To convict someone under the federal bank fraud statute, does the government need to prove that a defendant intended to defraud a bank directly and expose the bank to risk of loss?
A federal district convicted Kevin Loughrin of bank fraud for using stolen, altered checks to purchase goods from a local Target store and returning them for cash. On appeal, Loughrin claimed he did not violate the bank fraud statute because the statute only criminalizes conduct intended to defraud a financial institution and that poses a risk of harm to that institution. Although he used fraudulent checks, Loughrin claims the target of his scheme was, in fact, Target, and not a bank. The United States argues that a scheme need not target a financial institution, nor expose that institution to risk, to constitute bank fraud. The Supreme Court’s ruling in this case will affect how broadly Congress can criminalize fraudulent financial actions and how expansively federal criminal jurisdiction can stretch.
Questions as Framed for the Court by the Parties
Whether the government must prove that the defendant intended to defraud a bank and expose it to risk of loss in every prosecution under 18 U.S.C. § 1344?
Kevin Loughrin and his codefendant, Theresa Thongsarn, devised a scheme to make money that led to federal criminal charges. The two defendants stole checks from people’s mail. After stealing the checks, Loughrin altered the checks to make purchases at a local Target store. Next, Loughrin returned the purchases to Target for cash. As a result of the scheme, federal authorities indicted Loughrin and Thongsarn on six counts of bank fraud in violation of 18 U.S.C. § 1344, two counts of aggravated identity theft in violation of 18 U.S.C. § 1028A, and one count of possession of stolen mail in violation of 18 U.S.C. § 1708.
At trial, a jury convicted Loughrin on all counts of bank fraud, stolen mail, and aggravated identity theft in the United States District Court for the District of Utah. The district court also denied Loughrin’s claim that he was denied his rights under the Speedy Trial Act. The district court sentenced Loughrin to thirty-six months in prison.
Loughrin appealed his conviction on two grounds: (1) that the district court’s jury instructions on the federal bank fraud counts, pertaining to 18 U.S.C. § 1344(2), were erroneous because the instructions did not include a requirement that Loughrin intended to defraud a bank; and (2) the delay between his indictment and trial violated his rights under the Speedy Trial Act. The United States Court of Appeals for the Tenth Circuit rejected both of Loughrin’s arguments, and affirmed the district court. The Tenth Circuit held that to convict him, the government only needed to prove that Loughrin fraudulently obtained funds by using bank checks.The court ruled that even though the government never proved that Loughrin intended to defraud a bank and that the bank was never at risk of loss, the government provided enough evidence to support a conviction for federal bank fraud. Additionally, the court ruled that the district court did not err in applying the necessary elements for a federal bank fraud conviction and that § 1344(2) does not require proof that the defendant intended to defraud a bank.
This case presents the Supreme Court with the opportunity to consider the proper scope of the federal bank fraud statute. Loughrin argues that the statute does not apply to him because he intended to defraud a retailer, not a bank. The United States argues that Congress intended the statute to have a broad scope, and that Loughrin’s scheme falls comfortably within the range of activity Congress sought to prohibit. The Supreme Court’s resolution of the case implicates questions of federalism, the expansion of federal crimes, and disparate treatment for identical conduct at the state and federal level.
Writing in support of Loughrin, the National Association of Criminal Defense Lawyers (“NACDL”) argues that the Supreme Court should reverse the Tenth Circuit. The NACDL argues that the Tenth Circuit’s interpretation of Section 1344 would promote unwarranted expansion of federal criminal law. Furthermore, the NACDL opposes the federal government prosecuting crimes that have traditionally been handled by the states. The NACDL claims that this case demonstrates how such federal prosecutions can be unfair to defendants because the federal criminal statute imposes harsher penalties than similar state statutes.
To the contrary, the United States argues that concerns about overbroad federal power are misplaced here and in situations where Congress has purposefully enacted a broad, unambiguous statute. Additionally, the United States maintains that Loughrin’s concerns about expansive federal criminal law are insufficient to warrant the Court imposing new standards of proof beyond what the statute requires.
