, Madi- Attorney, States of the United STATES fice UNITED Plaintiff-Appellee, WI, Plaintiff-Appellee. son, for Stoughton, Bartelt, Attorney, Peter A. Hall, Erin Lacey and PHILLIPS WI, Phillips. Lacey for Defendants-Appellants. Wilson, Eric J. (argued), Bryan J. Cahill 11-3822, 11-3824. Nos. Madison, S.C., & Kahn Godfrey Attorneys, Appeals, Court States United WI, Erin Hall.
Seventh Circuit. EASTERBROOK, Judge, Chief Before May 2012. Argued POSNER, Circuit and BAUER Aug. Decided Judges. EASTERBROOK, Judge. Chief Hall decided to and Erin Lacey Phillips They asked Associ- together. a house buy no, loan. It said Bank for ated bankruptcy and a recent because Hall joint (approximately couple’s income month) for the loan $3,800 was too low (more $200,000). Phil- than they needed to Brian Bowl- next turned lips and Hall Bowling told mortgage broker. ing, a qualify under what they could them that pro- the “stated income he called designed an approach label for gram”—his Bowling prepared an to deceive lenders. Hall’s name that omitted that would have check (avoiding attributed the bankruptcy), revealed Phillips income of Hall combined alone, combined in- doubled that Phillips come, falsely claimed business. at a satellite TV manager a sales $90,000 annual in- that the (Bowling knew needed to claimed to earn come hold; actual- job she claimed match Penney, at J.C. stylist a hair ly she was $24,000.) than income less with an annual and an em- signed Fremont In- form. ployment verification credit, and the Loan extended vestment & But bought their home. couple and the mort- payments, keep up (There awas sec- foreclosed. holder gage *2 803 la, too, 671, 687, 1255, it need not 420 U.S. 95 ond be dis- S.Ct. 43 cussed.) (1975), 541 L.Ed.2d v. United Ratzlaf States, 149, 135, 655, 510 U.S. his firm and associates at Plati- Bowling (1994). 126 615 L.Ed.2d repeated process num often Concepts to enough caught. that were bound simple 1014 is a Section statute. and, fraud in pleaded guilty He to bank knowingly any reads: “Whoever makes sentence, to agreed effort to his own lower false statement ... for the purpose of prosecution assist in the his clients. influencing in way [any the action of among Hall Phillips and were clients entities, long list of including federally A prosecuted. jury con- United States insured shall be lenders] fined not more § violating U.S.C. victed them 18 $1,000,000 than or imprisoned not more judge and the each to two sentenced years, than 30 or both.” There are years’ three imprisonment plus months’ (1) knowingly three elements: making a $90,000 in supervised release and about statement; (2) one of the listed serving a restitution. is sentence (3) entities; purpose for the of influencing of 38 months. entity. Phillips and Hall concede Hall Phillips Bowling’s and contend the documents many contain false state with a provide statements them defense. ments, jury and the found Phillips judge The district them from barred ask- signed them knowing their to be contents designed testimony elicit ing questions false. Defendants concede that Fremont that he them in- assured “stated among § the entities listed in lawful; come program” judge loan (We say specialist “was” because that in also an argument Phillips foreclosed subprime collapsed spring signing made a mistake of fact having many made all too people loans to and employment verifica- repay. who could not Its failure was a defendants, According tion form. come.) harbinger of things to That leaves crime, specific-intent § 1014 is a and “for the purpose influencing any way showing hindered lack of in- the action” of the lender. This can reason concluded, tent. The district howev- ably specific-intent be described ele er, sought and argue Hall ment. But it specific specific-intent is a law, mistake of not an error of fact or a is, exactly element. That it describes required lack of the intent. instruc- required state; it require mental does not required acquit tions unless proof that the defendant knew that his acts beyond found a reasonable doubt that Phil- statute, were unlawful. The bank fraud 18 lips and Hall knew that the statements on 1344, requires proof § U.S.C. of intent to false; application and form were defraud; animal, § 1014 is a different re genuine mistake fact would have led to only quiring proof of intent to influence. acquittal. really What Lane, See United States v. 323 F.3d wrote, argue, wanted to the judge is that (7th Cir.2003). 582-85 Bowling’s about the legal- false assurances Suppose Bowling had testified lies; ity of lying exculpate to lenders he assured defendants federal law defense, that would abe mistake-of-law allows them deceive lenders. tes Such ‘ignorance rule that “[t]he the law timony negate tended will deep not excuse’ is in our law.” Lam- 225, 228, element in 1014. The California, bert v. intent statute U.S. (1958) (citations require proof 2 L.Ed.2d does not that the defendants omitted). Compare United States v. knew acts to been Feo- unlawful the sort fraud; Negating intent of defense requires
