United States v. Gilbert Lundstrom

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 16-1860
___________________________
United States of America
lllllllllllllllllllll Plaintiff - Appellee
v.
Gilbert G. Lundstrom
lllllllllllllllllllll Defendant - Appellant
___________________________
No. 16-2313
___________________________
United States of America
lllllllllllllllllllll Plaintiff - Appellee
v.
Gilbert G. Lundstrom
lllllllllllllllllllll Defendant - Appellant
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Appeals from United States District Court
for the District of Nebraska - Lincoln
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Submitted: June 6, 2017
Filed: January 19, 2018
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Before WOLLMAN, ARNOLD, and GRUENDER, Circuit Judges.
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WOLLMAN, Circuit Judge.
Gilbert Lundstrom, the former Chief Executive Officer and Chairman of the
Board of TierOne Bank, was charged in a thirteen-count indictment with conspiracy
to commit wire fraud affecting a financial institution, to commit securities fraud, and
to falsify bank entries, 18 U.S.C. §§ 1349, 371; wire fraud affecting a financial
institution, id. § 1343; securities fraud; id. § 1348; and falsifying bank entries, id.
§ 1005. The superseding indictment alleged that beginning in or around 2008,
Lundstrom and others at TierOne devised and executed a scheme to defraud the
bank’s shareholders and to mislead its regulators by concealing millions of dollars in
losses related to the failure of certain real estate loans. TierOne’s former President
and Chief Operating Officer, James Laphen, and former Senior Vice President and
Chief Credit Officer, Don Langford, pleaded guilty to their roles in the conspiracy
and, along with other witnesses, testified at the three-week jury trial that resulted in
Lundstrom’s conviction on twelve counts.
The district court1 sentenced Lundstrom to 132 months’ imprisonment and
ordered him to pay $3.1 million in restitution. Lundstrom appeals, challenging the
denial of his motion for judgment of acquittal, the admission of certain evidence, the
denial of his motion for a bill of particulars, the jury instructions, the application of
1
The Honorable John M. Gerrard, United States District Judge for the District
of Nebraska.
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two sentencing enhancements, the substantive reasonableness of his sentence, and the
calculation of the restitution award. We affirm.
Background
We relate the facts in the light most favorable to the jury’s verdict. See United
States v. Kelley, 861 F.3d 790, 796 (8th Cir. 2017) (standard of review). TierOne,
a commercial bank and financial institution, was headquartered in Lincoln, Nebraska,
and historically focused its lending business on residential loans in Nebraska and
nearby states. TierOne was required by federal banking laws and regulations to
disclose its financial condition to the Office of Thrift Supervision (OTS), which also
conducted onsite examinations at least annually and requested written responses to
other periodic inquiries. Lundstrom became TierOne’s president in 1994 and its CEO
around 2000. TierOne became a public company in 2002, raising $200 million in
capital from stock sales to investors. After becoming a public company, TierOne was
also required to disclose its financial condition to the Securities Exchange
Commission (SEC) by filing, among other documents, annual and quarterly reports
that included financial statements audited by an outside accounting firm. As
TierOne’s CEO, Lundstrom was required to certify that the reports filed with the SEC
did not contain any material misstatements or omissions of fact.
Under Lundstrom’s leadership, TierOne expanded its traditional residential
lending business to include lending for “less conservative” commercial and
construction projects, many of which were located outside TierOne’s traditional
midwest lending area (Turbo Assets). TierOne opened “loan production offices”
around the country, whose sole purpose was to generate Turbo Assets. The Turbo
Assets strategy had a dramatic impact on TierOne’s loan portfolio: the bank held
almost $2.5 billion in commercial and construction loans in 2005, compared to $500
million in 1999. Turbo Assets became the bank’s “biggest growth sector,” while
residential loans fell from 45% of the bank’s loan portfolio in 2000 to only 12% in
2005.
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Although Turbo Assets originating from loan production offices in Arizona,
Florida, Nevada, and North Carolina initially performed well, TierOne was also
exposed to greater risk as a result of the lending strategy. These commercial and
construction loans involved large sums of money that the bank would recoup only
after the borrower completed its development or construction project and sold it for
a price sufficient to cover the amount borrowed.2 As the real estate markets in some
of TierOne’s new lending territories began to deteriorate in or around 2007, real
estate prices began to decline, and the builders and developers who had borrowed
from TierOne had difficulty finding buyers for their projects. When those projects
did not sell, or sold at reduced prices, the borrowers were less likely to repay their
loans, in which case TierOne was faced with the prospect of foreclosing on the
property pledged as collateral for the loan. TierOne’s portfolio of foreclosed
properties grew from $18.7 million in October 2008 to $63.7 million in October 2009,
forcing the bank to assume responsibility for taxes, maintenance, utilities, and general
upkeep on the foreclosed properties. TierOne was also required to take
“write-downs” or losses on its financial statements if the value of its loan collateral
or foreclosed properties declined.
