The U.S. Supreme Court recently heard oral argument (on October 4) in Shaw v. U.S., a case that will allow the Justices to decide whether proving a scheme to defraud a bank in violation of 18 U.S.C. § 1344(1) requires proving an intent that the bank be the victim of the fraud.
What happened
Lawrence Shaw was convicted of violating the federal bank fraud statute, 18 U.S.C. § 1344, based on a scheme to transfer more than $300,000 out of a third party’s account and into his own PayPal account. Section 1344 provides: “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.”
The government prosecuted Shaw under Section 1344(1). At trial, Shaw requested a jury instruction that the government had to prove that he not only intended to deceive the bank, but also that he intended to target the bank as a financial victim of the fraud. A federal district court judge declined to give the requested jury instructions, ruling that the statute did not require the bank to be an intended financial victim of the fraud. A jury convicted Shaw on 14 counts of bank fraud; he appealed.
The U.S. Court of Appeals for the Ninth Circuit affirmed the conviction, relying on circuit precedent it deemed unaffected by the 2014 U.S. Supreme Court decision, Loughrin v. United States, where the Justices weighed in on the second clause of the bank fraud statute. In a unanimous opinion authored by Justice Elena Kagan, the Supreme Court held at that time that no proof of intent to defraud the particular financial institution is required by the statute and the government must only prove that a defendant intended to obtain bank property “by means of” a false statement.
“The statutory language focuses on the intended victim of the deception, not the intended bearer of the loss,” the Ninth Circuit wrote. “Section 1344(1) requires the intent to deceive the bank. Section 1344(2) requires false or fraudulent representations to third parties,” but neither clause “requires the government to establish the defendant intended the bank to suffer a financial loss.”
Shaw then petitioned for certiorari, posing the question: “Whether [Section 1344(1)’s] ‘scheme to defraud a financial institution’ requires proof of a specific intent not only to deceive, but also to cheat, a bank, as nine circuits have held, and as petitioner Lawrence Shaw argued here.” The Supreme Court agreed to hear the case in order to resolve the circuit split.
Despite having the majority of circuit authority on his side, Shaw appeared to be facing an uphill battle in convincing the Court of his position. When his lawyer argued that the statute requires both an intent to deceive the bank and an intent to impose a financial loss on the bank itself, the Justices pushed back. Justice Stephen Breyer even name-dropped Kim Kardashian, querying whether a theft truly occurred if the reality star had insured her jewelry for millions of dollars and therefore suffered no financial loss when thieves made off with an estimated $10 million of jewels from her Paris hotel room. Justice Samuel Alito continued with the theme, telling Shaw’s lawyer, Koren L. Bell (a federal public defender), that depriving the bank of a property right in something is not the same as causing a loss to the bank. Bell ultimately conceded that a violation of a possessory right by the bank is sufficient to satisfy the statute and that the scheme deprived the bank “for a momentary period” of its possessory right.
The Court appeared more amenable to Shaw’s argument that the jury instructions in his trial were improper, with Justice Elena Kagan commenting that the instructions didn’t “make sense.” On behalf of the government, Assistant to the Solicitor General Anthony Yang urged that the Ninth Circuit’s decision and Shaw’s conviction be affirmed, arguing that the statute simply requires that the prosecution demonstrate an intent to deceive a bank and that the bank be deprived of some property interest. Whether the defendant intended to take money from the bank or the account holder was irrelevant, the government’s lawyer told the Court. Instead, what matters was an intent to deceive, and by that deception, to commit fraud. Depriving the bank of its possessory interest in the money—regardless of whom the funds belonged to—would satisfy the intent to defraud the bank, Yang explained. “We don’t require our defendants to have taken property law or banking law or studied the risk of loss rules when frauds occur to banks,” Yang argued. It was enough that the defendant knew the money was, in some manner, in the possession of the bank.
Yang further told the Justices the jury instructions were consistent with the proper interpretation of the bank fraud statute when viewed as a whole, although he recognized “they’re not perfect.” Justice Anthony Kennedy appeared unsatisfied with this answer, wondering what citation the Court could use for that proposition. “I mean, we’d say close enough for government work?”
To read the transcript of the oral argument in Shaw v. U.S., click here.
Why it matters
Based on the Justices’ questioning, the Court appears likely to issue a mixed ruling, affirming the Ninth Circuit by holding that the bank fraud statute does not require an intent to defraud the bank but reversing Shaw’s conviction based on the jury instructions used at trial. A decision from the Court is expected later this term.
