A divide in the law on bank fraud may soon be resolved. The United States Supreme Court recently decided it would hear the case of Shaw v. United States in its upcoming October term.
The case presents the court with a question that has divided lower courts in the past: what intent must a defendant have in order to be found guilty of bank fraud under section 1344(1) of the federal bank fraud statute. In this posting I’ll talk about what happened in Shaw, the issue before the Supreme Court and the arguments of the parties involved.
Before I discuss the Shaw case, it might first be helpful to talk a bit about the idea of "intent" or “mens rea.” Unless you are in the legal profession, this Latin term may not mean much to you, but in the world of criminal law it is a very important concept. Translated, mens rea means "guilty mind," and it refers to the mental state of a person who is accused of a crime. Almost all crimes require the prosecution show not only that an act was committed, but that the person accused of the act did so with a particular intent or knowledge. In the case of a simple theft, for example, the prosecution typically needs to prove that the accused took the property of another person and intended to permanently deprive the owner of the property. So, while a person may have walked out of a jewelry store with a necklace in their pocket, if someone else had placed that necklace in their pocket without their knowledge, the person likely would not have the required mens rea to commit a crime. In terms of the federal crime charged in the Shaw case, courts have not historically agreed on the mens rea required for a conviction. Shaw has now put the issue squarely in front of the United States Supreme Court.
The facts underlying the Shaw case are largely undisputed by the parties. The defendant, Lawrence Shaw, admits that he stole money from the bank account of his girlfriend’s mother’s employer, Stanley Hsu. Through Shaw’s relationship with his girlfriend, he had access to Hsu’s bank account statements with Bank of America. Shaw used those statements to set up a PayPal account in Hsu’s name and make transfers from the real Bank of America account into the PayPal account. From there, Shaw used bank accounts he’d set up through another bank, Washington Mutual, to ultimately funnel the money into his possession. Shaw stole over $300,000 from Hsu’s Bank of America account during a five month period in 2007. Hsu ultimately discovered the discrepancy in his bank account and reported the theft. Shaw was arrested and charged in federal court with 17 counts of bank fraud under one provision of the federal bank fraud statute, section 18 U.S.C. 1344(1). Section 1344(1) makes it a crime to “knowingly execute, or attempt to execute, a scheme or artifice … to defraud a financial institution… .”
Shaw’s lawyers argued at trial that, in order to be found guilty of bank fraud under section 1344(1), he must have intended not only to deceive the bank but also to expose the bank to an actual or potential loss. They argued that while the evidence showed Shaw may have intended to deceive the bank, there was no evidence he intended to cheat the bank out of money. According to Shaw, his focus was solely on taking Hsu’s money. The trial court did not agree with Shaw’s argument. It allowed the jury in the case to find Shaw guilty without necessarily deciding that he intended to cause a loss to the bank. Shaw was found guilty on 14 of the 17 counts of bank fraud and sentenced to 57 months in prison. Shaw appealed the jury’s verdict to the Ninth Circuit Court of Appeals, but that court agreed with the lower court’s decision. Shaw subsequently filed a petition with the Supreme Court to review the issue of exactly what mens rea is required under section 1344(1), which the Court has now agreed to review.
Though the parties to the case have yet to file their full briefs with the Supreme Court, we can anticipate their arguments based on the parties’ filings with the lower courts and their preliminary arguments at the Supreme Court. The basic question put before the Supreme Court is whether section 1344(1) requires that the defendant intend to not only deceive but also cheat a financial institution.
Shaw argues that while there is a split among the federal appeals courts over the mens rea required under section 1344(1), the majority of those courts have required an intent to cheat the bank as part of the crime. In his case, he argues there was no evidence that he intended to expose either Bank of America or Washington Mutual to a loss. He may have intended to cheat Hsu, a bank customer, but not the banks themselves. In fact, according to Shaw, the banks themselves suffered no financial loss as a result of Shaw’s actions.
The government contends that the trial court's decision to leave out any requirement that Shaw intended to cheat the banks was correct in light of the Supreme Court’s past interpretations of other federal fraud statutes and its recent decision in Loughrin v. United States. The government acknowledges that section 1344(1) requires a showing that the defendant intended to defraud a bank, but argues that prior Supreme Court decisions on similar fraud statutes, like mail and wire fraud, require that they only demonstrate an intent to deceive, not also an intent to cause financial loss, in order to prove the defendant intended to defraud the bank.
The government further points to the Supreme Court’s recent decision in Loughrin as supporting their position. The Court in Loughrin interpreted the mens rea requirements of another part of the federal bank fraud statute, section 1344(2), which applies to schemes to obtain property either owned by or in the control or custody of a financial institution. The Court noted in the Loughrin opinion that, unlike section 1344(1) of the federal bank fraud statute, section 1344(2) does not specifically require that the defendant defraud a bank. It therefore held that the intent to defraud a bank is not a necessary element of subsection (2). While the context of the Loughrin opinion is clearly subsection (2) of the bank fraud statute, the government nonetheless relies on a footnote of the opinion to support its argument that an intent to cause a loss to a bank should not be read into either subsection of the law. On the other hand, Shaw argues that Loughrin did not directly address the issue in his case, and whether an intent to deceive a bank is required under section 1344(1) remains an open issue for the Court to decide. The government acknowledges the split in circuit court opinions on the mens rea requirement for section 1344(1), but notes that the 9th Circuit’s opinion in Shaw is the only one that came down after the Supreme Court’s decision in Loughrin.
The parties will now have the chance to fully brief the Supreme Court on their arguments, which I anticipate will largely follow what I’ve outlined above. No specific time has been set for oral arguments in the case, but
it is generally set for consideration during the Court’s next term beginning in October 2016. As an interesting end note, whatever the outcome in this case, the outlook for Mr. Shaw may not be promising. The government has noted in its briefing to the Court that even if the lower court’s decision is overturned on the ground that section 1344(1) required a greater showing of intent than was demonstrated, the government could conceivably bring charges against Shaw under section 1344(2), which under Loughrin, would not require any showing that the defendant intended to defraud the banks.
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