US v. Ramming

• Decision Date: 12 January 1996
• Docket Number: Criminal A. No. H-94-181.
• Citation: 915 F. Supp. 854
• Parties: UNITED STATES of America, Plaintiff, v. Lawrence E. RAMMING, John Thomas Cloud, Fred E. Wiggins, Jr., Robert A. Briggs, Scott H. Phillips, John A. Herrin, James L. Emerson, Thomas A. Fry, III, Thomas J. Lykos and Paul Licata, Defendants.
• Court: U.S. District Court — Southern District of Texas

915 F. Supp. 854

UNITED STATES of America, Plaintiff, v. Lawrence E. RAMMING, John Thomas Cloud, Fred E. Wiggins, Jr., Robert A. Briggs, Scott H. Phillips, John A. Herrin, James L. Emerson, Thomas A. Fry, III, Thomas J. Lykos and Paul Licata, Defendants.

Criminal A. No. H-94-181.

United States District Court, S.D. Texas, Houston Division.

January 12, 1996.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

United States Attorney's Office, Washington, DC, for U.S.

Dan L. Cogdell, Houston, TX, for Lawrence E. Ramming.

Michael W. Ramsey, Houston, TX, for John Thomas Cloud.

Terry Collins, Harrisburg, PA, for Fred E. Wiggins.

Robert Shults, Stephen Lemmon, Houston, TX, for Robert A. Briggs.

Jack Zimmerman, for Scott H. Phillips.

Wendell Odom, Houston, TX, for John A. Herrin.

William Burge, Baltimore, MD, for James L. Emerson.

Chris Bacon, for Thomas A. Fry, III.

Theo Pinson, Houston, TX, for Thomas J. Lykos.

Robert Moen, Vancouver, BC, Canada, for Paul Licata.

ORDER OF DISMISSAL

HOYT, District Judge.

This criminal case arises out of various financial transactions that occurred between Memorial and Wilcrest National Banks, Oxford Funding Corporation and various third party corporations. The defendants have moved for an judgment of acquittal, pursuant to Rule 29 of the Federal Rules of Criminal Procedure, and dismissal based on prosecutorial misconduct. As well, there is a pending motion to suppress the evidence seized pursuant to a search warrant because there was no probable cause for its issuance.

Having heard the evidence, reviewed the appropriate documents and exhibits and taken into consideration the previous arguments from all sides, the Court is of the opinion that both the motion for acquittal and the motion to dismiss based on prosecutorial misconduct shall be granted. The motion to suppress shall be denied.

I.

The Indictment:

In the first of a 27 count indictment, the government charges the defendants with conspiracy to defraud federally insured financial institutions by: (a) use of interstate wire facilities; (b) misapplication of funds; (c) making false entries in the records of the subject institutions; (d) offering something of value to a bank officer to influence that officer; (e) agreeing to accept something of value by a bank officer for the purpose of being influenced in connection with the banks' business; (f) taking and carrying away bank property with the intent to steal; and, (g) conducting a financial transaction with proceeds of an specified unlawful activity knowing that the transaction was designed to conceal the nature, location, source, ownership, or control of the proceeds.

Twenty-five (25) counts of the indictment charge the defendants in various combination with the substantive charges of bank fraud, wire fraud, misapplication of bank funds, false entries in bank records, bank bribery, bank larceny, and money laundering.

The final count seeks criminal forfeiture of all property to which the alleged proceeds of the unlawful activity may be traced. And, in the event that the actual property subject to forfeiture cannot be obtained, substitute assets are sought in place or instead of the forfeited property.

Government Contentions:

The government contends, as it relates to the conspiracy and bank fraud charges, that the defendants, knowing that Memorial Bank, N.A. and Village Green National Bank were troubled institutions, "put into operation a scheme to artificially enhance the financial positions of Memorial and Village Green for the purpose of preventing or delaying a takeover of the banks by the regulators." The government asserts that this scheme was accomplished by "creating sham transactions involving the `sales' to be returned clandestinely to the banks as newly injected capital from an independent source." To this end, it argues that "straw buyers" such as Amalgamated Oil and Gas Company ("AOG"), First City Realty Corporation ("FCRC"), and Credit Recovery Corporation ("CRC") were created simply to make specific purchases of charged-off loans, personal property and real property in possession of the banks as a result of prior foreclosures and write-offs, with proceeds derived from the sale of various loan packages to the banks.

