Justia White Collar Crime Opinion Summaries

Sentinel specialized in short-term cash management, promising to invest customers’ cash in safe securities for good returns with high liquidity. Customers did not acquire rights to specific securities, but received a pro rata share of the value of securities in an investment pool (Segment) based on the type of customer and regulations that applied to that customer. Segment 1 was protected by the Commodity Exchange Act; Segment 3 customers by the Investment Advisors Act and SEC regulations. Despite those laws, Sentinel lumped cash together, used it to purchase risky securities, and issued misleading statements. Some securities were collateral for a loan (BONY). In 2007 customers began demanding cash and BONY pressured Sentinel for payment. Sentinel moved $166 million in corporate securities out of a Segment 1 trust to a lienable account as collateral for BONY and sold Segment 1 and 3 securities to pay BONY. Sentinel filed for bankruptcy after returning $264 million to Segment 1 from a lienable account and moving $290 million from the Segment 3 trust to the lienable account. After informing customers that it would not honor redemption requests, Sentinel distributed the full cash value of their accounts to some Segment 1 groups. After filing for bankruptcy Sentinel obtained bankruptcy court permission to have BONY distribute $300 million from Sentinel accounts to favored customers. The trustee obtained district court approval to avoid the transfers, 11 U.S.C. 547; 11 U.S.C. 549. The Seventh Circuit, noting the unique conflict between the rights of two groups of wronged customers, reversed. Sentinel’s pre-petition transfer fell within the securities exception in 11 U.S.C. 546(e); the post-petition transfer was authorized by the bankruptcy court, 11 U.S.C. 549. Neither can be avoided.View "Grede v. FCStone LLC" on Justia Law

In 2008-2009 Scalzo was a bank officer at two institutions. He originated and approved loans for unqualified borrowers without adequate financial information or collateral. He forged borrowers’ signatures, redirected funds from the loans to his own personal use without the knowledge of the borrowers, and took funds from some fraudulent loans to pay off balances on previous fraudulent loans, to conceal the original fraud. Scalzo pled guilty to one count of bank fraud, 18 U.S.C. 1344, and one count of money laundering, 18 U.S.C. 1956. The Information listed as part of the scheme six bank loans and three Credit Union loans. Scalzo objected to inclusion of two Credit Union loans in the restitution order. The sentencing range was the same with or without these loans, so the court deferred ruling on restitution and sentenced Scalzo to 35 months of imprisonment. The government filed its additional brief a week later. Having received no additional briefing from Scalzo for 82 days, the court relied on the PSR, the plea agreement and the government’s additional submissions; found that Scalzo arranged the Credit Union loans to conceal the bank fraud; noted that the Credit Union loans were listed as part of the fraudulent scheme detailed in the Information to which Scalzo pled guilty and that the Credit Union lost a substantial amount of money; and ordered him to pay restitution of $679,737.23. The Seventh Circuit affirmed. View "United States v. Scalzo" on Justia Law

When purchasing a house, the defendants submitted loan documents containing false incomes and bank statements, and failed to disclose that husband’s company was selling and his wife was buying. The company received $750,000 and rebated money paid above that amount to husband. The $1 million in loans they received resulted in $250,000 extra that was not disclosed as going to the couple. They were able to sell the house four months later for the same inflated amount, without raising any concerns. They failed to disclose on the HUD-1 forms in the second transaction that they would be giving the buyer kickbacks. The buyer received $1,090,573.06 in loans, but defaulted without making a payment. The lender eventually sold the house for $487,500. Defendants were convicted of three counts of wire fraud, 18 U.S.C. 1343 and aiding and abetting wire fraud, 18 U.S.C. 2. The Presentence Investigation Report determined that the lender’s loss was $603,073.06 and recommended a 14-point enhancement under USSG 2B1.1(b)(1)(H). The Seventh Circuit affirmed the convictions but remanded for explanation of why the loss was “reasonably foreseeable” and why the sentencing enhancement was proper. Involvement in a fraudulent scheme does not necessarily mean it was reasonably foreseeable that all the subsequent economic damages would occur; there was no evidence that defendants knew they were selling to what turned out to be a fictional buyer. View "United States v. Domnenko" on Justia Law

