U.S. v. Cordell, 89-6051

• Decision Date: 11 September 1990
• Docket Number: No. 89-6051,89-6051
• Citation: 912 F.2d 769
• Parties: , 31 Fed. R. Evid. Serv. 160 UNITED STATES of America, Plaintiff-Appellee, v. Douglas CORDELL, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 769

912 F.2d 769

59 USLW 2242, 31 Fed. R. Evid. Serv. 160

UNITED STATES of America, Plaintiff-Appellee, v. Douglas CORDELL, Defendant-Appellant.

No. 89-6051.

United States Court of Appeals, Fifth Circuit.

Sept. 11, 1990.

Otis Carroll, Ireland, Carroll & Kelley, Tyler, Tex., for defendant-appellant.

Bob Wortham, U.S. Atty., Tyler, Tex., Paul Naman, Jeffrey J. Strand, Asst. U.S. Attys., Beaumont, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Eastern District of Texas.

Before GOLDBERG, GEE and WILLIAMS, Circuit Judges.

JERRE S. WILLIAMS, Circuit Judge:

Douglas Cordell, a former bank president, appeals his conviction on counts of making a false entry in bank records and willfully misapplying bank funds. Agreeing with the district court's interpretation of the relevant criminal statutes and finding no reversible error in Cordell's convictions, we affirm.

I.

In April 1987, Douglas Cordell was President and Chief Executive Officer of American National Bank (ANB) Tyler, Texas. The bank is now defunct. Joseph M. McMurrey had been a customer of ANB since 1985. In late 1985 and early 1986, ANB made two $150,000 loans, secured by real estate, to McMurrey. At that time the loans were within the bank's legal lending limit. ¹

In early 1987, the assets of ANB began to decline. As a result, the bank's legal lending limit was decreased and the amount of McMurrey's loans exceeded that limit. McMurrey's loans did not constitute a violation under 12 U.S.C. Sec. 84, however, since they were not greater than the lending limit in effect when the loans were made. Rather, the loans were considered to be "nonconforming" or "out of compliance." With that status, future extensions of credit could result in Sec. 84 violations.

In 1987, federal bank examiners descended upon ANB to investigate possible Sec. 84 violations. When their investigations yielded a number of violations, bank examiners placed several customers on a watch list. McMurrey was one of them.

To prevent future Sec. 84 violations, ANB implemented a system to prevent any loans or overdrafts in the accounts of McMurrey and other similarly situated customers. ANB's Board of Directors charged Cordell with the personal responsibility of ensuring that no future violations occurred.

On April 16, 1987, McMurrey purchased a $9,316.09 cashier's check from ANB with $3,726.85 from his ANB accounts and a $5,400 check drawn on his account at Bank of Longview. ANB's system required Cordell's approval before the purchase could be made. Cordell spoke with McMurrey, who gave his assurances that he had a draw coming on the Longview account. Cordell and McMurrey then contacted the Bank of Longview and spoke with the President's secretary. She apparently confirmed that a draw was being processed and would be honored. ² Only after that confirmation did Cordell approve the transaction.

The following day, the Bank of Longview declared that there were insufficient funds to cover the check and notified ANB of the insufficiency by telephone. The check was physically returned on April 23, 1987, one week later. The returned check meant that funds had been disbursed to McMurrey by ANB without funds to draw upon in his account at the Bank of Longview. Were the check "charged back" to McMurrey's account, it would have pushed McMurrey over the legal lending limit.

The day after the check was returned, ANB's cashier claims she went to Cordell and informed him that the check would need to be charged back against McMurrey's account. She apparently had contacted the Bank of Longview again and had been told that McMurrey did not have the funds in his account to cover the check. Moreover, the Bank of Longview informed the ANB cashier that it was holding a $5,400 insufficient funds check drawn on a McMurrey account at ANB. ³ In an attempt to avoid a Sec. 84 violation, Cordell resubmitted the check to the Bank of Longview for payment. He claims that before sending the check back through, he contacted McMurrey, who assured him that he had the necessary funds in the Longview account. The check was again dishonored. It was returned to ANB on April 29.

In a continuing attempt to avoid a legal lending violation, ⁴ Cordell decided to make "late returns" on several checks written by McMurrey that already had been honored by ANB. ⁵ He chose five checks that he felt he could return with few consequences. These checks included checks to McMurrey's wife and to one of McMurrey's employees. Cordell ordered those five checks reversed and had money withdrawn from the accounts of the third parties and deposited into McMurrey's account. Cordell also had all the money in other Cordell accounts transferred to the account on which the check had been written. Combined, these two procedures made up the amount deficient on the $5,400 check. Shortly thereafter, McMurrey covered all the returned checks and no loss occurred to the bank or any of its customers. Cordell never charged back the check to McMurrey; that is, he never recorded that an overdraft had taken place.

