United States v. Jimenez, No. 05-4098 (3d Cir. Jan. 14, 2008), involved convictions arising out of a multi-defendant, 47-count indictment charging conspiracy to commit mortgage fraud and bank fraud. Five defendants appealed raising numerous challenges to their convictions, after a jury trial, and related sentences. The scheme involved a mortgage brokerage company and various related entities that secured residential and commercial loans for borrowers who could not otherwise obtain mortgages. When customers failed to qualify for loans, the conspirators fabricated federal tax returns and inflated W-2 forms or false pay stubs as well as various other documents associated with obtaining a mortgage. Some of the customers who received loans that they could not afford to repay, defaulted and lost their homes resulting in losses to the lender as well. The bank fraud involved a check kiting scheme wherein the mortgage brokerage companies cashed checks between 30 separate accounts maintained at the Hudson United Bank. During a one year period, there were 280 days where an overdraft existed in one of the accounts. Numerous separate issues were raised challenging the convictions.
First, the defendants challenged the district court’s refusal to strike a perspective juror for cause. During the fourth day of jury selection, a defendant’s lawyer complained about an "aggressive attitude" displayed toward her by a perspective juror while in line in the women’s restroom. Additionally, that juror was subsequently questioned on inconsistent answers that she reported on her questionnaire regarding the presumption of innocence. The district court refused to strike the juror for cause and the defendants used one of their peremptory strikes to dismiss the juror. The Court of Appeals held that even if the juror should have been excused for cause, there was no Rule or Due Process violation since the defendants elected to cure any defect by exercising a peremptory challenge, especially given that defendants were given an additional 4 strikes than provided for under the rules and that the conviction was by a jury on which no biased juror sat.
Next, the defendants convicted of bank fraud challenged the district court’s denial of their motion for a judgment of acquittal contending that a check kiting scheme requires kiting between at least two banks. The Court of Appeals framed the issue as "whether a check kiting scheme involving only one bank, where the defendant moves funds between various accounts at that institution, violates the bank fraud statute." The Court held that while the typical check kiting scheme involves more than one bank, § 1344 does not criminalize only the typical scheme. The Court held that the focus is on whether there was intent to defraud the bank. Since the defendants maintained 30 accounts at the same bank and maintained an elaborate system of writing large checks between those accounts to cover the overdraft, the Court found the requisite fraudulent intent and affirmed the convictions. The Court of Appeals also rejected a related challenge to the bank fraud convictions on the ground that the bank was aware of the overdrafts and consented to them. The Court held that "it is not a defense that an account holder colluded with a bank officer to commit bank fraud. It is the financial institution itself - not its officers or agents - that is the victim of the fraud." Moreover, the Court indicated that there was substantial evidence that the defendants meticulously moved funds between accounts to avoid detection of the overdrafts. Accordingly, the jury’s conclusion that the scheme was intended to defraud was supported despite the fact that a bank officer was involved in the scheme.
The third issue involved the jury instructions on the bank fraud charge where defendants asserted that the district court limited the jury’s ability to consider their defenses of good faith and lack of specific intent. Defendants argued that they were not given a meaningful opportunity to argue that acquiescence, receipt of fees, and repayment of the overdraft supported their complete good faith defense. The Court of Appeals rejected this argument finding that the instructions, read as a whole, accurately informed the jury that good faith was a complete defense negating the necessary specific intent to defraud the bank which the Government bore the burden of proving beyond a reasonable doubt. The district court was found to have properly instructed the jury that payment of the overdrafts could be considered in determining whether the defendants acted in good faith but that the bank’s charging of interest and fees on the overdrafts does not negate the defendants intent to defraud.
Numerous confrontation clause issues where then raised. First, the defendants asserted that the district court improperly limited their attempts to cross examine a bank employee regarding a consent agreement that the bank entered into with the FDIC in an unrelated matter. The defendants sought to show that the bank was motivated to cooperate with the Government given that it was subject to a state investigation in a different matter. The Court of Appeals rejected this argument because the state investigation was initiated years after the bank began cooperating in defendants’ matter and therefore the "marginal relevance and risk of delay and confusion" supported the decision to limit cross examination on this issue. The admission of certain documentary evidence was also challenged based on the Confrontation Clause. The residential and commercial mortgage fraud charges involved a total of 40 loans. The Government introduced documentary evidence relating to each loan including bank statements and either tax returns or tax abstracts from each borrower. However, only six borrowers testified at trial regarding their loan files. The only evidence introduced by the Government regarding 10 of the loans included bank records and tax returns and no witness testimony. Two separate challenges were raised to the admission of the evidence.
