United States v. Delgado
| Decision Date | 20 January 2023 |
| Docket Number | 18-cr-00122 |
| Parties | UNITED STATES OF AMERICA v. CAROL J. DELGADO and BRENT D. HOUCK |
| Court | U.S. District Court — Northern District of Illinois |
Defendants Carol Delgado and Brent Houck are charged with five counts of bank fraud, in violation of 18 U.S.C. § 1344(1). Broadly speaking, Delgado and Houck are alleged to have used companies controlled by Delgado to obtain bank loans that they represented were for the companies' operations but then they actually used the money for their own personal benefit. Delgado has exercised her right to represent herself in this matter, whereas Houck is represented by counsel. Now before the Court are Delgado's motions to dismiss the Indictment (Dkt. No. 109) and to suppress evidence seized pursuant to search warrants (Dkt. No. 101). Houck joins both motions. (Dkt. Nos. 113, 114.) In addition, Houck has separately moved for a bill of particulars. (Dkt. No. 116.) For the reasons that follow, Delgado and Houck's motions are denied.
On June 13, 2018, the grand jury returned an Indictment charging both Delgado and Houck with five counts of bank fraud. The Indictment alleges as follows.[1]
Delgado served as the president and chief executive officer (“CEO”) of Financial Management Services, Inc. (“FMSI”), a company that, along with its associated entities, made loans primarily to contractors in the construction industry. (Indictment ¶¶ 1(a) (c), Dkt. No. 16.)
In addition, Delgado owned 50% of FMSI's holding company FMSI of Delaware, Inc. (“FMSI of Delaware”). (Id. ¶ 1(c).) Delgado was also the owner, sole member, and manager of Renewable Assets Management Company LLC (“RAMCO”), a company that provided residential solar financing through a network of solar power system installation companies, and the CEO, manager, and sole owner of RAMCO's holding company, RAMCO Holdings, LLC. (Id. ¶¶ 1(b), (c).) Houck worked for Delgado as an employee of both FMSI and RAMCO. (Id. ¶ 1(d).)
On October 29, 2013, FMSI entered into a business loan and security agreement with the PrivateBank and Trust Company (“PrivateBank”),[2]which Delgado executed on behalf of FMSI. (Id. ¶ 1(e), (f).) Under the loan agreement, PrivateBank agreed to lend FMSI up to $10 million on a revolving-note basis. (Id. ¶ 1(f).) In turn, FMSI would use the line of credit to make its own loans to its construction-contractor customers. (Id.) On December 19, 2014, PrivateBank entered into a similar business loan and security agreement with RAMCO, the purpose of which was to fund loans that RAMCO represented it would extend directly to homeowners installing solar energy products. (Id. ¶¶ 1(g), (h).) Delgado executed the loan agreement on behalf of RAMCO. (Id. ¶¶ (f), (g).) As collateral for the loan agreements, PrivateBank received security interests in, and liens against, the loans that FMSI and RAMCO made to their customers. (Id. ¶ 1(h).)
The loan agreements required FMSI and RAMCO to submit to PrivateBank each month borrowing base certificates providing information about the loans that each company extended to its customers. (Id. ¶ 1(h).) In addition, FMSI and RAMCO were required to submit monthly compliance certificates affirming that each company was in compliance with the terms and conditions of its agreement with PrivateBank. (Id. ¶ 1(i).) The loan agreements also generally forbade FMSI and RAMCO from entering into any transaction with any of their affiliates or any of their directors, officers, or employees. (Id. ¶ 1(j).)
According to the Indictment, Delgado and Houck initiated a scheme to defraud PrivateBank shortly after the October 2013 execution of the FMSI loan agreement. (Id. ¶ 2.) Their alleged scheme involved using FMSI and RAMCO to obtain millions of dollars from PrivateBank by falsely representing that the funds would be used for the companies' lending activities when, in fact, Delgado and Houck used a substantial portion of PrivateBank's funds for their own personal expenses. (Id. ¶¶ 2-3.) In furtherance of the alleged fraud, Delgado and Houck created false documentation for fake construction companies and then represented to PrivateBank that those fictitious companies were seeking loans from FMSI or RAMCO. (Id. ¶¶ 4-6.) Further, Delgado submitted borrowing base certificates and compliance certificates to PrivateBank that contained false information about FMSI and RAMCO's lending activities and the companies' compliance with the terms and conditions of their loan agreements with PrivateBank. (Id. ¶ 7.)