to constitute may set out to have been influence the lender. Hall wanted offer lender, exactly so why prosecuted do that: States under the United *3 Bank turn “no” from would 1344, requires § § the Associated 1014 rather than else. Defen- “yes” a from someone into proof Negating of intent to defraud. way to a to find goal dants’ likewise may why Congress also kind of defense be money so put up a to the influence lender § 1014. The that no argument enacted buy a house. evidence done the loss will wrong has been because influence is intent to a lender defendants’ else, passed as a along to someone such ar- themselves do not strong; defendants loans, syndicate investing in securitized is insufficient. that the evidence gue short-sight- a Treasury guaranty, the via ed; there, still fact that the loss is and the Bowling what would do not know We it is other than the had defense counsel been borne someone have testified questions, to the make good allowed ask extra lender is reason to immediate asked us treat as prosecutor bank, has not espe- it a to lie to crime influence proof. forfeiture offer of the absence cially the bank not care about does 103(a)(2). therefore must Fed.R.Evid. We the truth it to shift the expects because Bowling that would have testified assume stranger. loss If it crime to make to a is a explored argument. the at oral along lines “put false the help statements banks order”, paperwork in there apparent then testified, Perhaps would Bowling will be fewer un-sustainable loans few- example, that he assured defendants investors; go er will losses about income and statements people repay, who can rather than the permissible are employment people willing the exaggerate don’t care about answers —that most banks loans, plan banks to sell or securitize the income. so someone else will bear loss. Bowl- The sort of defense that ing might have told and Hall to make would have been wanted having paper- all lenders care about is the required §if 1014 false state- relevant the order, appear
work to be so that Many ment to be material. anti-fraud package can the loans for resale. But if statutes, 1344, § including require proof of fashion, in this Bowling had testified materiality, Supreme a term that helped would defense. “ ‘[having] Court understands mean negated falsity would not have of the influence, tendency [being] natural (element 1), identity statement capable influencing, the decision of the (element 2), or the lender defendants’ in- ... body to which was addressed.” (element 3). the lender tent States, Kungys v. United 485 U.S. contrary, it would Quite the have bolstered (1988) 1537, 99 108 S.Ct. L.Ed.2d 839 prosecution’s showing case (citations omitted). Bowling If had testi- led defendants believe along hypothesized, fied the lines we have would succeed in influenc- false statements argued defendants could have lender, ing reinforcing proof thus mis- lacked the intent make a material Testimony element 3. of this kind would statement, them to led have led to believe that defendants they put that the truth of verify believe lender would borrowers’ (as to the would not matter employment claims about income and them). verify Fremont didn’t lender.
805
affirmed,
proof Phillips
does not
Hall.
require
holding
Section 1014
We
materiality,
That’s the hold
however.
making
pa-
false statements to make
Wells,
519 U.S.
ing United States
perwork
good,
acceptable
look
and thus be
(1997).
L.Ed.2d
bank,
§
ato
violates
if
even the bank
argued in
Stevens
dissent
Justice
give
does not
a hoot about the statements’
materiality requirement
of a
absence
truth. 323
at
F.3d
582-85.
felony
make it a
to flatter
reply
although
Defendants
materi-
hope
reciprocate
official
he will
ality
is not an element of
of-
500-13, 117
a loan. 519 U.S. at
fense, “subjective materiality” (Reply Br.
*4
majority
deny
did not
this conse
921.
16)
12, 14,
a result
is—and
as
only
quence;
prosecution
it said
Bowling’s
they
“subjec-
statements
lacked
(id.
or
conduct”
at
“trivial
innocent
materiality.”
tive
We don’t follow this.
921)
unusual,
would be
and it
crime,
is an
materiality
When
element of a
that a
“knows the
person
reiterated
who
prosecutor
then the
must show that
the
falsity
says
of what he
and intends to
defendant
intended to
a
make material
(id.
influence the
at
institution”
statement;
subjective
that’s a
inquiry.
921)
§ 1014.
violates
Statements
when materiality
But
is not an element—
a
probably
bank would view as trivial
it,
§
itas
is not under
the
won’t influence
and such
1014—then
defen-
statements
purpose
therefore will not be made for the
dant’s beliefs about
are
materiality
irrele-
influencing it. But
and Hall
The prosecution
vant.
must show whatev-
income,
misrepresented
Phillips’s
their
and
er mental
statutory
states matter to the
(if
employment, knowing
only because
§
elements. For
this means knowl-
them)
Bowling told
that such details do edge of falsity and intent to influence the
They
right;
influence lenders.
