U.S. v. McElroy

• Decision Date: 31 July 1990
• Docket Number: 1274,Nos. 1273,D,s. 1273
• Citation: 910 F.2d 1016
• Parties: 30 Fed. R. Evid. Serv. 910 UNITED STATES of America, Appellee, v. Thomas J. McELROY, Jr., and Robert H. Stedman, Defendants-Appellants. ockets 90-1040, 90-1041.
• Court: U.S. Court of Appeals — Second Circuit

Page 1016

910 F.2d 1016

30 Fed. R. Evid. Serv. 910

UNITED STATES of America, Appellee, v. Thomas J. McELROY, Jr., and Robert H. Stedman, Defendants-Appellants.

Nos. 1273, 1274, Dockets 90-1040, 90-1041.

United States Court of Appeals Second Circuit.

Argued May 29, 1990.

Decided July 31, 1990.

George J. Terwilliger, III, U.S. Atty., D. Vt., and John-Claude Charbonneau, Asst. U.S. Atty., Rutland, Vt., for appellee.

John J. Kennelly, Rutland, Vt. (James P. Carroll, Alan B. George, Carroll, George & Pratt, Rutland, Vt., on the brief), for defendant-appellant Thomas J. McElroy, Jr.

Stephen Alan Dardeck, Rutland, Vt. (Michael C. Pratt, Tepper & Dardeck, Rutland, Vt., on the brief), for defendant-appellant Robert H. Stedman.

Before LUMBARD, KEARSE, and MINER, Circuit Judges.

KEARSE, Circuit Judge:

Defendants Thomas J. McElroy, Jr., and Robert H. Stedman appeal from judgments entered in the United States District Court for the District of Vermont, following a jury trial before Lee P. Gagliardi, Judge, convicting each of them on one count of conspiracy to misapply bank funds, in violation of 18 U.S.C. Secs. 371 and 656 (1988), several counts of misapplication of bank funds, in violation of 18 U.S.C. Sec. 656, and several counts of giving and receiving bribes, in violation of 18 U.S.C. Secs. 215(a)(1) and (2) (1988). Each defendant was sentenced to, inter alia, 37 months' imprisonment, to be followed by two years' supervised release, and ordered to make restitution to the victims of their offenses. On appeal, they contend principally (1) that Sec. 215(a), as applied to them, is unconstitutionally vague; and (2) that the district court (a) did not properly take account of the overlap in the charges against them, (b) made several erroneous rulings at trial, and (c) erred in calculating their sentences. For the reasons below, we affirm the judgments of conviction.

I. BACKGROUND

At all relevant times, McElroy was Chief Executive Officer of Marble Bank ("Marble"), and Stedman was President of First Twin State Bank ("First Twin"). Taken in the light most favorable to the government, the trial evidence established the following.

A. The Reciprocal Lending Scheme

Marble and First Twin were Vermont banks insured by the Federal Deposit Insurance Corporation ("FDIC"). Under the banks' respective loan policies, neither McElroy nor Stedman was allowed to borrow from his own bank without the approval of the bank's board of directors. See also 12 U.S.C. Sec. 375b (1982) (loans in excess of a certain amount to executive officers of federally insured bank must be approved in advance by board of directors).

In November 1986, McElroy applied to Numerica Savings Bank ("Numerica") for an unsecured personal line of credit in the amount of $550,000. McElroy sought the loan in order to purchase stock in New England banks on margin. Numerica denied this application because, inter alia, McElroy's financial condition was already highly leveraged, and his income was insufficient to service his projected debt. The Numerica witnesses, referring to the Federal Reserve Board's Regulation U, 12 C.F.R. Pt. 221 (1990) ("Regulation U"), a regulation that essentially prohibits banks from extending margin credit in excess of 50% of a stock's current market value, also testified that McElroy's application was denied in part because the purpose of the loan was bank stock speculation.

Upon the rejection by Numerica, McElroy contacted Stedman to seek a loan from First Twin. Stedmam too was interested in speculating in New England bank stocks, and he and McElroy entered into an arrangement by which each defendant would cause his own bank to give the other defendant large unsecured loans for the purpose of bank stock speculation. There followed several reciprocal loans, all occurring in 1987. On January 6 and 12, Stedman caused First Twin to lend McElroy $200,000 and $100,000, respectively; on January 7, McElroy caused Marble to lend Stedman $300,000. On September 8, Stedman caused First Twin to lend McElroy $125,000; on September 23, McElroy caused Marble to lend Stedman $150,000. On October 29, Stedman caused First Twin to lend McElroy $200,000; on November 2, McElroy caused Marble to lend Stedman $200,000. In sum, McElroy caused Marble to make three loans to Stedman totaling $650,000, and Stedman caused First Twin to make four loans to McElroy totaling $625,000. In addition to these new loans, each defendant granted the other four loan renewals (including "rollover" loans), the reciprocal renewals generally occurring within one day of each other. Thus, on May 6, Stedman renewed the $300,000 in loans to McElroy, and on May 7, McElroy renewed the $300,000 loan to Stedman; on September 3, Stedman again renewed the $300,000 in loans to McElroy, and on September 4, McElroy renewed the $300,000 McElroy did not report the Stedman loans to the Marble board of directors; nor did he inform the board of his borrowings from Stedman's bank. Similarly, Stedman did not inform the First Twin board of either his approval of the loans to McElroy or his borrowings from McElroy's bank. Numerous witnesses, including bankers and state and federal bank regulators, testified that given the facts that, inter alia, the respective net worths of McElroy and Stedman at the time of the loans were less than the amounts loaned and that the loans were totally unsecured and were for the purpose of bank stock speculation, both sets of loans were improvident and unwarranted.