EXPANDING FEDERAL CRIMINAL LAW
The NACDL argues that affirming the Tenth Circuit would impermissibly expand federal criminal law. Specifically, the NACDL argues that the Court would federalize a criminal offense that state law is better equipped to handle. Moreover, the NACDL maintains, courts should not expand the scope of federal crimes without a clear congressional directive supporting such an expansion. The NACDL warns that as federal criminal offenses expand, new federal criminal offenses supplant, rather than complement, the state criminal systems. The NACDL also notes that, under the Constitution, the lower federal courts are courts of limited jurisdiction; by “federalizing” actions involving purely local conduct, the Court could unduly burden federal courts unequipped to deal with an expanded docket. Additionally, the NACDL argues, the expansion of federal criminal jurisdiction would increase competition between state and federal law enforcement agencies and waste resources in areas where state and federal crimes overlap.
The United States argues that the NACDL’s reading of the bank fraud statute would yield absurd results because it would permit federal prosecution of schemes directed towards banks, but not those directed towards merchants. Moreover, the United States argues that the current standard—the means of completing the fraud involved a false representation which could foreseeably be directed at a bank—is sufficient to alleviate concerns over section 1344(2)’s breadth and the expansion of federal criminal statutes.
The NACDL maintains that Loughrin’s sentence for the federal conviction reflects asymmetrical federal and state penalties. In their view, because Loughrin was prosecuted under the federal statute, he received thirty-six months of imprisonment; twelve for federal bank fraud convictions and twenty-four months for aggravated identity theft. On the other hand, if Loughrin were convicted under Utah state law, where the crime was committed, he would have a recommended sentence of only nine months – over two years shorter than the sentence he received in federal court.
Neither party disputes that Loughrin used fraudulent means, including altering bank checks, to steal items and money from Target. Rather, the issue before the Court is whether Section 1344, the bank fraud statute, applies to Loughrin’s conduct. Section 1344 prohibits (1) defrauding a financial institution or (2) obtaining by false or fraudulent means the money and property owned by or under the custody of a financial institution.
The United States argues that Loughrin was correctly convicted under Section 1344 because he intended to use false or fraudulent means to obtain bank property. Loughrin maintains that the United States’ interpretation of Section 1344 is overbroad and that the statute does not apply to his conduct, since he intended to defraud a store, and not, per se, the bank.
DOES THE BANK FRAUD STATUTE PROSCRIBE ONE OR TWO OFFENSES?
The United States argues that in enacting the bank fraud statute, Congress intended to protect banks from the use of false or fraudulent means to obtain bank property. According to the United States, Section 1344 has two separate subsections that define two distinct offenses: “(1) to defraud a financial institutions; 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.” The United States claims that Loughrin’s conduct falls within the authority of Section 1344 because, pursuant to subsection (2), Loughrin intended to obtain a bank’s property—namely, the funds of its customers.
Loughrin counters that Section 1344 proscribes only a single offense: scheming to defraud a bank. Loughrin claims that the bank fraud statute was modeled after the mail fraud statute, which the Court has construed to encompass only one offense. Loughrin cites McNally v. United States, in which the Court held that the mail fraud statute’s two subsections refer to a single offense. Similarly, Loughrin contends that the bank fraud statute is best read to proscribe a single offense, with the second subsection merely clarifying or modifying the offense listed in the first. Thus, according to Loughrin, Section 1344 only encompasses defrauding banks; since he did not target a bank per se, the bank fraud statute does not apply to his conduct.
The United States disagrees, stating that the text of Section 1344 suggests that subsection (2) should be read to refer to the bank’s property interests, and not to the institution itself, as subsection (1) does. This reading, according to the United States, comports with the “natural” reading of the word “or” that separates the two subsections. Moreover, the United States claims that Section 1344 was enacted at a time before the Court in McNally construed the mail fraud statute to refer only to one offense. The United States insists that this interpretation serves Congress’ purpose of broadly protecting victims of bank fraud.
