Choosing to adopt a broad view of what constitutes bank fraud under the federal bank fraud statutes, the U.S. Supreme Court held that to constitute a violation of the statute, no proof of intent to defraud the particular financial institution is required.
Instead, in a unanimous opinion authored by Justice Elena Kagan, the Court held that the statute requires only that a defendant intended to obtain bank property “by means of” a false statement.
The case involved defendant Kevin Loughrin, who stole checks from mailboxes while pretending to be a Mormon missionary going door to door in a Salt Lake City neighborhood. He then presented altered or forged checks at a Target store to make a purchase. After making each purchase, Loughrin then would return the items for cash. Loughrin attempted the scam six times; three of the checks were submitted for payment. Each of the six checks was drawn on an account at a federally insured bank. Once the authorities caught up with him, Loughrin was charged with six counts of committing bank fraud under 18 U.S.C. §1344. The statute provides:
“Whoever knowing 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.”
At trial, Loughrin requested a jury instruction that in order to be found guilty, he needed to be shown to have acted with “intent to defraud a financial institution.” He argued that he only intended to deceive Target, not the banks, and therefore could not be found guilty. The court rejected the instruction and Loughrin was convicted on all six counts. The Tenth U.S. Circuit Court of Appeals affirmed.
Loughrin filed a writ of certiorari to the U.S. Supreme Court, noting a split of authority in the federal appellate courts. While the 6th Circuit agreed with the 10th Circuit, the 1st, 2nd, and 3rd Circuits have all held that the statute requires proof of intent to defraud a financial institution.
Affirming the 10th Circuit and Loughrin’s conviction, the Supreme Court said the statute only requires a showing that a defendant intended to obtain bank property – not that he or she also specifically intended to deceive a bank.
“[N]othing in the clause additionally demands that a defendant have a specific intent to deceive a bank,” Justice Kagan wrote for multiple occurrences. “And indeed, imposing that requirement would prevent §1344(2) from applying to a host of cases falling within its clear terms.”
Loughrin’s interpretation would create an untenable reading of the provision, the Court added, because §1344(1) includes a requirement that a defendant intend to “defraud a financial institution.” Reading §1344(2) to repeat that requirement after the word “or” would disregard what “or” customarily means, Justice Kagan explained. When Congress includes particular language in one section and omits it in another – let alone the very next provision – the Court must presume the legislature intended a difference in meaning. “And here…overriding that presumption would render §1344’s second clause superfluous,” the Court said.
Loughrin also argued that adopting a broad interpretation of the statute would leave the law applicable to every fraud and constitute a sweeping expansion of federal criminal law in violation of the principles of federalism. Not so fast, Justice Kagan cautioned. The statute itself contains a textual limitation that will prevent the federal prosecution of garden variety fraudulent schemes, she said, because it requires that a criminal must acquire, or attempt to acquire, bank property “by means of” the misrepresentation.
Looking at the facts of Loughrin’s case, she wrote that he satisfied the “by means of” requirement because his false statement was the mechanism naturally inducing the bank to part with money in its control. Alternatively, in a case where a swindler sold a knockoff Louis Vuitton handbag, for example, the bank’s involvement in the case is wholly fortuitous, the Court said, because the check to pay for the bag is perfectly valid and not a false or fraudulent means of obtaining the bank’s money.
To read the Court’s decision in Loughrin v. United States, click here.
Why it matters: While the Court gave credence to Loughrin’s argument that the government’s interpretation of the statute seemingly expanded the scope of the statute to cover even petty fraud, the justices determined that a textual limit within the law would keep federal prosecutions in check. Congress amended the bank fraud statute in 1984 in part to incorporate situations where a bank is not the intended target of fraud, the Court noted. “Congress passed the bank fraud statute to disapprove prior judicial rulings and thereby expand federal criminal law’s scope – and indeed, partly to cover cases like Loughrin’s,” Justice Kagan wrote. Accordingly, this opinion marks the recognition of a broad expansion of the statute to cover conduct that on first blush might not appear to constitute “bank fraud.”