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Supreme Court To Resolve Circuit Split Over Bank Fraud Statute

On Monday April 25, the U.S. Supreme Court granted certiorari in United States v. Shaw, a closely watched case out of the Ninth Circuit addressing the bank fraud statute, 18 U.S.C. § 1344.  That statute has two subsections, the first of which criminalizes schemes “to defraud a financial institution.”  The question presented in Shaw is whether that subsection requires that a financial institution be the principal victim of a fraudulent scheme, or whether deceiving a financial institution in the course of victimizing a third party is enough for a violation. In its decision, the Ninth Circuit joined the Sixth and Eighth Circuits in holding that a violation does not require that a fraudulent scheme victimize a financial institution.  The other nine circuits have all held the opposite.

The crime at issue in Shaw was a classic case of identity theft-related bank fraud.  The victim was a wealthy foreign businessman who, while stationed in the United States, had opened personal accounts with Bank of America.  When he left the United States, the victim arranged for the daughter of an employee to receive his mail – which included his account statements – and forward it to him overseas.  The defendant Shaw, who was living with the employee’s daughter, began opening the victim’s account statements and, using the personal information included in those statements, created an email address and PayPal account under the victim’s name.  Shaw then contacted Bank of America, linked the PayPal account to the Bank of America accounts and began transferring funds into the PayPal account.  The victim’s son eventually discovered the fraud and closed the Bank of America account.  Bank of America reimbursed the victim for some of the missing funds and was then itself reimbursed by PayPal.  Thus, apart from administrative costs, the bank was not victimized by the fraud.

Shaw was convicted at trial of fourteen counts of violating § 1344(1).  He had unsuccessfully sought a jury instruction declaring that a finding of specific intent to victimize a financial institution would be required for conviction.  Instead, the district court issued an instruction declaring that it was not necessary for the government to prove either “that a financial institution was the only or sole victim of the scheme,” or “that any financial institution lost any money or property.”  Relying on existing in-circuit precedent, the Ninth Circuit upheld this instruction on appeal.  The Supreme Court now appears poised to resolve the longstanding circuit split.

Interestingly, the Court addressed § 1344’s second subsection merely two years ago, in Loughrin v. United States, 134 S.Ct. 2384 (2014).  Subsection (2) criminalizes schemes “to obtain any of the moneys, funds…under the custody or control of a financial institution, by means of false or fraudulent pretenses….”  Shaw’s conduct, as established by the trial evidence, would appear to implicate § 1344(2) as well, although he was charged only under § 1344(1).  In Loughrin, the Court confirmed that § 1344(2) does not require intent to defraud a financial institution.  134 S.Ct. at 1287.  Thus, if the Court were to rule in Shaw’s favor, future offenders committing similar crimes likely would be charged under § 1344(2).

© 2020 Proskauer Rose LLP. National Law Review, Volume VI, Number 118

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About this Author

Dietrich Snell, White Collar Criminal lawyer, Proskauer Rose Law Firm
Partner

Dietrich L. Snell is a partner in the Litigation Department and co-head of the White Collar Defense & Investigations Group. Dieter has extensive experience in law enforcement-related matters spanning a wide range of disciplines. He has both federal and state level prosecutorial and investigative experience, having served as an Assistant U.S. Attorney; New York Deputy Attorney General; and Senior Counsel to the National Commission on Terrorist Attacks Upon the United States (the 9/11 Commission).

Dieter’s clients include corporations and...

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Jonathan Siegelaub, Litigation Attorney, Proskauer Rose Law Firm
Associate

Jonathan Siegelaub is an Associate in the Litigation Department, resident in the New York office.

212.969.3385