Loughrin rejoins that in the face of this statutory ambiguity, the rule of lenity should compel the Court to construe the statute to avoid imposing harsh penalties. A restrictive reading of the statute’s breadth is particularly appropriate in this case, according to Loughrin, since the United States’ broad interpretation may allow federal criminal jurisdiction to encroach upon traditional state authority, contrary to the principles of federalism.
The United States dismisses these concerns, claiming that lenity is only appropriate when choosing between two equally plausible readings; Loughrin’s narrow reading, in the United States’ view, is not plausible. Likewise, the United States argues that even Loughrin concedes that defrauding a bank directly would constitute bank fraud under subsection (1). It is thus unclear, according to the United States, why defrauding a merchant would not count as a federal concern.
EVIDENCE NEEDED TO PROVE INTENT
Loughrin argues that Congress intended to limit the bank fraud statute to “schemes directed at banks themselves,” as distinguished from schemes directed toward others, like Loughrin’s conduct, which “warrant lesser punishment.” Accordingly, Loughrin claims that his use of altered checks is not sufficient to prove that he intended to defraud a financial institution. Rather, Loughrin maintains that defrauding a store, such as Target, does not necessarily deprive a bank of its property. Once he obtained the cash from Target, according to Loughrin, his objective was complete; whether Target submitted the checks to the bank and whether the bank lost money were neither here nor there.
The United States objects, stating that Loughrin expressly waived the evidentiary argument on appeal when he conceded, in prior proceedings, that the evidence would be sufficient under the district court’s broad reading of the bank fraud statute. The United States claims that this issue is now beyond the question of the case. Moreover, the United States argues that Loughrin’s entire scheme entailed, in the course of ordinary business transactions, an attempt to pass the fraudulent checks. Thus, the United States contends that the jury could reasonably infer that Loughrin intended his scheme to deprive banks of their funds.
RISK OF HARM TO BANKS
Even if the Court construes Section 1344(2) to refer to an independent offense, Loughrin insists that his conduct posed no risk of harm to the bank’s property. In Loughrin’s view, Section 1344 criminalizes conduct that defrauds financial institutions. Loughrin argues that Section 1344 can only be read reasonably to protect the property interests of the bank, not a bank customer’s account. Thus, Loughrin argues that the bank fraud statute only criminalizes conduct that creates a risk of loss to the bank’s own property or financial interests. To read the statute more expansively, according to Loughrin, would radically expand the statute’s scope.
The United States counters that Loughrin’s argument is neither here nor there: whether a defendant intended to defraud a bank and expose it to a risk of loss is a question altogether different from whether an action in fact poses that risk. The bank fraud statute, in the United States’ view, penalizes the scheme itself, not necessarily the completion of a successful scheme. Moreover, the United States argues that Loughrin makes a false distinction between the bank’s interests and the customers’ interests, since banks honor checks with their own money, not with customers’. Further, a risk-of-loss requirement, according to the United States, has no basis in the text or statutory history of the bank fraud statute.
In this case the Supreme Court will determine the proper scope of the federal bank fraud statute. The Court’s decision will have an impact on judicial interpretation of federal criminal statues and will establish the required relationship between a federal criminal defendant and the victim of fraudulent activity. The Court’s decision will affect future criminal defendants charged with bank fraud in all federal circuits and could be indicative of the Court’s general attitude towards the recent expansion of federal criminal jurisdiction. For Loughrin and other defendants, the Court’s holding could mean the difference between a shorter state sentence and a much longer federal sentence that punishes identical conduct.
- Lawrence Hurley, Reuters, U.S. Supreme Court Agrees to weigh bank fraud case, (Dec. 13, 2013.
- David Deitch, Crime In The Suites, Supreme Court Grants Cert to Resolve Circuit Conflict on Intent Required to Prove Federal Bank Fraud, (Dec. 17, 2013)