Rakes v. United States, 5718.

CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)
Writing for the CourtPRETTYMAN, Associate Justice
Citation169 F.2d 739
Docket NumberNo. 5718.,5718.
Decision Date11 October 1948


J. B. Morgan, of Leesburg, Va., and R. H. McNeill, of Washington, D. C. (McNeill & Fuller and T. Bruce Fuller, all of Washington, D. C., on the brief), for appellant.

George R. Humrickhouse, U. S. Atty., of Richmond, Va. (Robert N. Pollard, Jr., Asst. U. S. Atty., of Richmond, Va., and Carol D. Hendrick, Asst. U. S. Atty., of Charlottesville, Va., on the brief), for appellee.

Before PARKER and DOBIE, Circuit Judges, and PRETTYMAN, Associate Justice, U. S. Court of Appeals for the District of Columbia.

Writ of Certiorari Denied October 11, 1948. See 69 S.Ct. 51.

PRETTYMAN, Associate Justice.

Appellant was indicted, tried by a jury, and convicted upon charges of aiding and abetting one Gardner in the willful misapplication of funds of The Farmers and Merchants State Bank of Fredericksburg, Virginia, Incorporated, in violation of Section 592 of Title 12 of the United States Code Annotated.1 Gardner was indicted in twenty counts relating to twenty transactions. Appellant was charged as aiding and abetting in thirteen of those transactions. Eight other persons were also charged as aiding and abetting, some in some counts and some in others. Severance was ordered and appellant and his wife, who was charged as an aider and abettor in ten of the counts, were tried together. She was acquitted, and he was convicted on all thirteen counts.

The evidence presented upon the trial related to the several transactions in the most minute detail. The substance of the charges, and of the Government's proof, was as follows:

Appellant was a wealthy dairy farmer. Gardner was executive vice president of the Fredericksburg Bank. Appellant drew checks in large amounts on the bank, although he had little or no funds there. He cashed those checks at, or deposited them in, various banking institutions. When, in the regular course of the banking business, the checks reached the Fredericksburg bank, Gardner ordered them paid, or honored, although he well knew that appellant had little or no funds there and that such payment must be from other funds of the bank. This is the misapplication charged in the indictment. The thirteen counts related to nineteen such checks of appellant amounting to about two hundred forty thousand dollars.

As the above-described checks were presented to the bank for payment, appellant, to keep his account in apparent order, deposited checks drawn by him on other banks in which he had little or no funds; he then deposited in those banks checks on still other banks in which he had little or no funds. Thus he was said to have engaged in a round-and-round check-kiting scheme over a period of months. Gardner was alleged to have known the true state of appellant's various bank accounts. It was further shown that from time to time in this process, the accumulation of check-drawing on non-existent funds caused appellant, with Gardner's assent, to balance his account with the proceeds of forged notes. The evidence showed that the total entered as deposits in the various banks under appellant's plan was $14,775,706.01.

In explanation of this otherwise strange course of action, the evidence showed that appellant purchased real estate with the cash obtained from the bank; that having thus acquired equities in property valued at approximately $1,615,000, appellant secured a loan of $1,000,000 from a life insurance company and from the proceeds of this loan paid off his debts and balanced his bank accounts. The evidence, moreover, disclosed that Gardner, in addition to being an officer of the bank, was also an agent for the insurance company and received substantial commissions on the loan; that appellant paid Gardner and others $50,000 as brokerage fees for obtaining the loan. Thereafter appellant continued to buy more real estate with money obtained from the bank by the above-described plan until his total properties were appraised at $2,274,000. He arranged through Gardner and others for a second loan of about $750,000 from the insurance company, and again Gardner was to receive a large commission upon the anticipated loan.

Then a bank examiner discovered irregularities in the Fredericksburg Bank, and the Federal Deposit Insurance Corporation entered upon an investigation. The Bureau of Internal Revenue threatened to levy a lien of $1,780,000 for income taxes upon appellant, and, as a consequence, the insurance company withdrew from the proposed loan. The scheme of operation by appellant and Gardner thereupon collapsed and the bank failed.

