Saturday, November 17, 2012

On Bank

United States v. Gyanbaah, No. 10-2441-cr (2d Cir. November 8, 2012) (Winter, Lynch, Carney, CJJ)

The appellant here was part of a group that, for more than three years, stole names and other identifying information, then used it to file thousands of fraudulent tax returns in those victims’ names. The group expected that about half of the refunds would be approved; having sought $2.2 million in refunds, they actually received more than $500,000. When they received a refund check, one of the fraudsters would forge the payee’s signature and endorse the check over to a group member, who would deposit the check into a controlled bank account and withdraw the money. 

Gyanbaah, the particular appellant here, was linked to deposits at three different banks and nearly seventy fraudulent tax returns.  A jury convicted him of five counts, including, in relevant part, one count of bank fraud and one count of aggravated identity theft relating to that bank fraud. On appeal, the circuit agreed that the evidence was legally insufficient to support the bank fraud charge and that both that count and the related identity theft count should be reversed.

Despite the brazenness of the scheme, and the centrality of banks to its success, the conduct was not bank fraud because the government failed to prove Gynabaah’s “intent to victimize” the banks, that is "expose the banks to losses" by fraud. Its evidence on this point consisted only of the testimony of a Secret Service agent who explained only that when a bank “transmits funds to be collected” and it “comes back” as a counterfeit or fraudulent check, the bank “will no longer get those funds back” because “most of the time” the bank has “already given out the funds” to whoever withdrew them. But, “when pressed about specific losses suffered by banks as a result of [Gyanbaah’s] specific use of accounts,” the agent “could not confirm that such losses occurred.” And, while he believed that banks might have to bear the loss from accepting for deposit fraudulently obtained treasury checks, he was “unsure” if that was actually so.

On appeal, to defend the convictions, the government punted. It pointed to conversations between Gyanbaah and others indicating their desire to select banks that would be least likely to detect the scheme. But those conversations showed only an intent to avoid detection, not an intent to injure the banks.

The government also relied on the banks’ claimed exposure to losses, citing cases in which a defendant fraudulent caused a bank to pay out some of a depositor’s funds held in an account in that bank by, for example, cashing a forged check. But in that type of situation the bank’s “direct legal exposure to losses is sufficiently well known” that “a jury may infer that the defendant intended to expose the bank to the loss.” 

Here, by contrast, there was no “clear,” much less “well-known exposure of the banks to loss.”  Until alerted by the Treasury, the banks might well have been holders in due course with the risk of loss borne entirely by the Treasury. After all, here, in one such transaction, the treasury check was real, the signature of the final endorsee was the authorized signature for the account - even though it was fraudulently created by Gyanbaah - and was the only signature the bank needed to very to take the checks as a holder in due course. There was no evidence that the Treasury dishonored the checks or sought reimbursement from the banks. 

Judge Lynch filed an opinion concurring in the result, agreeing that it was dictated by the court’s precedent. He wrote separately to “express [his] view that those prior decisions are predicated on an unwarranted and unwise judicial injection of an offense element that” is not in the statute. Judge Lynch did not believe that “an intent to harm the bank is a required element of” bank fraud, and that it would be poor policy to include it. “The government cannot adequately protect federal insured banks from loss without being able to prosecute criminals who, while undertaking scheme to obtain property under the control of such banks, are ignorant or insouciant about whom they will harm.”  

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