In April 2008, the OTS conducted an onsite field visit to TierOne, following
which it downgraded the bank’s financial-health rating based on “problems . . . of a
serious nature” in the deteriorating quality of the bank’s loan portfolio. The OTS
instructed TierOne to increase its “core capital ratio” to 8.5% to ensure that the bank
had sufficient capital available to absorb potential losses in its loan portfolio.
Lundstrom agreed in writing to maintain the 8.5% ratio. The OTS conducted a
comprehensive examination of TierOne’s capital and asset positions later in June
2008, which included a review of the reserves the bank had set aside to cover losses
2
A commercial loan generally includes money to fund both construction and
the interest accruing on the loan. The borrower thus does not make payments on
either principal or interest until the project is completed.
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on nonperforming loans.3 In October 2008, the OTS issued a Report of Examination
(Report), concluding that TierOne’s reserves were underfunded and that the bank was
not employing a reliable methodology by which to calculate reserves on its
nonperforming loans. The Report found that TierOne’s “[a]ppraisals of land
development and construction loans [were] inadequate and unsupported.” Without
a reliable appraisal, TierOne could not accurately value the collateral underlying a
given loan and thus could not accurately value its assets in its financial reports. The
Report also found that TierOne’s “[m]anagement [had] failed to implement an
appropriate appraisal review process” and that its methodology for calculating
reserves required improvement.
The Report identified deficiencies in TierOne’s Las Vegas commercial and
construction loans, noting that the bank had issued loans without appraisals or with
unsupported or stale appraisals. It also observed that TierOne had exacerbated losses
on certain loans by continuing to disburse funds, despite indications that a project’s
value had declined. The Report recommended that TierOne increase its reserves as
a loan migrated toward nonperforming status. TierOne’s financial-health rating was
downgraded based on its “seriously weak” financial condition that threatened “the
ultimate viability of the bank.” Lundstrom reviewed and signed the Report.
TierOne’s Board of Directors entered into a Supervisory Agreement, “a formal
enforcement action,” with the OTS in January 2009, committing to correct certain
deficiencies identified in the Report. Among other commitments, TierOne agreed to
3
Assume, for example, that a bank loaned $1 million to a borrower who
pledged land valued at $1.2 million as collateral. If the land’s value dropped to
$900,000 over the course of the loan and the borrower had difficulty repaying the
loan, the bank would reclassify the loan as “nonperforming,” set aside $100,000 to
cover its loss, and record the loss on its financial statements. Thus, for a real estate
loan, the value of the underlying collateral affects the reserve for that particular loan
and the for the bank’s overall loan portfolio.
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allocate adequate capital for its reserves, reaffirmed its earlier commitment to
maintain a core capital ratio of 8.5%, and pledged to establish procedures that would
require current and well-supported appraisals on applicable loans. TierOne also
acquiesced to enhanced regulatory scrutiny, in particular agreeing to prepare complete
and accurate minutes of its Board of Directors meetings and to transmit copies of
those minutes to the OTS. Lundstrom signed the Supervisory Agreement in his
capacity as Chairman and CEO, consenting on behalf of TierOne to comply with the
terms of the Agreement.
As required by the Supervisory Agreement, TierOne hired an outside
consulting firm to review its portfolio of loans exceeding $1 million. The firm
recommended to Lundstrom in January 2009 that TierOne downgrade thirty loans,
including the reclassification to “substandard” of nine loans totaling $130 million.
TierOne rejected the recommendation, thereby avoiding the need to increase reserves
by $5-7 million to account for the potential losses on the downgraded loans.
It was against this backdrop that the government alleged that Lundstrom and
other TierOne executives—President James Laphen, Director of Lending Gale
Furnas, Chief Credit Officer Don Langford, and Chief Financial Officer Eugene
Witkowicz—conspired to understate reserves and defer the recognition of losses
associated with TierOne’s nonperforming loans and foreclosed properties by delaying
appraisals on the underlying collateral or the foreclosed properties. The majority of
TierOne’s inventory of foreclosed properties eventually had outdated appraisals and
inflated values that did not reflect the impact of the downturn in the real estate
market.
Laphen testified that he, Lundstrom, and Furnas agreed on the plan to defer
new appraisals to the third quarter of 2009, just before the OTS was scheduled to
conduct its next onsite examination. Langford confirmed that the plan was adopted
under “direction [from] the corner offices,” i.e., from Lundstrom and Laphen. Laphen
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explained that delaying appraisals allowed TierOne to defer the recognition of losses
attributable to its nonperforming loans and foreclosed properties while management
attempted to raise capital and improve the bank’s balance sheet. Had the new
appraisals been obtained and the resulting losses recognized, the bank would have
been required to set aside additional reserves, with the result that its earnings and
available capital would have decreased, which, in turn, would likely have caused the
bank’s core capital ratio to fall below the 8.5% mandated by the OTS. The delay in
obtaining appraisals also prevented TierOne from foreclosing on additional
nonperforming loans because a current appraisal was required to initiate a foreclosure
proceeding.