Thomas and Chapman were part of a scheme to fleece real estate lenders by concocting multiple false sales of the same homes and using the loan proceeds from the later transactions to pay off the earlier lenders. They were convicted of multiple counts of wire fraud. Thomas was also convicted of aggravated identity theft for using an investor’s identity without permission to craft a phony sale of a home that the victim never owned. The Seventh Circuit affirmed, rejecting: challenges to the sufficiency of the evidence; a claim by Thomas that there was no proof that he created or used the falsified documents at issue; Chapman’s claim that there was no evidence that he was the Lamar Chapman identified by the evidence, because no courtroom witness testified to that effect; Chapman’s claim that his due process rights were violated when the government dropped a co-defendant from the indictment; and a claim that the government failed to turn over unspecified exculpatory evidence. The court noted testimony from several victims, an FBI investigator, an auditor, and an indicted co-defendant who had already pleaded guilty. View "United States v. Chapman" on Justia Law

In 2008, Musgrave, a CPA, became involved in a tire recycling venture with Goldberg. Musgrave obtained a loan, guaranteed by the Small Business Administration (SBA), through Mutual Federal Savings Bank. The venture ultimately lost the $1.7 million loan and Musgrave lost his $300,000 investment. In 2011, the two were indicted. Goldberg pled guilty to one count of misprision of felony, and the recommended a sentence of three years of probation, restitution, and a special assessment. Musgrave was convicted of: conspiracy to commit wire and bank fraud and to make false statements to a financial institution, 18 U.S.C. 1349; wire fraud, 18 U.S.C. 1343; bank fraud, 18 U.S.C. 1344. The district court sentenced him to one day of imprisonment with credit for the day of processing, a variance from his Guidelines range of 57 to 71 months and below the government’s recommendation of 30 months. The Sixth Circuit vacated, noting that economic and fraud-based crimes are more rational, cool, and calculated than sudden crimes of passion or opportunity and are prime candidates for general deterrence. The district court relied on impermissible considerations and failed to address adequately how what amounted to a non-custodial sentence afforded adequate general deterrence in this context. . View "United States v. Musgrave" on Justia Law

In 2000, Marr’s father founded Equipment Source, which sold used forklifts. Marr managed sales and daily operations, advertising online and selling online or by phone. In 2002, his father opened a merchant account at Palos Bank, to process credit card transactions, with Marr as a signatory. Marr sold forklifts that he never owned or possessed. Customers would contact Marr to complain that they received an invoice and notice of shipment, and that Equipment Source charged the credit card, but that the forklift never arrived. While Marr gave varying explanations, he rarely refunded money or delivered the forklifts. Customers had to contact their credit card companies to dispute the charges. The credit card company would send notice of the dispute to Palos Bank, which noticed a high incidence of chargebacks on Equipment Source’s merchant account and eventually froze the company’s accounts. Its loss on Equipment Source’s merchant account was $328,881.89. In 2003, the FBI executed a search warrant at Equipment Source’s offices and Equipment Source ceased doing business. Eight years later, the government charged Marr with six counts of wire fraud. At trial, the government presented testimony from 14 customers who paid for forklifts but never received them; two bank employees who dealt with chargebacks, and a financial expert witness, who confirmed the $328,881.89 loss. The Seventh Circuit affirmed Marr’s conviction, rejecting arguments that the government relied upon improper propensity evidence, that jury instructions incorrectly explained the law, and that the district court lacked the authority to order restitution. View "United States v. Marr" on Justia Law

