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Bank Fraud. Even If You’re Not Trying to Defraud a Bank.

Bank Fraud. Even If You’re Not Trying to Defraud a Bank.

Two days before the Supreme Court’s watershed opinion on cell phones, it published another unanimous opinion on a more esoteric topic: bank fraud. Yeah, that’s right, bank fraud.

In Loughrin v. United States, the Court held that the federal bank-fraud statute can cover cases in which you intend to defraud someone or something other than a bank. How can that be?

The Court began with the text of the statute. It punishes anyone who knowingly executes or attempts to execute a scheme to do one of two things: (1) defraud a financial institution; or (2) obtain money or property owned by, or in the custody or control of, a financial institution “by means of false or fraudulent pretenses, representations, or promises.” 18 U.S.C. § 1344. The defendant was convicted under the second clause.

So what did the defendant do? First, he pretended to be a Mormon missionary going door to door in a residential neighborhood. When people weren’t looking, he’d raid their mailboxes and steal any checks he could find. Next, he’d alter the checks, either by washing, bleaching, ironing, and drying them until they were blank and fit to use or by simply crossing out the name of the payee. Then he’d take the checks to a store, pose as the accountholder, and use them to buy stuff. Lastly, he’d return to the store and return the merchandise for cash.

At trial, the defendant requested a jury instruction that, to be guilty of bank fraud, he must have intended to defraud a bank, not just a store or accountholder. The trial court denied that instruction, and the defendant was convicted under § 1344(2).

On appeal, he argued that if the statute were not read to require a specific intent to defraud a bank then it could potentially apply to every run-of-the-mill fraud that happened to involve a check. In fact, it would even apply if the check itself were perfectly valid, as when a guy sells you a knock-off handbag that you think is Louis Vuitton, and you hand him a check. This result, the defendant argued, would greatly expand the criminal jurisdiction of the federal government into areas traditionally reserved to the states.

The Court disagreed. It ruled that the statute had two clauses for a reason, and defendant’s interpretation would make them redundant because § 1344(1) already required a specific intent to defraud a bank. The Court agreed that § 1344(2) was not a “plenary ban on fraud” that applied to every “pedestrian swindle,” but it held that the statute was limited to cases in which a defendant schemed to obtain money or property “by means of” a misrepresentation, so that his false statement was “the mechanism naturally inducing a bank” (or its custodian) to part with money. The false statement, in other words, must “reach the bank,” which would not happen in the knock-off-handbag example.

That’s all good and well, but the Court’s decision still potentially converts every bad-check case into a federal offense. Despite the Court’s consensus that § 1344 should not be read that way, the only things standing in the way may be the resources and discretion of federal prosecutors.

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