U.S. v. Rackley, 91-6343

• Decision Date: 08 March 1993
• Docket Number: No. 91-6343,91-6343
• Citation: 986 F.2d 1357
• Parties: 37 Fed. R. Evid. Serv. 508 UNITED STATES of America, Plaintiff-Appellee, v. Jack B. RACKLEY, Defendant-Appellant. Tenth Circuit
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1357

986 F.2d 1357

37 Fed. R. Evid. Serv. 508

UNITED STATES of America, Plaintiff-Appellee, v. Jack B. RACKLEY, Defendant-Appellant.

No. 91-6343.

Tenth Circuit.

March 8, 1993.

C. Merle Gile, Oklahoma City, OK, for defendant-appellant.

Sara Criscitelli, Dept. of Justice, Washington, DC (Wayne P. Williams and Kevin G. Matthews, Attys. for Dept. of Justice, Washington, DC, and Timothy D. Leonard, U.S. Atty., Oklahoma City, OK, with her on the brief), for plaintiff-appellee.

Before BALDOCK and EBEL, Circuit Judges, and LUNGSTRUM, District Judge. ^*

LUNGSTRUM, District Judge.

On April 17, 1991, defendant Jack B. Rackley and Mark E. Hight were charged in an eighteen-count Indictment by a grand jury in the Western District of Oklahoma. The Indictment charged defendant and Hight with thirteen counts of bank fraud in violation of 18 U.S.C. § 1344 and five counts of misapplication of bank funds in violation of 18 U.S.C. § 656. Both defendant and Hight were named in all eighteen counts of the Indictment. On June 11, 1991, Hight filed a petition to enter a plea of guilty.

Defendant's jury trial was conducted on July 8-12, 1991. Hight testified as a government witness at defendant's trial. Defendant was convicted of eight counts of bank fraud, in violation of 18 U.S.C. § 1344, and three counts of misapplication of bank funds, in violation of 18 U.S.C. § 656. ¹ Defendant was sentenced to concurrent terms of two and one half years imprisonment on each count.

Defendant contends on appeal that the district court erred: (1) in finding that the government presented sufficient evidence to convict defendant on the charges of bank fraud and misapplication of funds; and (2) that the district court erred in allowing the government to cross-examine defendant and defense witness Larry Baresal regarding their removal from banking pursuant to a consent order entered into with the Office of the Comptroller of the Currency. For the reasons set forth below, we affirm the rulings of the district court.

I. Factual Background

Defendant was President and Chairman of the Board of Directors of the First National Bank of Tipton, Oklahoma ("Tipton Bank"). He was also a director of the First State Bank of Blanchard, Oklahoma ("Blanchard Bank") and the First National Bank of Hammon, Oklahoma ("Hammon Bank"). Defendant was also president of Executive Bank Services, a computer company that provided various bank management services for the Tipton, Blanchard and Hammon Banks.

Mark Hight was a co-defendant in the criminal case. At the time of the offenses charged, Hight was a senior vice-president of the Farmer's National Bank in Cordell, Oklahoma ("Farmers Bank"). Prior to trial, Hight entered into a plea agreement wherein he pled guilty to a charge of making a false statement and agreed to testify for the Government in the criminal case against defendant.

The evidence at trial established that defendant and Hight established a business partnership named JA-MAR Properties, Ltd. ("JA-MAR") ². The articles of partnership of JA-MAR were signed on February 17, 1983, showing defendant and Hight as general partners. Through JA-MAR, defendant and Hight bought low to moderate income residential properties in the Oklahoma City area for rental and investment.

The evidence at trial was that during the period immediately following JA-MAR's establishment, the partnership fared well financially. Rents from the properties were sufficient to service the debt on the properties and make necessary repairs. However, in the economic downturn of late 1986, JA-MAR ran into severe cash flow problems. JA-MAR's vacancy rate was increasing while its rental income was falling. Defendant and Hight were forced to make some of the mortgage payments and repairs out of their own funds. By 1986, JA-MAR had incurred approximately $500,000 of secured and unsecured debt, for which defendant and Hight were both fully responsible.

In an effort to alleviate these financial pressures, defendant and Hight engaged in an arrangement to sell several pieces of property. Defendant and Hight approached Bruce Thompson, a local real estate investor who bought, renovated, and rented low and moderate income real estate properties in the Oklahoma City, area. Thompson also served as a "work out specialist" for several area banks, including Farmers Bank. Thompson would buy foreclosed properties from the banks, with their funding and at their request, in order to remove the nonproductive properties from the bank's books. Thompson did not purchase all these properties himself. Instead, "investors" with good credit ratings took out the loans in their names. Thompson would pay these investors a $2500 incentive fee for each loan. ³ Thompson would then make all the payments on these loans until such time as the investment property had been repaired, rented and was producing sufficient income to service the debt.

