U.S. v. Allen

• Decision Date: 27 February 1996
• Docket Number: No. 94-20403,94-20403
• Citation: 76 F.3d 1348
• Parties: 44 Fed. R. Evid. Serv. 503 UNITED STATES of America, Plaintiff-Appellee, v. Willia ALLEN, Lloyd Swift and Frank C. Cihak, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1348

76 F.3d 1348

44 Fed. R. Evid. Serv. 503

UNITED STATES of America, Plaintiff-Appellee, v. Willia ALLEN, Lloyd Swift and Frank C. Cihak, Defendants-Appellants.

No. 94-20403.

United States Court of Appeals Fifth Circuit.

Feb. 27, 1996.

Thomas S. Berg, Asst. Federal Public Defender, Roland E. Dahlin, II, Federal Public Defender, Houston, TX, for Willia Allen.

David Paul Cunningham, (Court Appointed), Houston, TX, for Lloyd Swift.

Marjorie A. Meyers, Robert C. Bennett, George McCall Secrest, Jr., Bennett, Secrest & Meyers, Houston, TX, for Cihak.

Richard A. Friedman, U.S. Dept. of Justice, Washington, DC, Paula C. Offenhauser, Asst. U.S. Atty., Gaynelle G. Jones, U.S. Atty., James L. Turner, Asst. U.S. Atty., Houston, TX, for Appellee.

Appeals from the United States District Court for the Southern District of Texas.

Before REAVLEY, HIGGINBOTHAM and BARKSDALE, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

This case involves an elaborate series of interlocking schemes to defraud various banks, particularly First City National Bank of Houston, of substantial sums of money. A grand jury returned a 34-count indictment against Frank Cihak, Lloyd Swift, and Willia Allen. After an eight week trial, the district court dismissed one of the counts and submitted the remaining 33 to the jury. The jury found the defendants guilty on all counts. The district court sentenced Cihak to 151 months imprisonment, five years supervised release, and an $800,000 fine. Allen received 70 months imprisonment and five years supervised release. The court sentenced Swift to 87 months imprisonment and $197.674.71 in restitution payments to the FDIC. The defendants appeal their convictions and sentences. We affirm.

I

We provide here a brief overview of the schemes exposed at the trial. We begin by identifying the characters and outlining the structure of the orchestrated scams. We then summarize the events in rough chronological order.

A

The activities of defendant Frank Cihak lie at the center of this case. In the early 1980s, Cihak was a Chicago banker. Through holding companies, he controlled or owned a substantial interest in several Illinois banks, including Worth Bank & Trust, Mount Greenwood Bank, and First National Bank of Danville. Cihak held high-level management or board positions at many of these banks and maintained offices at most of them. Late in the 1980s, Cihak became involved in the recapitalization of the failed First City National Bank of Houston, the largest of a number of banks owned by a holding company called First City Bancorporation. The principal figure in the First City recapitalization was Robert Abboud. Cihak organized the nuts and bolts of the recapitalization and assumed the number two position at First City Bancorporation and Bank upon its completion.

Joseph Fahy was a New York City securities dealer. Throughout the 1980s, he operated several businesses, including STS Holding Corp. and Fahy & Co., which attempted to generate funds through municipal securities and automobile loan transactions. Although Fahy testified for the United States at trial under a subpoena, a grant of immunity did not improve his poor memory of the events involved.

David Lucterhand was a Chicago businessman who began as a dealer on the Chicago Board of Options Exchange. In the 1980s, Lucterhand operated businesses called the Lucterhand Group, Inc. and L.L. Chandos Co. Lucterhand initially attempted several business deals with Fahy. In desperate financial straits as a result of these deals, he turned to Cihak for help in finding a way to generate funds. Cihak eventually arranged for First City Bank to hire Lucterhand as a consultant. Lucterhand testified on behalf of the United States at trial as part of a plea bargain.

Defendant Lloyd Swift was a horse breeder with a farm in Missouri. He ran a horse trading operation and other businesses including Swift Thoroughbred, Swift Farms, and Swift Implement Co. Swift also possessed considerable knowledge of automobile sale and loan transactions. In the late 1970s and early 1980s, the market for thoroughbreds crashed, and Swift's financial situation deteriorated. Cihak eventually arranged for First City to hire Swift as a consultant on automobile matters.