Fre
lender. What
thought
though
mont made the loan even
Associat
matters,
believed about other
such as ma-
Bank,
truth,
ed
which knew the
refused.
teriality, is no more relevant than whether
And because defendants knew the state
thought
and Hall
the loan
(so
found),
jury
they
ments to be false
the
evasion,
pollu-
would contribute
tax
air
§
they
violated
or not
whether
could tion, or any other element of some other
§
violating
have been
convicted
1344.
statute. The
limiting
district court’s order
Phillips and Hall are not the first defen-
subjects
testify
the
on
to argue
they
acquit-
dants
should be
therefore
proper.
because, although they
bank,
a
ted
lied to
Affirmed
they thought
only
bank cared
paperwork
about
and not about the truth
POSNER,
Judge, dissenting.
Circuit
representations.
seeking
of their
When
The defendants are
to a
entitled
new
loan, Vincent Lane lied about his net
government’s
trial. At the
urging, the tri-
§
prosecution
worth.
In his
under
judge erroneously excluded,
al
as irrele-
actually
Lane contended that
the bank
vant,
might
evidence that
have convinced
knew the truth and didn’t
about it
care
that the defendants
made
(beyond wanting
paperwork to look
statements that
knew to
false or
Lane,
good); according to
the bank cared
that,
false,
knowing them to be
yet had not
about a
party’s guaranty
third
them
purpose
made
“for the
of influencing
indebtedness. The district court excluded
any way
on
action”
[bank’s]
supported
evidence
would have
Lane’s
just
mortgage application. 18
position,
as the district
U.S.C.
court here
excluded
about
if mortgage appli-
evidence
told The
ruled
in,
influencing” refers to
purpose
something and
send
“sign
cants
statement,”
not to the
to influence
“false
they’re
attempting
sign
They
papers
you’re
these
Suppose
an actress and
bank....
whole.
They
on their wall.
put
up
them
just
you habitually
years
three
subtract
from
idea
papers
these
signed
your
age
you’re worried
true
go into whoever and
they would
producers’ discriminating
about movie
defendant
get mortgage....
[If
You’re
against aging actresses.
went
papers
Phillips]
took
to be 37. You know
pretend
But
home,
crime.
we would not
40 or
you’re
doesn’t care whether
37—
mortgage company,
them in to the
sending
eager
you’re wealthy and the bank is
of 1014.”
requirements
met
she’s
you
as a
don’t like
customer —but
document,
your
appear
the evidence
suggesting
age
I am
true
on
was insuffi-
government
might
presented
employee
because a bank
read
conviction, only
that evidence
cient for
discovery
the lie
post
and discover
the jury that
persuaded
that could have
on
within
Facebook
Twitter and
hours
*5
had not
guilt
proved
been
the defendants’
privy
world
be
whole
would
a reasonable doubt
erroneous-
beyond
a knowingly
shameful truth. You made
passage
just
that I
ly
In the
excluded.
your
application
on
false statement
bank
implied
making
a
judge
quoted,
your age
rather
listing
as 37 and
than
a
influences
is a
false statement that
bank
your
wall
pinning
The statement must be
crime.
isn’t.
you
it to
Under the
submitted
the bank.
false. The
excluded evi-
knowingly
judge’s
of
interpretation
district
section
negated
that if believed would have
dence
warped
interpretation
1014—an
also
would
have under-
that element—and
felony
a
guilty
pun-
would be
of
trial —
intent to influence
mined the inference of
prison
up
a
of
ishable
sentence
suggesting
Nor am I
that the
the bank.
years
a
fine of up
maximum
erroneously
jury was
instructed.
The
$1,000,000.
judge’s
is
rather
that the
misunder-
point
true is
if a
What
is
defendant
led her
standing of
statute
to exclude
knowingly
a
statement
makes
false
intend
might
exonerated
evidence
bank,
ing to influence a
it is no defense
defendants.
influencing
in
it
he
succeed
or
punishes
knowing-
“whoever
The statute
even
couldn’t
that he
have succeeded. Ma
any
or
report,
makes
false statement
ly
teriality
not an
of the
element
offense
land,
any
willfully
property
overvalues
punished by section 1014. United States
in
security,
purpose
influencing
for the
Wells,
482, 484,
519 U.S.
S.Ct.
way the action of’ the various entities
(1997).