First, defendants maintained that their Confrontation Clause rights were violated by the admission of declarations by records custodians used to authenticate the bank statements of individual borrowers. The Government introduced the bank records from various banks which held accounts of mortgage customers who used the services of the defendants. These statements were used by the Government to demonstrate that the loan applications contained false information. The bank statements were introduced as business records pursuant to Fed.R.Evid. 803(6) and were authenticated with sworn declarations under Rule 902(11). The defendants did not challenge the information contained in the records as hearsay, but rather only "the testimonial statements in the certifications used to lay the foundation for their admission" as violative of the Confrontation Clause, since they did not have the opportunity to cross examine the certification declarant. The Court of Appeals did not determine whether the declarations admitted pursuant to Rule 902(11) were "testimony" subject to the Confrontation Clause but held that assuming, without deciding, that if they were testimonial, their admission for purposes of authenticating bank statements was harmless. The Court of Appeals stated that in determining whether the erroneous admission of testimonial evidence in violation of the Confrontation Clause is harmless, the following must be considered: "the importance of the testimony to the Government’s case, the cumulative nature of the evidence, the existence of corroborating evidence, the extent of cross examination allowed in the case, and the strength of the Government’s case as a whole." Noting that the defendants did not challenge the content of the bank records, but only the declarations stating that they were business records kept by the banks, the declarations did not add to the Government’s case against the defendants for submitting false loan applications. Therefore, the Court found the admission of the declarations to be harmless beyond a reasonable doubt.
The next Confrontation Clause challenge was to the admission of tax returns and abstracts for the individual borrowers. This claim was also rejected because the Court of Appeals found that the tax abstracts and tax returns were not hearsay at all, nor did they contain imbedded hearsay, because they were not offered for the truth of the matter asserted. The Court held that the returns were not admitted to show the truth of the matter asserted, viz., the actual income of the borrowers, but rather only the difference between the returns submitted to the IRS and those submitted as past of the loan applications. The Court concluded that "Nonhearsay use of evidence as a means of demonstrating a discrepancy does not implicate the Confrontation Clause."
One of the individual defendants raised several other issues which were denied with little significant analysis based on the facts of the case including the sufficiency of the evidence, misjoinder and the admission of rebuttal evidence. His claim of prosecutorial misconduct, however, merits reference. Although also summarily dismissed, the Court of Appeals did note its disapproval of the district court’s method of addressing the defendant’s motion for a mistrial. The defendant objected to the Government’s questioning of the defense investigator wherein the Government suggested that ethical rules were violated by approaching a prosecution witness known to be represented by counsel. The district court found the questioning to be a personal attack on defense counsel and directed the Government to make a statement to the jury apologizing for any suggestion that counsel or the investigator violated any ethical rules. That line of questioning was also struck. While the Court of Appeals did not approve of this method of addressing the problem, it held that it helped cure the improper line of questioning and concluded that the denial of a mistrial was not an abuse of discretion.
The Court of Appeals also rejected a challenge to the sentences imposed, all which appear to have been within guideline sentences, based on reasonableness. Challenges to the calculation of the amount of loss, using the 2000 version of the Guidelines Manual which was applicable, were also rejected. First, the inclusion of the amount of a defaulted commercial loan was challenged. The bank had charged off a balance of $165,000 on the defaulted loan and received $27,000 out of the bankruptcy proceedings of the borrower. The district court included an amount of loss of $138,000 despite the fact that the bank maintained a claim on collateral property which was subordinate to another bank and the bankruptcy trustee. The Court of Appeals held that given that the bank’s claim was subordinate, and the uncertainty of collecting anything from the bankruptcy estate, the district court did not clearly err by including the amount of loss of $138,000.
Additionally, it was argued that the inclusion of $132,000 in the amount of loss for bargained-for interest related to the defaulted residential loans was improper. The defendant relied on the change in the 2001 version of the Guidelines which excluded "interest of any kind" from the loss calculation. The 2000 version of the Guidelines was used because it resulted in a lower guideline range than the 2001version since the amendments to the 2001 version significantly increased the enhancements related to the amount of loss. However, the Court of Appeals noted that if the change relating to the inclusion of interest in the calculation of the amount of loss was clarifying rather than substantive, then the interest could have been excluded from the amount of loss calculation. The Court of Appeals declined to address the issue since any error resulting from the inclusion of the interest in the amount of loss would have been harmless. The total amount of loss was $2,729,192, including the $132,000 bargained-for interest and the enhancement range applicable was between $2.5 million and $5 million. Since deducting the amount of interest would not have impacted the Guideline calculation, the Court of Appeals held that remand was not warranted.