loan to Stedman; on October 9, Stedman renewed the $125,000 loan to McElroy, and on October 16, McElroy granted Stedman a $130,000 loan renewal; and on November 23, Stedman granted McElroy a $125,000 loan renewal, and McElroy granted Stedman a $129,750 loan renewal.

The reciprocal loans were discovered by FDIC examiners in the course of routine audits and follow-up investigations that began in November 1987. Examiners auditing First Twin noted the loans to McElroy shown on that bank's books and the large contemporaneous deposits made to Stedman's personal account. This led to further investigation at Marble and the discovery of the other half of the arrangement. Both FDIC and state banking authorities concluded that the loans could not be explained on the basis of prudent banking principles and that the reciprocal lending relationship had colored the judgment of McElroy and Stedman in making the loans.

B. The Charges, the Verdicts, and the Sentences

McElroy and Stedman were charged in a 46-count indictment. Count 1 charged them with conspiring to misapply the funds of their respective banks, in violation of 18 U.S.C. Secs. 371 and 656. With respect to the seven loans or loan renewals from Marble to Stedman, McElroy was charged with seven counts of willfully misapplying Marble's funds, in violation of 18 U.S.C. Sec. 656 (counts 40-46), and seven counts of corruptly giving a thing of value to Stedman to induce his approval of the loans from First Twin, in violation of 18 U.S.C. Sec. 215(a)(1) (counts 18-24); and Stedman was charged with seven counts of corruptly accepting, as a bank officer, a thing of value as inducement for approving the First Twin loans to McElroy, in violation of 18 U.S.C. Sec. 215(a)(2) (counts 25-31). With respect to the eight loans or loan renewals from First Twin to McElroy, Stedman was charged with eight counts of willfully misapplying First Twin's funds, in violation of 18 U.S.C. Sec. 656 (counts 32-39), and eight counts of corruptly giving a thing of value to McElroy as inducement for his approval of the Marble loans, in violation of 18 U.S.C. Sec. 215(a)(1) (counts 2-9); and McElroy was charged with eight counts of corruptly accepting, as a bank officer, a thing of value as inducement for his approval of Marble's loans to Stedman, in violation of 18 U.S.C. Sec. 215(a)(2) (counts 10-17).

The jury found McElroy and Stedman guilty on all counts. The district court imposed sentences that included prison terms, periods of supervised release, orders to pay restitution to the victimized banks, and special statutory assessments. Applying the federal Sentencing Guidelines ("Guidelines") to the conspiracy count and to those substantive counts that focused on loan transactions occurring after November 1, 1987 (collectively "Guidelines counts"), the court determined that the offense level for each defendant was 21, for which the prescribed range of imprisonment was 37 to 46 months. The court sentenced each defendant to concurrent 37-month prison terms on Guidelines counts. As to the remaining counts, the court imposed 37-month terms of imprisonment, to run concurrently with each other and with the sentences imposed on Guidelines counts. Each defendant's prison term was to be followed by two years' supervised release. In addition, McElroy was ordered to make restitution to First Twin in the amount of $512,243.30; Stedman was ordered to make restitution to Marble in the

amount of $387,704.35. These appeals followed.

II. DISCUSSION

On appeal, McElroy and Stedman contend principally (1) that the bank bribery statute, Sec. 215(a), is unconstitutionally vague as applied to them; and (2) that the district court (a) did not take proper account of the overlap in the charges under Secs. 215(a)(1), 215(a)(2), and 656, (b) erred in allowing or excluding various items of evidence and in making several other trial rulings, and (c) erred in calculating their offense levels under the Guidelines. Their arguments are without merit.

A. The Constitutionality of Sec. 215(a)

The bank bribery statute, as amended in 1986, provides, in pertinent part, that whoever

(1) corruptly gives, offers, or promises anything of value to any person, with intent to influence or reward an officer ... of a financial institution in connection with any business or transaction of such institution; or

(2) as an officer ... of a financial institution, ... corruptly accepts or agrees to accept, anything of value from any...