U.S. v. Stone

• Decision Date: 27 January 1992
• Docket Number: No. 91-3237,91-3237
• Citation: 954 F.2d 1187
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Gene E. STONE, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1187

954 F.2d 1187

UNITED STATES of America, Plaintiff-Appellee, v. Gene E. STONE, Defendant-Appellant.

No. 91-3237.

United States Court of Appeals Sixth Circuit.

Argued Sept. 24, 1991.

Decided Jan. 27, 1992.

Thomas A. Karol, Asst. U.S. Atty. (argued), Office of the U.S. Atty., Western Div., Toledo, Ohio, for plaintiff-appellee.

Jerome Phillips, Wittenberg & Phillips, Scott E. Spencer (argued), Toledo, Ohio, for defendant-appellant.

Before MARTIN and JONES, Circuit Judges, and BROWN, Senior Circuit Judge.

NATHANIEL R. JONES, Circuit Judge.

Defendant Gene E. Stone appeals his conviction under the bank fraud statute, 18 U.S.C.A. § 1344 (West Supp.1991). For the reasons that follow, we affirm the judgment below.

I

The facts giving rise to this appeal are for the most part uncontested. Prior to his conviction, Stone operated several small corporations in Ohio and Michigan. For many years, Stone maintained numerous checking accounts for these businesses at the Ohio Citizens Bank ("OCB") and the Mid American National Bank ("Mid American"), both located in Toledo, Ohio. In the latter part of 1988, Stone's businesses began experiencing financial difficulties; to alleviate short-term cash-flow problems, Stone began kiting checks. ¹

According to account statements introduced at trial, Stone deposited over $400,000 into his accounts at each of the two banks in January 1989. By December 1989, this amount had grown to over $9,700,000. Sometime in late October or early November 1989, Mark Cassin, a branch manager at Mid American, noticed that Stone had written a surprisingly large number of checks to OCB on his Mid American account. When Cassin contacted Stone and requested an explanation, Stone replied that his accountant had informed him the transfers were a necessary accounting procedure.

After Cassin discovered later that year that Stone's unusual checking activity continued unabated, he requested a meeting with Stone for January 9, 1990. At that meeting, Stone reiterated his reasons for the checking practices. Cassin responded that he did not feel comfortable with Stone's explanation and informed him that Mid American would close his accounts within ten days. Consequently, Mid American closed Stone's accounts on January 19, 1990. The check-kiting scheme thereupon collapsed. On that day, Stone went to OCB and admitted to bank officials that he had been kiting checks between the two banks. Following this meeting, Stone contacted Cassin at Mid American and told him also of his check-kiting scheme.

OCB was left with a final deficit of $465,962.67 as a result of Stone's kiting scheme. Stone stated that he had chosen OCB to absorb the loss because of OCB's service charge for negative collected balances, with which Stone had been quite displeased. ² The negative collected balance charge was a standard one generally imposed by OCB upon all business checking accounts. This charge was the prime rate plus two percent and equalled the rate OCB normally charged for loans of higher than average risk.

On August 16, 1990, Stone was charged in a one count information with bank fraud in violation of 18 U.S.C. § 1344. On November 14, 1990, the parties stipulated to an amended information. On January 8, 1991, the case was tried in the United States District Court for the Northern District of Ohio. At the conclusion of trial, the court found Stone guilty of bank fraud and subsequently sentenced Stone to two years imprisonment followed by three years of supervised release, plus restitution. This timely appeal followed.

II

Stone's primary contention on appeal is that a bare check-kiting scheme does not constitute a "misrepresentation" within the meaning of 18 U.S.C.A. § 1344(2) (West Supp.1991) and, therefore, that his conviction under that section cannot stand. The current version of § 1344 reads as follows:

§ 1344. Bank fraud

Whoever knowingly executes, or attempts to execute, a scheme or artifice--

(1) to defraud a financial institution; or

(2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;

shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

18 U.S.C.A. § 1344 (West Supp.1991). ³ The district court, sitting as trier of fact, found that Stone had knowingly executed a scheme or artifice to defraud a financial institution within the meaning of the statute and was therefore guilty of bank fraud.

Stone would have us shift the focus of our analysis onto subsection (2) of § 1344 and hold that an unadorned check-kiting scheme does not constitute "false or fraudulent pretenses, representations or promises" under that provision. Stone's interpretation of subsection (2) finds support in Williams v. United States, 458 U.S. 279, 102 S.Ct. 3088, 73 L.Ed.2d 767 (1982), where the Court interpreted 18 U.S.C. § 1014 (1988), which makes it a crime to "knowingly make[ ] any false statement or report" to certain enumerated financial institutions, to find that writing a check on insufficient funds does not constitute the making of a "false statement":

Although petitioner deposited several checks that were not supported by sufficient funds, that course of conduct did not involve the making of a "false statement," for a simple reason: technically speaking, a check is not a factual assertion at all, and therefore cannot be characterized as "true" or "false." ... Each check did not, in terms, make any representation as to the state of petitioner's bank balance.