In late fall, 1986, Hight approached Thompson regarding several troubled JA-MAR properties. Thompson found two potential investors for JA-MAR. Those investors were Thompson's attorney, Edward Allen Reed, and former real estate developer Rick Garrett. JA-MAR proceeded to sell multiple properties to Reed and Garrett. The properties were financed primarily through banks in which defendant and Hight were employed. A series of loans were made by Farmers Bank, Hammon Bank, Blanchard Bank, Tipton Bank and the Oxford Bank of Oxford, Kansas. ⁴ At trial, the Government alleged that the vast majority of these loans were made with either defendant or Hight acting as the loan officer at the bank. The Government alleged that various false statements were made in order to obtain the loans, including lack of disclosure of defendant's and Hight's financial interest in JA-MAR, signed settlement statements representing that purchasers had made earnest money deposits which in fact had not been made, and preparation of misleading credit information regarding the purchasers. The Government also alleged that loan documents were structured to represent that the investors were paying 90% of the appraised value, when in fact the banks were financing 100% of the purchase price.

In addition to the counts involving improper loans to finance purchases of JA-MAR properties, counts 12 and 13 of the Indictment related to a loan made by the Tipton Bank for Reed's purchase of an eight-unit apartment building owned by Thompson. Defendant acted as the loan officer on the deal, providing the financing through a loan for the full amount made by the Tipton Bank. The Government alleges that some of the proceeds from this loan were used to pay commissions to Reed and Garrett for the other JA-MAR loans and to pay for repairs to the JA-MAR properties.

II. Sufficiency of the Evidence

Evidence is sufficient to support a criminal conviction if, viewing all the evidence, both direct and circumstantial, in the light most favorable to the government, a reasonable trier of fact could find the essential elements of a crime beyond a reasonable doubt. United States v. Drake, 932 F.2d 861, 863 (10th Cir.1991); United States v. Culpepper, 834 F.2d 879, 881 (10th Cir.1987).

In order to convict the defendant of bank fraud under 18 U.S.C. § 1344, the government was required to prove: (1) that the defendant knowingly executed or attempted to execute a scheme (i) to defraud, or (ii) to obtain property by means of false or fraudulent pretenses, representations or promises; ⁵ (2) that defendant did so with the intent to defraud; and (3) that the financial institution was then insured by the Federal Deposit Insurance Corporation. See 18 U.S.C. § 1344; United States v. Bonnett, 877 F.2d 1450 (10th Cir.1989).

In order to convict the defendant of willful misapplication of bank funds under 18 U.S.C. § 656, the government was required to prove: (1) that defendant was a bank officer or director; (2) that each bank was a national or federally insured bank; (3) that the defendant willfully misapplied bank funds; and (4) that the defendant acted with intent to injure or defraud each bank. See 18 U.S.C. § 656; United States v. Harenberg, 732 F.2d 1507, 1511 (10th Cir.1984).

Defendant argues that there was insufficient evidence to convict him of bank fraud and misapplication of funds due to the fact that the owner of the Tipton, Hammon and Blanchard banks, John Hudson, who was also a director of each bank, was knowledgeable of the circumstances of the loans. Defendant points to trial testimony of Larry Baresal, who was a director of the Hammon and Tipton Banks and also did legal work for the banks. Baresal testified that both he and Hudson knew and were aware of defendant's interest in JA-MAR and were aware of the circumstances of the challenged loans.

Defendant frames his argument as a lack of sufficiency of the evidence to convict him of the offenses. However, defendant does not challenge the evidence as such, rather, he makes a legal argument that he cannot be guilty of the offenses charged because Hudson, the owner and a director of the banks, and Baresal, a director of the Tipton and Hammon banks and sometime lawyer for the Hudson-owned banks, were aware of the circumstances of the JA-MAR loans. The court finds such an argument to be an erroneous statement of the law. Hudson's and Baresal's knowledge or lack of knowledge of the circumstances of the loans is simply not determinative of the charges against defendant of bank fraud and misapplication of funds.

Defendant confuses the notion of defrauding a federally insured bank with the idea of defrauding its owner or directors. It is the financial institution itself--not its directors or agents--that is the victim of the fraud the statute proscribes. See United States v. Saks, 964 F.2d 1514, 1518 (5th Cir.1992); United States v. Blackmon, 839 F.2d 900, 904-06 (2nd Cir.1988); S.Rep. No. 225, 98th Cong., 2nd Sess. 377 (1983) reprinted in 1984 U.S.Code Cong. & Admin.News 3182, 3517 (§ 1344 was ...