The following month, a bank examiner determined that an overdraft should have been posted on April 30, the day after the check was returned the second time. Cordell's reversal of the five checks was an attempt to disguise the fact that a Sec. 84 violation had occurred. Cordell was indicted and tried on one count of bank fraud, under 18 U.S.C. Sec. 1344, one count of false entry in bank records, pursuant to 18 U.S.C. Sec. 1005, and one count of misapplication of bank funds, under 18 U.S.C. Sec. 656. He was convicted on the latter two charges and received a one year suspended sentence and three years supervised probation. Claiming three points of error, Cordell appeals the convictions.

II.

Cordell first argues that his conviction for making a false entry in ANB's records, pursuant to 18 U.S.C. Sec. 1005, cannot be sustained. He reasons that because he clearly and accurately recorded the transactions that took place, particularly the late returns made on the five checks, he did not make any entry that was "false." Arguing that the charge in the indictment specifically refers to those late returns as the false entry, Cordell maintains that his conviction was improper. The assertion is that the government, upon learning at trial that the returned checks were properly recorded, changed its theory to suggest that the false entry was Cordell's failure to record the overdraft. That variance from the original indictment, he contends, was improper. Because we find no error with the district court's conclusion that Cordell made a false entry in ANB's records, through a material omission, and because we find the grounds for that charge within the scope of the indictment, we reject Cordell's claim.

In 1987, at the time of Cordell's acts, 18 U.S.C. Sec. 1005 read in pertinent part: ⁶

Whoever makes any false entry in any book, report, or statement of such bank with intent to injure or defraud such bank, or any other company, body politic or corporate, or any individual person, or to deceive any officer of such bank, or the Comptroller of the Currency, or the Federal Deposit Insurance Corporation, or any agent or examiner appointed to examine the affairs of such bank, or the Board of Governors of the Federal Reserve System--

Shall be fined not more than $5,000 or imprisoned not more than five years, or both. ⁷

The statute's purpose is to ensure that inspection of a bank's books will yield an accurate picture of the bank's condition. United States v. Darby, 289 U.S. 224, 226, 53 S.Ct. 573, 574, 77 L.Ed. 1137 (1933); United States v. Manderson, 511 F.2d 179, 180-81 (5th Cir.1975). The critical interpretation of this statute is that an omission of material information qualifies as a false entry. See United States v. Jackson, 621 F.2d 216, 219 (5th Cir.1980) (citing United States v. Krepps, 605 F.2d 101, 109 (3rd Cir.1979)); see also United States v. Kington, 875 F.2d 1091, 1104 (5th Cir.1989).

Cordell insists that he properly recorded the late return of checks and that he therefore did not violate Sec. 1005. He maintains that Sec. 1005 cannot be violated if all the transactions entered are accurate. To this end, he relies on our opinions in United States v. Hughes, 726 F.2d 170 (5th Cir.1984), and United States v. Manderson, supra. We find this reliance misplaced for two reasons. First, neither Hughes nor Manderson involved an omission of material information. Rather, they both dealt with whether certain information that had been recorded constituted a false entry. Second, neither case involved an entry made that, although accurate, was made for the purpose of deceiving bank examiners. Indeed, in Manderson we expressly stated that the entry made was not intended to conceal anything from the bank or other parties involved. ⁸

The present case, then, differs markedly from those on which Cordell relies. Evidence at trial showed that an overdraft occurred on McMurrey's account as a result of Cordell's extension of credit to McMurrey on a bad check. Cordell chose to omit from the bank records any overt indication that such an overdraft took place. He omitted the overdraft by not recording it and supported his action by late return of the five checks. ⁹ Evidence of this omission is sufficient to sustain the Sec. 1005 conviction. As a result of this lack of material information, ANB's books clearly did not accurately reflect the bank's condition.

Cordell counters, however, that the indictment did not charge him with a material omission. The false entry count of the Second Superseding Indictment alleges that Cordell

[made] a material false entry in a book, report, and statement of [ANB] by reversing previously paid checks totalling approximately $3,726.85, drawn on the American National Bank, Tyler, Texas, thus preventing and attempting to prevent discovery of Joe M. McMurrey's, Defendant DOUGLAS CORDELL's loan customer, further...