Defendant Willia Allen was an accountant who owned and operated her own accounting firm, Allen & Associates. Allen was not a CPA. Together with another individual, Allen bought a company called Shepherd Fleets, which eventually held Dollar Rent-A-Car franchises in at least three cities. Allen also owned a construction firm called Combined General Contractors. Allen possessed some knowledge of bank obligations under the Community Reinvestment Act, a federal statute designed to encourage banks to lend funds to lower income businesses and individuals in the banks' communities. Cihak arranged for First City to hire Allen as a consultant on CRA matters.

The Cochonours were a wealthy Chicago family. Two Cochonour brothers, Don and Robert, had extensive dealings with Swift's horse businesses. At one time, the two brothers also owned a percentage in Tri-Star Cablevision, Inc.; Cihak claimed an interest in this company as well.

According to the government, Cihak used two principal methods to divert funds from First City bank to his own use. In the first method, Cihak used his position at First City to have that entity hire Lucterhand, Swift, and Allen as consultants. Cihak had these consultants bill First City for substantial sums of money in consulting fees. Cihak approved the invoices, and First City paid them. In order to avoid the watchful eyes of First City auditors, the consultants normally transferred the proceeds of these fees from accounts in their names at First City to accounts in their names at one of Cihak's Chicago banks. Once the funds were out of Houston, the consultants transferred a portion of their fees to Cihak. These kickbacks occurred either when a consultant wrote a check to Cihak or authorized an internal transfer, or when Cihak used his position at the Chicago banks to transfer the funds to himself on his own.

In the second method of defrauding the First City entities, Cihak used his position to arrange for First City Bank to fund various loans to Lucterhand, Swift, and Shepherd Fleets. Cihak then either diverted the funds generated to his own use or received bribes from the borrowers. In Lucterhand's case, Cihak used the funds generated from the consulting fee kickbacks to pay back these loans.

B

This story begins in the early 1980s. From 1982 through 1985, Cihak persuaded the boards of directors of two of his Chicago banks, Mount Greenwood and First of Danville, to loan federal bonds of large face value to Fahy. Fahy represented that he would deposit these bonds in an account at a different corporation, where they would remain to serve as the regulatory capital necessary for Fahy to operate his securities dealing businesses, primarily STS. First of Danville and Mount Greenwood together loaned Fahy bonds with a total face value of $2,000,000. The bonds did not remain in the corporate account as promised; instead, Fahy sold the bonds or borrowed against them and used the funds generated for, in his words, "legal fees, accounting fees, salaries, travel and entertainment and ... those arenas."

When Mount Greenwood and First of Danville began to demand the return of the bonds, or the money that should have been generated from their maturity, Cihak secretly arranged to pay back the banks himself. He had Fahy open a custodial trust account at Worth Bank & Trust in the name of STS. This account became one of the primary conduits for the funds generated by the frauds involved in this case.

In November of 1986, Cihak personally attempted to borrow $1,600,000 from Citibank in New York, representing that he would invest the funds generated in an auto receivables company. As collateral, Cihak offered two purported letters of credit in his favor, one from Mount Greenwood and one from Worth, each in the amount of $800,000. To support the letters, Cihak presented purported bank documents, including board minutes memorializing the authorizations of the letters of credit. On the strength of the letters of credit and supporting documents, Citibank funded the loan in full. The letters of credit and the supporting documents were fraudulent. Each letter bore the forged signature of Randall Ytterberg; although Ytterberg was at various times involved with Mount Greenwood and the holding company that owned some of the Chicago banks, he did not have authority to sign letters of credit for either bank in November, 1986. Neither bank board ever authorized the issuance of the letters of credit.

Apparently still short of funds necessary to resolve the Fahy problem, Cihak orchestrated a certificate of deposit scam at Worth in late 1986 and early 1987. Using various brokers, Cihak offered jumbo CDs in the amounts of $99,000 and $100,000. Cihak represented that these CDs belonged to Worth, a federally insured bank. Several pension funds and other investors deposited large amounts into the Worth STS trust account. Cihak then diverted the money to his own use. Using his position in the Worth management, Cihak had subordinates prepare false account documents for each CD. Cihak paid the interest on the CDs and eventually returned the principal to the investors when the CDs "matured" one or two years later.

Using the money from the Citibank loan and the CD scam, Cihak resolved the Fahy debt to First of Danville and Mount Greenwood. Cihak funneled the Citibank money through the Worth STS trust account and bought back the Fahy bonds that had not yet matured. He returned these bonds, together with the cash supposedly representing the money from the mature bonds, to Mount Greenwood and First of Danville.

Cihak renewed his contact with Lucterhand in Chicago at around this time. Lucterhand initially became involved with...