Between January 2014 and August 2016, Delgado and Houck submitted to PrivateBank approximately $4 million in false and fraudulent loan requests that were used not to finance FMSI and RAMCO's lending activities but instead largely for Delgado and Houck's personal benefit. (Id. ¶ 8.) Delgado and Houck used the remaining portion of PrivateBank's funds to repay older loans that were supposedly issued to the fictious companies to create the appearance that those fake companies were real and viable entities. (Id.) Each of the Indictment's five counts is predicated on a transfer made by PrivateBank to an account associated with Delgado and Houck.
Delgado has moved to dismiss the Indictment pursuant to Federal Rule of Criminal Procedure 12(b)(3)(B). In addition, Delgado has filed a motion to suppress evidence seized by the Government in connection with its execution of search warrants authorized by a Magistrate Judge. Houck has joined both of Delgado's motions and also seeks a bill of particulars under Federal Rule of Criminal Procedure 7(f). The Court begins with the challenges to the sufficiency of the Indictment before turning to the motion to suppress.
Under Federal Rule of Criminal Procedure 12(b)(3)(B), a criminal defendant may, prior to trial, move to dismiss an indictment as defective. Federal Rule of Criminal Procedure 7(c)(1) requires an indictment or information to provide a “plain, concise, and definite written statement of the essential facts constituting the offense charged.” In considering a motion to dismiss an indictment, the Court “must view all facts in the light most favorable to the government.” United States v. Yashar, 166 F.3d 873, 880 (7th Cir. 1999). In the Seventh Circuit, an indictment is considered “sufficient if it first, contains the elements of the charged offense and fairly informs a defendant of the charge against him which he must defend, and second, enables him to plead double jeopardy as a bar to a future prosecution.” United States v. Locklear, 97 F.3d 196, 199 (7th Cir. 1996) (internal quotation marks omitted). “The question before a court on a motion to dismiss is not whether the indictment alleges facts from which a jury could find that a defendant violated a given statute, but whether the Government conceivably could produce such evidence at trial.” United States v. Segal, 299 F.Supp.2d 840, 844 (N.D. Ill. 2004).
As an initial matter, Delgado asks the Court to take judicial notice of certain facts from outside the Indictment in evaluating its sufficiency. Among other things, Delgado wants the Court to consider the contents of PrivateBank's loan agreement with FMSI and court records from a separate civil proceeding. However, the Court declines Delgado's request to consider such outside information. A motion to dismiss an indictment “tests only whether an offense has been sufficiently charged” and is “not intended to be a summary trial of the evidence.” United States v. Yasak, 884 F.2d 996, 1001 (7th Cir. 1989) (internal quotation marks omitted). Accordingly, a “defendant is not permitted to transcend the four-corners of the indictment in order to demonstrate its insufficiency.” United States v. DiFonzo, 603 F.2d 1260, 1263 (7th Cir. 1979). Rather, “[a]n indictment is reviewed on its face, regardless of the strength or weakness of the government's case.” United States v. White, 610 F.3d 956, 958 (7th Cir. 2010). Here, Delgado's request for judicial notice essentially asks the Court to consider evidence that she believes undermines the Government's case. But a motion to dismiss is not a vehicle for “challeng[ing] the strength of the government's case or the sufficiency of the evidence.” United States v. Smith, 555 F.Supp.3d 563, 573 (N.D. Ill. 2021); see also United States v. Galicia, No. 15 CR 308, 2019 WL 1254930, at *3 (N.D. Ill. Mar. 19, 2019) . Therefore, Delgado's arguments for dismissal that rely on facts outside the Indictment fail.
Turning to Delgado's remaining arguments for dismissal, the Indictment charges both Delgado and Houck with five counts of bank fraud, in violation of 18 U.S.C. § 1344(1). To obtain a conviction under § 1344(1), the Government must prove beyond a reasonable doubt: “(1) there was a scheme to defraud a financial institution; (2) the defendant knowingly executed or attempted to execute the scheme; (3) the defendant acted with the intent to defraud; and (4) the deposits of the financial institution were insured by the [Federal Deposit Insurance Corporation (“FDIC”)] at the time of the charged offense.” United States v. Ajayi, 808 F.3d 1113, 1119 (7th Cir. 2013) (internal quotation marks omitted). Further, the scheme must “involve[] a materially false or fraudulent pretense, representation, or promise.” United States v. Ginsberg, 971 F.3d 689, 695 (7th Cir. 2020).
The first element of a § 1344(1) offense is the existence of a scheme to defraud. A “scheme to...
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