U.S. v. Evans, 93-2051

• Citation: 42 F.3d 586
• Decision Date: 05 December 1994
• Docket Number: No. 93-2051,93-2051
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. Leonard W. EVANS, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 586

42 F.3d 586

UNITED STATES of America, Plaintiff-Appellant, v. Leonard W. EVANS, Defendant-Appellee.

No. 93-2051.

United States Court of Appeals, Tenth Circuit.

Dec. 5, 1994.

John J. Kelly, U.S. Atty. (Robert J. Gorence, Asst. U.S. Atty., with him on the brief), Albuquerque, NM, for plaintiff/appellant.

Glen L. Houston, Hobbs, NM, for defendant/appellee.

Before SEYMOUR, Chief Judge, McKAY, and BALDOCK, Circuit Judges.

SEYMOUR, Chief Judge.

The government appeals the district court's judgment of acquittal and alternative grant of a new trial after a jury found Defendant Leonard W. Evans guilty on all fifteen counts before it. Eight of the counts charged Mr. Evans with making a false entry in bank records in violation of 18 U.S.C. Secs. 1005 and 2, and seven counts charged him with misapplying bank funds in violation of 18 U.S.C. Secs. 656 and 2. The government contends that the judgment of acquittal was erroneous because the evidence was sufficient to convict Mr. Evans on all counts and that the district court abused its discretion in granting a new trial. We affirm the judgment of acquittal on the misapplication counts and we reverse the judgment of acquittal and the grant of a new trial on the false entry counts.

I.

Mr. Evans was the president of American Bank, N.A. of Rio Rancho. The bank was having financial difficulties, so a group of investors formed to purchase it from its owner. Mr. Evans worked with this group and was to remain as the bank's president upon completion of the change of control. The group filed the necessary application with the Office of the Comptroller of the Currency (OCC) for a change of control of the bank. This application stated that the group would acquire all of the outstanding common stock for $200,000. Additionally, the group would inject $2.5 million dollars of capital into the bank. Because of the bank's critical financial condition, the OCC ordered an independent audit. This audit showed that the bank was insolvent at the date of the examination.

In its decision letter to Mr. Evans, the OCC stated that in order to consummate the change of control, the group had to deposit $1.8 million of capital (first tier) in the bank within five days and the additional $700,000 (second tier) ten days later. After the infusion of the first tier capital, one of the second tier investors dropped out, leaving a deficiency of $450,000. This shortfall occurred around the time the money was to be deposited, and the investment group moved quickly to recruit new investors. Although the group found people who were interested in investing, the potential investors were unable to come up with the necessary cash on such short notice. Consequently, Mr. Evans and members of the investment group decided to arrange bank loans from American Bank to these investors to purchase American Bank stock. The charges against Mr. Evans are based on these loans and the use of their proceeds to purchase bank stock.

The pattern shown at trial, with slight variations, was that an investor would apply for a line of credit of about $75,000. Almost immediately after approval of the loan, the investor would draw out $50,000 and use the money to buy bank stock. In almost every case, the stock was held in trust for the investor under someone else's name. The loan approval and funding sheets for these loans reflected various purposes for the loans, none of which was to buy bank stock. The loan approval and funding sheets for four investors stated that the loan was for working capital for their businesses. Two investors' sheets stated that the loan was for debt consolidation and personal expenses. One investor's sheet claimed that the loan was for home improvement and bill consolidation, and the final investor's sheet stated that the loan was for purchasing a home. Richard Brown, an OCC examiner, testified that because the majority of the money was used to purchase bank stock, these purposes were false and would mislead a bank examiner. Rec., vol. IV, at 818-30.

The government does not argue that making loans to purchase bank stock is illegal, that any of the loans were deficient, or that the bank did not have the authority to make the loans. The government's theory is that Mr. Evans and members of the investment group schemed to deceive the OCC by hiding from regulators the fact that bank loan proceeds were being used to buy bank stock, and they thereby injured the bank by depriving it of much needed new capital.

Prior to submitting the case to the jury, the district court dismissed four counts against Mr. Evans. At the conclusion of the trial, the jury found Mr. Evans guilty on all remaining counts.

The district court granted Mr. Evans a judgment of acquittal as to each count and, in the alternative, granted Mr. Evans a new trial on all counts. We review a district court's grant of a motion for acquittal under the same standard that the trial court applied when granting the motion. United States v. White, 673 F.2d 299, 301 (10th Cir.1982).