As facts supporting its charge of conspiracy and bank fraud, the government points to the fact that: (a) Robert J. Creighton, a contract employee of Memorial and later Oxford, became the president of CRC; (b) Mary Jane Haines, the wife of John Thomas Cloud and a principal of Oxford, was named president of AOG; and, (c) James Harold Carpenter, contract employee of Oxford, served as president of FCRC. The government asserts that by creating these "sham" corporations, the defendants intended to conceal the fact that the sale and purchase transactions were related, thereby denying the Office of the Controller of Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC") the appropriate oversight functions that they usually and customarily exercise.

It is charged by the government that the defendants accomplished the conspiracy and bank fraud by proposing to the directors of the bank, in related transactions, that Oxford would sell to the banks packaged real estate loans at inflated prices and funnel proceeds from the sale of those packages to corporations such as AOG, FCRC, and CRC for the purposes of purchasing selected troubled assets from the banks. The purpose of this procedure, according to the government, was to conceal from the OCC and the FDIC that the transactions were related and that the entities were using the banks' own funds to purchase trouble assets from the banks.

The effectuation of this alleged conspiracy and bank fraud scheme gives rise to the substantive offenses charged in counts three (3) through twenty-six (26) and the forfeiture count is charged in count twenty-seven (27).

Conspiracy and Bank Fraud Defined:

A "conspiracy" is an agreement between two or more persons to join together to accomplish some unlawful purpose. Title 18 U.S.C. § 371. For a jury to find any defendant guilty of conspiracy, it must be convinced that the government has proved beyond a reasonable doubt that: (a) two or more persons made an agreement to commit the offenses as charged in the indictment; (b) the defendant knew the unlawful purpose of the agreement and joined in it willfully, that is, with the intent to further the unlawful purpose; and, (c) one of the conspirators, during the existence of the conspiracy, knowingly committed at least one of the overt acts described in the indictment in order to accomplish some object or purpose of the conspiracy. Id. at § 371.

The conspiracy as alleged, in the case at bar, asserts a scheme to defraud federally insured financial institutions as provided in Title 18 U.S.C. §§ 1343, 1344, 656, 1005, 215, 2113(b) and 1956(a)(1)(B)(i), by selling packaged notes to the banks and, in turn, through subsidiaries or third parties, purchasing troubled assets from the same banks. At all times during the alleged conspiracy, mid-1989 to on or about May of 1991, the banks were operating under a "Cease and Desist Order", which order prevented the banks from making any substantial loans. Simultaneously, the banks were under regulatory supervision and were charged with the duty to enhance their capital positions.

The Defendants' Position:

The defendants assert that the sale of packaged notes to the banks and the purchase back of troubled assets from the same banks were mutually beneficial. They argue that the "Yield Program"¹ offered to the banks by Oxford permitted the banks to legitimately enhance their capital accounts by acquiring an income stream superior to the ones that could be generated by new loans, while simultaneously disposing of troubled assets. They further argue that the transactions were not "trash for cash schemes," the notes were not sold at inflated prices, the troubled assets purchased from the banks were not worthless, and the transactions were appropriately documented in the records of the banks.

Discussion:

Conspiracy and Bank Fraud:

The bank fraud charge is joined for the purpose of this discussion, with the conspiracy count because the proof required of the government is essentially the same. To prove bank fraud, the government must establish, beyond a reasonable doubt, that the defendants engaged in a scheme to obtain money from the banks under false pretenses, knowing that the false pretenses would both influence the bankers and deceive the regulators. Title 18 U.S.C. § 1344.

In order for the government to avoid a Rule 29 motion on the conspiracy count, there must be some evidence on each of the necessary elements sufficient for the Court to determine that a jury could find that the crime of conspiracy occurred, beyond a reasonable doubt. United States v. Malatesta, 590 F.2d 1379 (5th Cir.1979). See also United States v. Salazar, 958 F.2d 1285 (5th Cir.1992).

If the transactions between Oxford and the banks had "economic substance" then several of the offenses that make up the conspiracy and bank fraud charges fail. The government suggests that these transactions were without economic substance because the real estate loan packages were sold to the banks at inflated prices, essentially "cooking" the banks' books. On this point, the Court determines that United States v. Beuttenmuller, 29 F.3d 973 (5th Cir.1994), is instructive.

In Beuttenmuller, the government charged the defendant, among others, with conspiracy to commit bank fraud and aiding and abetting the making of false entries in credit institution reports. The government argued that the transaction was illegal because it was a "cash for trash" transaction. A "cash for trash" scheme is an illegal scheme where an institution sells real estate owned, ("REO") that has been wholly financed by the institution that owns it, in violation of banking regulations that require at least a 20 percent...