If the defendants that all believed getting a mortgage, this would have been about the applicant bank cared was that evidence that realized good rating, for a loan have a which meet the bank’s for a Phillips, mortgage applicant, defendant criteria loan and so did, they could not have that even qualify believed would be able to for a only by loan the statement of income would influence lying. But it was a different bank. decision than pinning bank’s more Fremont was to make a willing “stated baby Phillips’s pictures to indeed, income” such loans were its loan— And if influenced it. one be- specialty. Stated-income loans are known lieves the defendants’ of what version loans,” knowing to the as “liars’ in mortgage broker told them —a version a stated-income loan the lender accepts the
they were forbidden to to present borrower’s statement of his income with- jury they didn’t think including in — making any verify out effort it. Such for space “borrower’s income” a non- loans, played significant which role in the borrower’s income would affect bank’s decision, September as all financial collapse the bank cared about was 2008—the the total income available service the consequences doleful continue to loan and the appli- non-borrower plague the U.S. and world economies— “significant cant’s other” and future profitable were because lenders sold them spouse. What can it mean intend to they’d soon as as made them and so avoid- by telling influence it something the high Many ed risk of default. you’re confident won’t it? were repackaged buyers loans into ill-fated financially mortgage-backed The defendants securities were a unso- whose (a phisticated couple hairdresser and a holders lost their shirts. forbade the defendants The their house. lost soon
The defendants she couldn’t testify things to these up their keep efforts valiant Despite testimony. The of such the relevance see by working second payments mortgage that it would have been government adds month- to make the unable jobs, they were (a surprising mistake for hearsay. Not so re- and interest principal ly payments make). lawyer to Department a Justice mortgage. the terms of quired the testimo offering were The defendants adjustable rate that rate was interest statements not Bowling’s alleged ny about years; two doubt- automatically after reset loan does that a stated-income prove (“a large rate higher it reset at less did, Bowling told them permit what loans subprime [the majority of Fremont’s they had believed explain subprime] were to the defendants hear application. It is not they made the (ARM) loans, rate adjustable you told testify to what someone say for the interest rate a fixed which bore meant, as thought long he and what adjusted years, and then three first two or “the truth of the it’s not evidence about considerably higher to a months every six state [out-of-court] matter asserted remaining period for the rate variable 801(c); Talmage v. ment.” Fed.R.Evid. year loan.” thirty generally what was (7th Cir.2007); Harris, 968, 975 486 F.3d & v. Fremont Investment Commonwealth Hanson, 994 F.2d States v. United Loan, 897 N.E.2d 452 Mass. (7th Cir.1993); States v. 406-07 United (2008).) victims of Bowl- Though hapless (D.C.Cir. 279 F.3d Thompson, part were convicted ing, the defendants 2002). testify The defendants wanted trial; testimony at their on the basis of truth had told them the evidence and was for he turned state’s them misunder but that his lies had made victims helping to convict his rewarded for meaning of “borrower’s income” stand the given biga slice off his sentence. by being loan. in an stated-income (The prosecutorial discretion exercise prevented from The evidence our abysmal, but is not this case was *7 they giving pertinent was both whether business.) knowingly made a false statement had allowed to wanted be The defendants if so in order to whether so done them, first, Bowling had told testify that grant the them a mort- bank only be the should that defendant gage key two elements of the offense —the be- for the stated-income loan applicant being They were tried. for which history good and was cause her testify had told wanted second, bad; that Hall’s income Hall’s was in a loan the line them that stated-income the line in the added to hers on should be applica- on the for the borrower’s income for the borrower’s application that asked in- really tion form means borrower’s income; third, that this gross monthly par- or plus spouse, come the income of in the case of a stated-income proper was ent, cohabiting with in person or a one is asking the bank was for marriage, anyone loan because what advance of intended income from which the loan was the total will be an additional else whose income rather than the bor- repaid repayment mortgage. would be of the On source income. financial naifs personal interpretation, rower’s this which believe, they couple. They were not mar- defendants could Hall were a like these by trying to influence the bank they applied for the loan—but weren’t ried when statement, because on nowadays. not means of many couples are married false married.) asking was interpretation all the bank (They have since jury, permitted, line for was A if for in borrower’s income reasonable mortgage been, jury income out of which the case the total should have repaid. The defendants must would be consider the evidence what told that in a literal Hall’s