The gist of the Government's charge and proof is that Gardner financed appellant's real estate operations with funds of the bank without security, and that appellant aided and abetted him in doing so.

Upon this appeal appellant presents ten points, which he groups under eight headings.

1. Appellant says that the trial court erred in failing to instruct the jury that all the checks described in the indictment were paid when presented to the banks upon which they were drawn, such payment being from deposits legally credited to appellant, and that therefore the moneys paid to him by the Fredericksburg Bank were not "wholly lost" to it as the indictment charged.

The deposits to which appellant refers were of checks upon non-existent funds in other banks, or of cash procured upon such checks, in the kiting scheme we have described. Proof was presented that Gardner and appellant knew full well what was being done, and the verdict indicates that the jury believed that to be so. The evidence was that Gardner and appellant knew that the balancing deposits in the bank were without substance. The gist of the charge is that Gardner paid out funds of the bank, fully conscious that the deposits from which he was honoring appellant's checks were spurious. The checks on other banks which constituted the credits to the account were not "paid" in any actual sense, but merely passed around in the complicated maze of the kiting operations. So far as the point of law thus presented is concerned, it is clear that a bank officer cannot fulfill his fiduciary obligations by mere empty technicalities, much less by known fictions; and he who aids and abets him in the sham is equally guilty.

The core of appellant's argument on this point is that a permanent loss to the bank is requisite to the offense described by the statute. But quite apart from the fact that these transactions resulted in the failure of the bank, it is well-established law that permanent loss is no part of offenses such as embezzlement, larceny or misappropriation; neither is it an element of criminal misapplication under this statute.2 Restitution is no defense to such offenses. The misapplication in the present case was known by Gardner and by appellant to be pregnant with the disaster which ultimately ensued. That so natural a result might have been prevented does not eradicate the act of conception.

Appellant says that the losses of the bank were due to uncollectible loans and not to the check-kiting. But the check-kiting resulted in the loans, part of them on notes alleged, and sought to be proved, by the Government to have been forged by appellant. Whether the checks were the immediate cause or not is immaterial; that they were the effective cause is decisive.

Appellant insists that the indictment charges that the funds were "wholly lost" to the bank, and this means permanent loss of ownership. But the indictment merely says that possession, control and use were wholly lost. The proof amply supported that charge.

2. Appellant says, in three related points, that the indictment was invalid because of duplicity of charges and misjoinder of parties. The face of the indictment shows that there was no duplicity of charges; each count related to a different transaction.

Appellant's argument on the point is that the several charges could not validly be joined in a single indictment. Rule 8(a) of the Federal Rules of Criminal Procedure, 18 U.S.C.A., following section 687, provides that two or more offenses may be charged in the same indictment in separate counts if the offenses "are of the same or similar character or are based on * * * two or more acts or transactions connected together or constituting parts of a common scheme or plan". The Rule was substantially a restatement of existing and familiar law.3 Its meaning was exhaustively discussed by this Court recently in Cataneo v. United States, 4 Cir., 167 F.2d 820. The applicability of the established principles to the present case is sufficiently demonstrated by the brief statement of the facts which we have made. The several offenses charged in this indictment were not only similar but were based on transactions constituting parts of a common plan, clear upon the face of the indictment; all the counts relate to the appellant's elaborate check-kiting scheme.

Appellant claims error in the joinder with him of others as aiders and abettors. The severance, by virtue of which he stood trial with his wife as his only co-defendant, is a sufficient answer to his claim of prejudice in this respect.4 These other persons, moreover, were alleged to have taken part in the same check-kiting scheme (and mostly in connection with the same checks) in which appellant was alleged to have been engaged. They were officers of the various banks and signers in various capacities on the checks or notes which made up the operation. If a person knowingly aids and abets, in conjunction with various others, in some of a series of related transactions, he can hardly be heard to complain if he is charged in company with his fellow participants. The ends of justice are not served in such a case by a multiplicity of separate indictments for each participant and each transaction. Rule 8(b) of the Criminal Rules aptly states...

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