Patriot was authorized to issue title policies underwritten by First American in Michigan. In 2007, Patriot closed a transaction and provided title insurance and a closing protection letter (CPL) when which WaMu loaned $4,543,593.07 to Truong for the purchase of property in Grosse Ile. In the CPL, First American agreed to indemnify WaMu for actual losses arising from Patriot’s fraud or dishonesty in connection with the closing. In 2008, First American discovered that the Truong transaction was a sham, orchestrated by Patriot’s owner, and obtained title to the property. During negotiations concerning sale of the property, federal regulators closed WaMu. The FDIC became its receiver and sold most of WaMu’s assets to Chase, including the title insurance commitment issued in connection with the Truong transaction. Attempting to resolve the claim, First American tendered a quitclaim deed. Chase refused to accept that deed. First American sought a declaration that First American had fulfilled its obligations under the commitment by tendering a deed to the property. Chase sought a declaration that the deed was void and requested money damages. The FDIC intervened, alleging breach of contract against First American based on the CPL. After the property was sold, First American and Chase stipulated to dismissal of Chase’s claims against First American and First American’s claims against Chase. Chase and the FDIC entered into a stipulation that Chase did not acquire the CPL claim that the FDIC was pursuing. A jury awarded the FDIC $2,263,510.78. The Sixth Circuit affirmed.View "JP Morgan Chase Bank NA v. First Am. Title Ins. Corp." on Justia Law

Stephen Jenkins brought a tort action against Wells Fargo Bank, N.A. alleging that a Bank teller had improperly accessed Jenkins’s confidential information and given it to her husband, allowing the husband to steal Jenkins’s identity. Jenkins claimed the Bank negligently failed to protect the information, breached a duty of confidentiality, and invaded his privacy. The trial court granted the Bank’s motion for judgment on the pleadings. The Court of Appeals reversed as to Jenkins’s negligence claim after finding that the allegations of his complaint established the elements of negligence. The Supreme Court granted certiorari to consider whether the Court of Appeals erred in holding that a violation of an alleged duty imposed the Gramm–Leach–Bliley Act gave rise to a cause of action for negligence under Georgia law. The Supreme Court concluded that the holding was in error, and reversed that portion of the judgment of the Court of Appeals.View "Wells Fargo Bank, N.A. v. Jenkins" on Justia Law

In 2000 Go-Best wired $5 million to an account entitled "Morris M. Goldings client account" at Citizens Bank, based on representations made by Morris M. Goldings, who was then a Massachusetts attorney. Goldings later admitted that the representations were false and that he had used the money to pay other debts. Go-Best filed suit against Citizens Bank, bringing claims of misrepresentation, conversion, aiding and abetting a fraud, aiding and abetting a breach of fiduciary duty, aiding and abetting a conversion, and negligence. Citizens Bank had no knowledge of Goldings's scheme to defraud Go-Best but failed to notify the Board of Bar Overseers of dishonored checks issued on the client account more than six months before Go-Best wired funds into that account. The trial court dismissed, but a divided Appeals Court reversed in part, vacating dismissal of claims of negligence and of aiding and abetting. The Massachusetts Supreme Court reinstated dismissal. Without actual knowledge, the bank's duty to notify the board of dishonored checks from trust accounts arose only from its contractual duty, not from any duty in tort, so the bank could not be liable to Go-Best for any negligence in fulfilling that duty.View "Go-Best Assets Ltd. v. Citizens Bank of MA" on Justia Law

First National Keystone Bank retained an independent accounting firm to audit its records at a time that members of the bank's management were fraudulently concealing the bank's financial condition. The accounting firm issued a clean audit concerning the bank. It was later discovered that the bank had overstated its assets by over $500 million. Upon investigation, the FDIC concluded that the law firm that represented the bank had engaged in legal malpractice. The FDIC settled its claims against the law firm. The accounting firm was later found liable to the FDIC in federal district court for a negligent bank audit. The accounting firm subsequently sued the law firm, alleging fraud, negligent misrepresentation, and tortious interference with the accounting firm's contract to perform the audit. The circuit court granted summary judgment in favor of the law firm. The Supreme Court affirmed, holding that the claims of the accounting firm against the law firm were, in reality, contribution claims rather than direct or independent claims and were, therefore, barred by the settlement agreement between the law firm and the FDIC. View "Grant Thornton, LLP v. Kutak Rock, LLP" on Justia Law