We must view the evidence, both direct and circumstantial, in the light most favorable to the government, and without weighing conflicting evidence or considering the credibility of witnesses, determine whether that evidence, if believed, would establish each element of the crime. If the government has met that standard, we, as well as the trial court, must defer to the jury's verdict of guilty. This standard reflects a deep respect for the fact-finding function of the jury.

Id. at 301-02 (citations omitted).

II.

The government appeals the judgment of acquittal as to the misapplication counts under 18 U.S.C. Sec. 656. Section 656 makes it a crime for an officer or employee of any bank to "willfully misappl[y] any of the moneys, funds or credits of such bank." To prove a violation under this statute, the government must show that "(1) the defendant was an executive officer of the bank, (2) the bank was connected in some way to the Federal Reserve System, (3) the defendant willfully misapplied the funds of the bank, and (4) the defendant acted with the intent to injure or defraud that bank." United States v. Haddock, 961 F.2d 933, 934-35 (10th Cir.) [Haddock II ], cert. denied, --- U.S. ----, 113 S.Ct. 88, 121 L.Ed.2d 50 (1992).

In its brief, the government states that " 'a willful misapplication' of bank funds 'occurs when funds are distributed under a record which misrepresents the true state of the record with the intent that bank officials, bank examiners, or the [Federal Deposit Insurance Corporation] will be deceived.' " Aplt.Br. at 28 (quoting United States v. Twiford, 600 F.2d 1339, 1341 (10th Cir.1979)); see also United States v. Davis, 953 F.2d 1482, 1493 (10th Cir.1992) (also quoting Twiford in context of 18 U.S.C. Sec. 657, a parallel statute protecting institutions insured by FSLIC), cert. denied --- U.S. ----, 112 S.Ct. 2286, 119 L.Ed.2d 210 (1992). The government argues that "[t]here is no requirement that the 'misapplication' itself be unlawful; what makes it criminal is that the use of bank funds occurs with the specific intent to 'injure or defraud' the bank.' " ¹ Aplt.Br. at 28-29 (quoting Hernandez v. United States, 608 F.2d 1361, 1364-65 (10th Cir.1979) (emphasis added)).

The court instructed the jury that "intent to injure or defraud the bank may be shown by [a knowing], voluntary act by the defendant, the natural tendency of which may have been to injure the bank." Rec., vol. XI, at 2312; see also United States v. Tokoph, 514 F.2d 597, 603-04 (10th Cir.1975). Mr. Evans allegedly loaned money under a false record and then used that money to recapitalize the bank. The natural tendency of loaning the money could not have been to injure the bank because the government did not attempt to prove at trial that any of the loans were not adequately collateralized or that the borrowers were not creditworthy. ² In addition, the loans were made at a time when the bank had lending authority. Rec., vol. V, at 938.

The government also did not prove that using funds borrowed from the bank to buy stock in the bank tended to injure the bank. Buying bank stock with money loaned by that bank is not illegal. The only relevant statute states that a bank may not make loans on the security of its own shares. 12 U.S.C. Sec. 83 (1988). The loans in this case were not secured by bank stock, but by other collateral.

The government argued at trial and also on appeal that Mr. Evans intended to injure the bank by depriving it of new capital. Aplt.Br. at 29. However, the government did not prove that using the loan proceeds as bank capital would tend to injure the bank, nor that Mr. Evans knew or should have known that using these loan proceeds for part of the capital infusion would tend to injure the bank. The only testimony tending to show that the bank officers believed the capital had to be "new money" came from Benjamin Lee Dante, an original member of the investment group. ³ He testified that he thought the capital needed to be "new money, not money loaned from the bank." Rec., vol. VIII, at 1496. He claims he made this assumption only on the basis of Mr. Evans' statement that they had to "watch what we are doing ... [w]e're all going to wind up going to jail." Id. 1496-97. In addition, Mr. Dante had previously testified that they hid the true purpose of the loans from the regulators because at the time they mistakenly thought that "it was illegal for loan proceeds from the bank to be used to purchase stock." Rec., vol. VII, at 1289; see also rec., vol. VI, at 1229.

Richard Brown, the OCC examiner, testified about the consequences of not having "new money" make up all of the required capital. Rec., vol. V, at 1002-03. The first consequence, he said, was that if the OCC had known where the money came from, the OCC might not have approved the change of control application. Id. at 1002. However, this assertion only establishes that the false purpose deceived the...