Second Circuit Upholds RICO and Truth in Lending Act Conviction

Entrepreneurs are receiving money that is a bribe of their partners with both of whom are corrupt in the company room.

The Second Circuit Court of Appeals upheld the conviction of Defendant Richard Moseley, Sr., who faced criminal charges in the Southern District of New York for an illegal payday lending scheme.

In 2018, a New York jury found that Moseley violated the Racketeer Influenced and Corrupt Organizations Act (RICO), the Truth in Lending Act (TILA), and federal wire fraud and identity theft laws by operating a payday lending business that lent money to New York borrowers at interest rates that exceeded the maximum legal interests rates allowed in those states, failing to meet TILA disclosure requirements, and issuing loans to borrowers without their consent and then falsely representing that the borrowers had consented to the loans.

Moseley was sentenced to 120 months in prison and ordered to forfeit $49 million.

Moseley appealed both his conviction and his sentence, arguing that the trial court erroneously instructed the jury to apply New York usury law, as opposed to the choice-of-law provisions identified in the loan agreements which set no rate caps, that the loan agreements disclosed the “total of payments” borrowers would make as required under the TILA, and that evidence was insufficient to prove that these disclosures were inadequate.

The Second Circuit Court found Moseley’s arguments unpersuasive and affirmed the judgment of the trial court.

Moseley’s Business Activities Between 2004 and 2014

From 2004 to 2014, Moseley ran a payday loan service using several businesses that were incorporated in Nevada, St. Kitts, Nevis, and New Zealand. Using the Internet to take loan applications, Moseley offered short-term, small-dollar, unsecured loans up to $500. He operated the business from a physical location in Kansas City, Missouri.

High-Interest Rate Payday Loans

Instead of charging a traditional interest rate, Moseley charged his customers “fees” that essentially functioned as interest payments. Using the Internet and borrowers’ private bank information, Moseley would credit a borrower’s account with the amount of the loan principal. For each “loan period” Moseley would charge a $30 fee for each $100 of the borrower’s total loan amount. The fees were automatically debited from the borrower’s bank account and transferred to Moseley’s business at the end of the first loan period.

Unlike the debited fees, however, repayment of the principal would not occur automatically. Instead, the borrower needed to affirmatively act to pay off the principal by the end of the two-week term; otherwise, the loan would be “refinanced” and the loan term would be automatically extended, with an additional fee charged for each such extension.

While some borrowers did pay off their loans, many did not. This resulted in continuing fee collection in amounts that were far greater than the principal. In some cases, a borrower was charged the $30 fee 26 times over the course of a year, resulting in finance charges of $780 on a $100 loan, effectively functioning as a 780% interest rate. Generally, Moseley would not allow his staff to “zero out” an account until 40 or 45 separate finance charges had been paid.

The extremely high interest rate Moseley charged posed a legal problem, as the interest rate exceeded state caps. For example, New York law sets the civil usury rate at 16% for unlicensed lenders and treats all contracts with rates higher than 16% as void.

To avoid running afoul of state interest rate caps, Moseley incorporated his business entities in Nevada, New Zealand, and Nevis, none of which have usury laws. Moseley then edited the loan agreements that his customers signed online to include choice-of-law provisions stating that the laws of one of these three jurisdictions governed the transactions.

Unauthorized Loans

In addition to charging high interest rates, Moseley issued loans to borrowers without their consent then debit fees related to these unauthorized loans. A borrower entered personal information into a “lead generator” website maintained by a third party that was hired by Moseley’s business. Potential borrowers provided personal information online, including banking information. Mosely would then contact the potential borrower to obtain approval for the loan. If phone contact was made, the borrower could accept or decline the offer. But if the borrower did not answer the phone, Moseley’s employees would leave a message about the offer and the loan would be approved anyway, without the borrower’s consent.

One of Moseley’s employees estimated that the business had not made contact with approximately 70% of the eventual borrowers.

Non-Compliance with Truth in Lending Laws

Finally, the financial disclosures contained in Moseley’s loan agreement documents did not comply with applicable consumer protection laws, including the mandate that the lender disclose to the borrower, when originating the loan, the “total of payments” (i.e., the total amount the borrower is scheduled to pay to close out the loan and cover all related liabilities).

Second Circuit Affirms Moseley’s Guilt

After a three-week trial in the Southern District Court of New York, Moseley was found guilty on all counts. He appealed, arguing that the trial court should have applied the choice-of-law provisions specified in the loan agreements, which set no caps on interest rates.

The appellate court found that the choice-of-law provisions in the loan agreements were unenforceable because choice-of-law provisions that specify jurisdictions without usury laws are unenforceable as against public policy. The court also found that because New York was the “center of gravity” of the transactions at issue, and because borrowers had no way of knowing that Moseley’s business was located in Missouri, New York law should apply.

Moseley also argued that there was insufficient evidence to show that he “willfully and knowingly” gave “false or inaccurate information or fail[ed] to provide information which he [was] required to disclose.” However, Moseley’s loan agreements did not indicate to the borrower that no payment of the principal was scheduled to occur, or that the recurring finance charges were scheduled to occur.

Appealing Moseley’s Sentence

Applying Federal Sentencing Guidelines, Moseley’s offense level was increased by 22 points based on a loss valued at more than $25 million but less than $65 million. The result was a total offense level of 43. When combined with a criminal history category of I, the Guidelines produced a sentence of life in prison. The district court determined that the statutory maximum penalty was 83 years in prison which, for an adult, is effectively a life sentence. The court downwardly departed from the Guidelines and sentenced Moseley to 120 months in prison.

The appellate court found no error in the trial court’s sentence and affirmed the trial court’s decision.

Aggressive Defense Against White-Collar Federal Criminal Charges

As Moseley’s case illustrates, federal prosecutors aggressively pursue RICO cases and wire fraud cases, and the consequences of a guilty verdict can be severe.

If you believe you are under investigation or have been charged with a crime in federal court, you need an experienced federal criminal defense lawyer on your side.

Philadelphia criminal defense attorney Hope Lefeber has been defending people accused of crimes in federal court for more than 30 years. She began her career as an enforcement attorney with the United States Securities and Exchange Commission (SEC), where she saw first-hand how the government prosecutes federal criminal cases. Today, she uses that experience to defend people accused of crimes in federal court. Ms. Lefeber staunchly opposes prosecutorial over-reaching and is passionately committed to keeping the government out of people’s lives.

Ms. Lefeber is a highly respected criminal defense lawyer who has received numerous accolades, represented high-profile clients including executives at Fortune 500 company executives, lawyers, doctors, businessmen and women, healthcare professionals and other professionals, lectured on federal criminal law topics, and been asked to appear on TV as a legal expert.

If you have been charged with a crime in federal court, contact Hope Lefeber today to schedule a confidential consultation to discuss your case.


This article can also be found on our New York City Federal Defense website.