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US Supreme Court Expands (and Potentially Limits) the Reach of the Bank Fraud Statute




by:
Vincent J. Connelly
William Michael
Richard E. Nowak
Mayer Brown LLP - Chicago Office

 
July 14, 2014

Previously published on July 9, 2014

The US Supreme Court has unanimously held that federal prosecutors can use the federal bank fraud statute, 18 U.S.C. § 1344, against offenders in cases where a bank is not the intended target of a fraud.

In Loughrin v. United States, petitioner Kevin Loughrin was convicted of bank fraud arising from a scheme to convert forged checks into cash. While pretending to be a Mormon missionary going door-to-door in Salt Lake City, Loughrin stole personal checks from neighborhood mailboxes. He changed the name of the payee on six of the checks, totaling just over $1,000, and used them to purchase items at a retail store. After the store’s cashiers accepted the forged checks, Loughrin completed each fraud by subsequently returning the purchased items for cash or gift cards.

Loughrin was ultimately charged with six counts of bank fraud under § 1344(2), which provides:

 Whoever knowingly executes, or attempts to execute, a scheme or artifice-
 (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;
 shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

Before the case was submitted to the jury, Loughrin argued to the trial court that he could not be held liable under § 1344(2) unless the government proved that he intended to defraud a financial institution. According to Loughrin, his intent was only to deceive the retail store, so the bank fraud statute did not apply to his conduct. After the trial court refused to give a jury instruction to that effect, Loughrin was convicted on all six counts and sentenced to three years in prison. On appeal, the Tenth Circuit affirmed his conviction, holding that, unlike a charge under § 1344(1),1 § 1344(2) does not require an intent to defraud a financial institution.

The Supreme Court granted certiorari to resolve a Circuit split over whether a defendant commits bank fraud under § 1344(2) even if he or she did not intend to defraud a financial institution. In affirming Loughrin’s conviction, the Court held that, under the plain language of § 1344(2), there is no requirement that a defendant actually intend to defraud a financial institution. Writing for the Court, Justice Kagan emphasized that the requirement that a defendant commit a fraud “by means of false or fraudulent pretenses, representations, or promises,” covers situations where a defendant uses a counterfeit check (or some other method) to draw money directly from a bank as well as attempts to obtain property from a third party (e.g., a retail store) using a bad check. As a result, despite Loughrin’s claim that he only intended to defraud the store, he committed bank fraud by using forged checks to complete the fraud.

Although the Court’s holding appears to expand the government’s ability to bring bank fraud charges, a close review of the Court’s interpretation of the phrase “by means of” may give future defendants a basis for having their bank fraud charges dismissed. For example, in addressing the limitations of § 1344(2), Justice Kagan stated that the express language of the statute requires that money under a financial institution’s control be obtained “by means of” a defendant’s lie or fraudulent conduct. According to Justice Kagan, the “by means of” requirement is only satisfied if the lie or fraudulent conduct is actually connected to the mechanism that causes a financial institution to part with the money. In Loughrin’s case, he met this requirement by intentionally using forged checks to obtain money from the retail store.

As a counterexample, Justice Kagan discussed a hypothetical scenario involving an individual who sells a cheap knock-off purse as a Louis Vuitton to a customer who pays with a bank check. Although Loughrin argued that such conduct would be bank fraud under the Court’s reading of the statute, Justice Kagan stated that the statute did not cover such a situation because the knock-off purse, rather than the check, was the tool to commit the fraud. According to Justice Kagan, “it is not enough that a fraudster scheme to obtain money from a bank and that he make a false statement.” Instead, the fraudulent act “must serve[] in the ordinary course as the means ... of obtaining bank property.” Justice Scalia, in his concurring opinion, also emphasized thatcourts must interpret § 1344(2) in a manner that will not make every fraud effected by receipt of a bank check a federal offense.

Despite leaving open to interpretation the full extent of the “by means of” limitation in § 1344(2), the Court recognized that not every pedestrian swindle or fraud involving the use of a bank check violates the federal bank fraud statute. Therefore, it will be interesting in future cases to see how the lower courts apply § 1344(2) when the tool or instrumentality used to commit a fraud is not as clear cut as an forged bank check.

Endnotes:

1 § 1344(1) provides that a defendant commits bank fraud if he or she “knowingly executes, or attempts to execute, a scheme or artifice to defraud a financial institution.”



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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Author
 
Vincent J. Connelly
William Michael
Richard E. Nowak
Practice Area
 
Banking Law
 
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