Id. at 284-85, 102 S.Ct. at 3091.

In response to the Court's decision in Williams, Congress passed the more recent bank-fraud statute with the express intent of bringing check-kiting schemes within its reach:

In Williams, the Court concluded this form of fraud [check-kiting] did not fall within the scope of 18 U.S.C. 1014 because a check did not constitute a "statement" within the meaning of the statute.... These various gaps in existing statutes, as well as the lack of a unitary provision aimed directly at the problem of bank fraud, in the Committee's view create a plain need for enactment of the general bank fraud statute....

S.Rep. No. 225, 98th Cong., 1st Sess. 378 (1983), reprinted in 1984 U.S.Code Cong. & Admin.News 3182, 3518-19.

While this legislative language would appear to bring check-kiting, even absent false representations, within the purview of § 1344, at least two circuits have construed § 1344's legislative history narrowly and suggested that Congress effected its purpose by adding subsection (1), which prohibits a scheme or artifice "to defraud a financial institution," and that subsection (2) does not reach an unembellished scheme of check-kiting. Thus, in United States v. Medeles, 916 F.2d 195 (5th Cir.1990), where the defendant was charged and convicted only under § 1344(2), the court concluded that the bare check-kiting scheme alleged was insufficient to support the conviction. Id. at 201; see also United States v. Bonnett, 877 F.2d 1450, 1454-55 (10th Cir.1989). The court in Medeles further concluded that, while Congress may have intended § 1344 as a whole to reach conduct such as check-kiting, there was no indication that § 1344(2) specifically was meant to do so. Medeles, 916 F.2d at 201. The court noted, however, that it might find a bare check-kiting scheme actionable under § 1344(1). Id.

Stone seeks further support in those cases interpreting similar language in the mail-fraud statute, 18 U.S.C.A. § 1341 (West Supp.1991), and the wire-fraud statute, 18 U.S.C.A. § 1343 (West Supp.1991). ⁴ For instance, in United States v. Cronic, 900 F.2d 1511, 1516 (10th Cir.1990), involving a conviction under § 1341, the court concluded that "a bare check kiting scheme, unembellished by other acts or communications, does not violate the false or fraudulent pretenses, representations, or promises clause of the mail fraud statute." See also United States v. Rafsky, 803 F.2d 105, 108 (3rd Cir.1986), cert. denied, 480 U.S. 931, 107 S.Ct. 1568, 94 L.Ed.2d 760 (1987).

Whether a bare check-kiting scheme remains insufficient to sustain a conviction under subsection (2), as Stone insists, is an issue we need not resolve in this case simply because the information under which Stone was convicted alleged that Stone had "devised a scheme or artifice to defraud the Ohio Citizens Bank." J.A. at 6 (emphasis added). This court has recently upheld a conviction for check kiting under the defraud provision of § 1344(1), see United States v. Seago, 930 F.2d 482, 486-87 (6th Cir.1991), thereby joining those circuits that have interpreted § 1344(1) to encompass check-kiting schemes within its strictures. See, e.g., United States v. Celesia, 945 F.2d 756, 758-59 (4th Cir.1991); Cronic, 900 F.2d at 1514; United States v. Schwartz, 899 F.2d 243, 246 (3d Cir.), cert. denied, --- U.S. ----, 111 S.Ct. 259, 112 L.Ed.2d 217 (1990); Bonnett, 877 F.2d at 1455; United States v. Taggatz, 831 F.2d 1355, 1356-57 (7th Cir.1987). Similarly, a number of courts agree that a simple check-kiting scheme is actionable under the analogous "defraud" clauses of the mail-fraud statute, § 1341, and the wire fraud statute, § 1343, and, accordingly, have not required an affirmative misstatement to support a conviction. For example, United States v. Street, 529 F.2d 226, 229 (6th Cir.1976), we upheld a check kiting conviction under § 1341 absent any evidence of an affirmative misrepresentation. Accord Rafsky, 803 F.2d at 108 (holding that scheme to defraud under wire-fraud statute need not include evidence of misrepresentations); United States v. Frankel, 721 F.2d 917, 921 (3rd Cir.1983); United States v. Halbert, 640 F.2d 1000, 1007 (9th Cir.1981). Stone offers no basis for rejecting this accepted interpretation.

We further note that even if Stone had been indicted and convicted solely under §...