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December 13, 2013

SCOTUS grants cert to clarify required intent for federal bank fraud

As reported in this SCOTUSblog post, the Supreme Court this afternoon granted cert on two cases, one of which involves the required mens rea for federal bank fraud charges.  Here is part of Lyle Denniston's summary of the case now officially before the Justices:

The Supreme Court agreed on Friday to clarify ... the kind of proof prosecutors must offer to get a conviction for bank fraud under federal law.... The bank fraud case is Loughrin v. United States....

The newly granted case on federal bank fraud involves a man, Kevin Loughrin, who was sentenced to three years in prison for engaging in a scheme to steal bank checks from peoples’ mailboxes, altering them and then using the checks to buy things at retail stores like Target and Wal-Mart, and then returning the merchandise for cash.

Prosecutors charted him with violations of two provisions of bank fraud law: defrauding a financial institution, and obtaining money from financial institutions by fraud. Both were apparently based on evidence that the checks were drawn on Bank of American and Wells-Fargo Bank and on three credit unions.

Loughrin’s lawyers tried to have the jury told that, in order for him to be convicted on either count, there had to be proof that he intended to defraud a bank or other financial institution....

The Tenth Circuit Court rejected his challenge. Under the bank fraud provision on which he was convicted, the Circuit Court ruled, it was enough that Loughrin had sought to defraud someone else — the retail stores — but there was no need for prosecutors to offer evidence of intent to defraud a bank directly.

December 13, 2013 at 04:34 PM | Permalink

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Comments

I haven't read the briefs but this seems an easy one for the plaintiff. The bank has no independent interest in the money so how on earth could money be obtained from them by fraud? In fact, I'd go so far as to say that legally the crime Congress invented here is an impossibility. To me this case is simple: one can only be defrauded of something one has a ownership interest in. If there is no ownership interest, there is no fraud.

Posted by: Daniel | Dec 14, 2013 1:05:26 AM

Daniel,
I would have agreed with you until I looked up the actaal statutory text:
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;
shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.  

I would say the worst fit between the actions as described is that he did not actually obtain the monies, funds, etc, rather he simply made use of funds under the custody of the institution. But the statute squarely admits that a conviction can lie even where the property does not actually belong to the bank.

Posted by: Soronel Haetir | Dec 14, 2013 5:21:53 PM

Mr. Haetir

To me these are definitional issues. The money in such a case is not under the "custody or control of" a financial institution. The bank merely serves as an agent. The bank has no legal control over the money, the legal control is with the account holder. One might argue that the bank has practical control because it dispenses the funds but I do not think that is what Congress meant by "control". Under that definition if someone robs an ATM they are guilty of violating this statute too because technically the ATM has "control" over the money. This is bank fraud statue, not a robbery statute. So I do not think it makes any sense to say that the bank has legal control for the purposes of this statue.

The second issue is whether the bank has "custody" of the money. This I concede is a more difficult issue but I think it is best to read "custody" as "custodial". That is to say I do not think that a bank's relationship to an account, especially a demand deposit account, can be equated with the duty of a trustee to a trust. Again, technically the bank has custody of the money in the sense that it is safeguarding the money. But checks are also demand deposit accounts. So the notion that the back has custody here is quite flimsy. Again, in this regard one would then assert that an ATM also has "custody" of the money and once again we are treating a fraud statute as a robbery statue.

To my mind banks are nothing more than agents of the account holder, at least for demand deposit accounts. The legal custody and control remains with the account holder, not the bank. The alternative reading in my view makes (2) above superfluous with a robbery statute.

Posted by: Daniel | Dec 14, 2013 7:39:09 PM

Daniel,

If the person were to rob a ATM by means of a phoney card I would say it falls under this statute but not if they rob the ATM by means of simply taking the thing then busting it open. ATM money is even more clearly under the custody of the bank because the money is not tied to a particular account the way checking account funds are.

Here's a different example, say that someone robbed a safety deposit box by successfully posing as the box holder, I would certainly argue that whatever is in the box was under the custody or control of the bank, yet the bank has even less of an interest in the box contents than they do a checking account's funds. And I would certainly argue that this statute would apply to such a scheme.

Like I said, I actually think the weak point of the governments case is 'obtains', this guy never held or otherwise possessed the checking account funds, he only used those funds as part of his general offense.

Posted by: Soronel Haetir | Dec 14, 2013 11:17:38 PM

Soronel. I think you and I are talking past one another. You write, "If the person were to rob a ATM by means of a phoney card I would say it falls under this statute...." I agree with you that it /could/ be prosecuted under this statute. The problem with doing so is a problem of statutory construction. It is a general principle that Congress does not pass laws which are redundant. There are already preexisting laws that covers theft from an ATM that deal with issues like card skimmers and fake bank cards: sometimes these fall under plain theft, sometimes under Identify theft, etc.

So when I say it is a fraud statute and not a robbery statue I'm actually trying to save the (2) clause. If what you say is true then the entire clause itself needs to be tossed out (along with his conviction) because it is purely redundant to preexisting laws and Congress does not pass redundant laws.

Posted by: Daniel | Dec 15, 2013 2:00:21 AM

Daniel,

I am not at all aware of any canon of statutory construction that Congress does not pass redundant laws. Certainly not in the way that I am aware of the canons regarding giving every word in a statute meaning or Congress not intending an absurd construction when there is an equally amenable non-absurd construction available.

Posted by: Soronel Haetir | Dec 15, 2013 2:30:45 AM

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