believed, sense known she might and what borrower’s, part not of the income was was trying decided that she to influence meanings income. But literal Phillips’s, (with by concealing the bank not his only phrases meanings true record) are not but an reporting bad credit In linguistic or other units. or sentences income the mortgage from which would be Bowling’s explanation to light of large repaid enough persuade that was testify, permitted defendants unduly the bank that the loan would not be well believe that gulls could risky. long as As the loan meant borrower’s income it asked income, asked for that measure of she was if income or income borrower’s combined trying to influence the bank of a means necessary income if someone else’s statement she believed to be true. be used meet the borrower’s verdict, jury general rendered a in- obligations. “personal gross Or that simply finding the guilty defendants spouses’ meaning come” is a term of art (the both counts of the indictment section Lay persons income. often be- combined a count count and charging the defen- often lieve—and with reason —that having conspired dants with sec- violate docu- meaning legal statement in a 1014). tion The verdict did not reveal ordinary meaning, legal ment but jury what false statements the attributed jargon. commercial know, to the For all defendants. we can may asking Indeed the bank have been false statement to the bank that a com- for either individual’s income or found that Phillips and Hall had Fremont a notorious bined income. (given known to that Hall hadn’t subprime went high-flying lender. signed and that neither harbinger broke in of 2008—a June it) may the defendants have read collapse financial worldwide that occurred statement of income line borrower’s later three months when Lehman Brothers they’d on the form—for having admitted to suddenly bankruptcy. declared Com- See line, combined incomes on v. Fremont & monwealth Investment knowledge denied of the other exaggera- Loan, 551-55; supra, 897 N.E.2d at In re (see paragraph). tions next Those Loan, No. Fremont Investment & Docket *8 Bowling; attributed to and since wer- (FDIC Order to FDIC07-035b Cease permitted explain en’t their understand- 7, 2007), Desist, www.fdic.gov/bank/ Mar. income, ing of borrower’s no had individua]/enforcement/2007-03-00.pdf choice but to convict them on the basis (visited 30, 2012); Woolhouse, July Megan the income statement alone. $10m,” “Lender Bos- Settles State (June 2009) (the It’s true that combined income was 10, ton terms “very Globe inflated on the and that Phil- Fremont’s interest [of loans]—short-term lips’s job falsely shock, was listed as that of a by payment high plus rates followed sales rather than a manager hairdresser to high loan-to-value and ra- debt-to-income figure make likely the income credible. tios—were to lead to default and foreclosure”); testified, however, that Order the form was filled Regulators “U.S. Tighten & out and that neither nor Fremont Investment Loan to she Policies and New Hall was Operations,” Its Loan read it or aware the inaccura- (Mar. 2007). 8, York Times cies it. had told them about “Combining applications.” nize the Or: line for to hers income adding Hall’s under isn’t a misstatement your but not that he income income the borrower’s program.” income their combined Fremont’s stated-income would inflate government job. helped her not have misrepresent The first statement would the form signing argue of law is does not mistake the defendants because false statements adopted statement, she The second defense. of, nor would that be unaware she was however, the de- supported would have a criminal statute reading of plausible influence and the no intent fense of made “know only false statements forbids pros- rebuttal to the third would have been sign a document careless It is ingly.” knowingly claim that ecution’s it, knowing it is a reading but without bank. made a false statement signer if the of its contents adoption (“willful game blind the ostrich playing ness”), is, reading because is in it. In re suspects
what she knows or Litigation, 334 F.3d Copyright
Aimster (7th Cir.2003); v. United States (1st Cir.2009);
Azubike, 564 F.3d 66-67 Aina-Marshall, v. 336 F.3d United States LLC, BKCAP, LLC, Graycap, Cir.2003). (2d 167, 170-71 LLC, SWCAP, Plaintiffs- Appellees, grounds on which the other There are defendants, have convicted jury might example, For very are weak. 2000- CAPTEC FRANCHISE TRUST though a de facto applicant 1, Defendant-Appellant. form, the bank sign deficiency sought judg- could not have 11-2928, 11-3378. Nos. him when the against ment Appeals, United States Court deficiency judgments are But defaulted. Seventh Circuit. Wisconsin, under rarely sought in if foreclose within six law Wisconsin Argued May 2012. do, you can’t months, mortgagees like Aug. Decided deficiency judgment. Wis. Stat. get bother to And bank would 846.101. deficiency judgment against a bar-
seek anyway Fremont was not a And
ber? Its model bank. business
conventional issued, mortgages it not to sell necessary if on foreclose
administer
them. *9 key the district court’s
To summarize: testimony about what prevent
error towas to the defendants when he
Bowling said the submission to sign them to
directed may said to them:
the bank. He illegal,”
“Your isn’t Or: ‘What- you write on won’t affect bank’s
ever it doesn’t scruti-
lending decision because