The government presented detailed testimony about how the plan was
implemented with respect to several specific loans. When the construction loan came
due in August 2008 on Towne Vistas, a 62-unit condominium project in Las Vegas,
Nevada, Lundstrom and other executives agreed to extend the due date on the loan
and to provide an additional $5 million in financing without a new appraisal, thereby
increasing the loan balance to more than $32 million. The OTS had questioned the
validity of the bank’s appraisal on the Towne Vistas project in its Report, noting that
the appraisal was outdated, provided an overly aggressive valuation, and had not been
properly reviewed by management. TierOne falsely reported in its response that it
had ordered a new appraisal and had obtained additional collateral on the project. In
April 2009, Laphen received notice from the borrower that the project’s value had
declined so dramatically that it was worth roughly $10 million less than the amount
of the loan. Laphen forwarded this notice to Lundstrom, but instead of treating the
loan as “delinquent,” recognizing the loss, and increasing reserves by $10 million,
Lundstrom and Laphen elected to continue disbursing loan proceeds to the borrower.
TierOne had loaned roughly $20 million to developer Carlos Escapa for
multiple Las Vegas projects. The OTS expressed concern about these loans, and
Laphen responded in July 2008 that TierOne planned to foreclose on the properties.
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The foreclosure did not occur, however, and in August 2008, Laphen informed
Lundstrom that Escapa had indicated that he needed an additional $800,000 to
complete the projects. In September 2008, Laphen informed Lundstrom by email that
the loan funds disbursed on several of Escapa’s projects exceeded the estimated sales
prices for those projects. TierOne did not obtain new appraisals to verify the market
value of those properties, nor did it set aside additional reserves to account for the
potential losses. In February 2009, the bank was required to pay $450,000 in
outstanding taxes on Escapa’s projects in order to avoid a tax lien and foreclosure by
the state. Laphen testified that a potential buyer expressed interest in purchasing
several of Escapa’s properties. Furnas rejected the offers at Lundstrom’s direction,
however, because the offers were below the value TierOne was carrying on its books
for these properties. The bank was “not in a position to accept this amount of loss”
because it would “probably” have decreased the bank’s core capital ratio below 8.5%.
Langford also testified that accepting the offers would have resulted in “a loss of
millions of dollars” and a requirement that the bank “set aside additional reserves.”
According to Langford, Lundstrom decided in May 2009 that Escapa should continue
to list his properties at the inflated prices so “the foreclosure and appraisals could be
pushed into the third quarter.” TierOne expected to lose $6.5 million on Escapa’s
loans, but it did not increase reserves by that amount because its core capital ratio
would have fallen below 8.5%.
TierOne loaned $21.5 million for a Kansas condominium development called
Mansions at Canyon Creek. The OTS Report indicated that the Canyon Creek loan
appeared to be impaired and that “[i]mpairment analysis should be performed at
maturity in October 2008 by obtaining new appraisal.” Lundstrom certified in
TierOne’s response to the Report that the bank had “satisfied” this deficiency, but in
fact had not obtained a new appraisal. On March 3, 2009, roughly one month after
providing this response to the OTS, Lundstrom approved an agreement to modify and
extend the loan, including a provision that “[r]eceipt of [a new] appraisal shall not be
a condition of closing.” When the borrowers fell roughly $500,000 into arrears two
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months later, Lundstrom approved a second modification to the loan, advancing an
additional $162,000 to pay the borrower’s outstanding taxes. TierOne did not order
a new appraisal prior to either loan modification. By June 2009, TierOne anticipated
a loss of almost $6 million on the Canyon Creek project but did not reclassify the loan
as impaired because, according to Langford, it “was too big a loss to add to the bucket
of losses,” and it would have reduced the bank’s core capital ratio below 8.5%.
Langford testified that after a December 2008 meeting to discuss the bank’s
problem loans, Lundstrom asked Furnas for an estimate of the bank’s aggregate
exposure in unrecognized losses. Furnas replied that the bank had $60-75 million in
unrecognized losses in its portfolios. Laphen and Langford testified that around
March 2009, Lundstrom directed Furnas to prepare a detailed, loan-by-loan analysis
of TierOne’s loan portfolio to determine a dollar figure for potential losses and the
increase in reserves that the bank would “likely” have to set aside “in the next 6
months.” Laphen informed Lundstrom that he was concerned about the preparation
of this analysis because, if “it showed additional losses, the bank should have
recognized those losses” in contravention of “the plan to not get appraisals until just
before the examiners came.”
As instructed, Furnas and others reviewed each of TierOne’s loan files,
including outdated appraisals and outstanding balances, and Furnas prepared a
spreadsheet titled, “Potential Reserve Additions Needed Due to Timing of New
Appraisals.” The spreadsheet provided a range of potential losses that the bank could
face over the second, third, and fourth quarters of 2009, depending on the quarter in
which the bank “expected to receive a new appraisal” for the collateral underlying
each loan. The spreadsheet estimated that the bank would likely suffer the greatest
loss and require the greatest increase in reserves in the third quarter of 2009, when
the conspirators “expected to have to get new appraisals for the OTS visit.” Furnas’s
spreadsheets stated that the bank stood to lose (and would be required to increase
reserves by) a total of $35 million over the last three quarters of 2009 in the “best”
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case, $60 million in the “expected” case, and $113 million in the “worst” case.
Langford testified that it “wasn’t possible” for the bank to recover the full amount of
its loans and that there was “[n]o chance” the bank could avoid recording losses and
increasing reserves when new appraisals were obtained that showed substantially
lower values on loan collateral. The spreadsheet also listed the date of the most
recent appraisal on the collateral underlying each loan, revealing that many appraisals
had not been updated since 2005 or 2006.
Furnas told Langford that Lundstrom “didn’t think that it was necessary or
appropriate to present” the spreadsheet information to the Board. Furnas and
Langford disagreed with Lundstrom, and Furnas presented the information during a
Board meeting. Contrary to typical practice, the spreadsheet was not included in the
Board’s official meeting binder. Instead, Laphen and Langford testified, copies of
the spreadsheet were distributed at the meeting, with Lundstrom insisting that the
copies be collected after the meeting. The minutes from this meeting reported only
that Furnas and Langford provided an “Analysis of Critical Loans in [the] Portfolio.”
Furnas updated his spreadsheets in May 2009 in preparation for a meeting with
Lundstrom, revising the loss/reserve calculations to reflect $36 million in the “best”
case, $60 million in the “expected” case, and $114 million in the “worst” case.
Furnas presented the updated spreadsheet during the May 2009 Board meeting. The
draft minutes from that meeting initially noted that the Board had discussed
“obtaining appraisals on nonperforming loans at the present time or in a subsequent
quarter.” The secretary responsible for preparing the official minutes indicated in her
notes, however, that Lundstrom had personally directed her to remove mention of
Furnas’s presentation from the official minutes. Her handwritten notes state that “Gil
[Lundstrom] did not put in” any reference to the appraisal discussion. At the June
2009 Board meeting, Furnas reported that his worst-case projections “were proving
to be more accurate” and that the Board should plan for that eventuality. Despite this
warning, Lundstrom took no action to require TierOne to recognize the projected
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losses or allocate additional reserves, a course of action that would have caused the
bank’s core capital ratio to fall below 8.5%.
David Frances, who was hired by TierOne in August 2008 to manage its
inventory of problem loans, was concerned about the bank’s outdated appraisals and
delayed recognition of losses. Frances sent an email to Langford and Furnas in
February 2009, expressing concern that TierOne “continue[d] to expose [itself]
adversely . . . with outdated appraisals” on loan collateral whose value had declined.
Frances acknowledged that the “write-downs” that TierOne would be required to
recognize after obtaining new appraisals “would likely be astronomical,” but, he
queried, “in good conscience[,] how long can we continue to believe these
[properties] are properly reserved?” Frances recommended that TierOne obtain an
updated appraisal whenever a loan was evaluated for impairment. Laphen testified
that he sent Frances’s email to Lundstrom, who took no action in response to the
concerns raised therein.
Frances sent another email to Langford and Furnas on August 3, 2009, which
stated that the bank “continue[d] to fail to properly risk rate [its] loans and . . . [to]
refuse to update collateral valuations, out of the fear of what impact these actions may
have on reserve levels.” Frances wrote that he was “unable to support the timing of
reappraisals to delay loss recognition or increases to the reserves into later quarters.”
Laphen testified that he and Furnas discussed the email in Furnas’s office shortly
after it was sent and that he went to Lundstrom’s office immediately thereafter to
deliver the information. Frances resigned a few weeks later, “frustrated” with
TierOne’s “unwillingness to . . . order[] new appraisals on loans that were
experiencing financial difficulty,” “concerned that [the bank was] misleading the
public,” and worried about his professional reputation. Laphen forwarded Frances’s
resignation email to Lundstrom.
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As CEO of TierOne, Lundstrom was required to certify on each of the bank’s
SEC filings that the “report d[id] not contain any untrue statement of material fact or
omit t[o] state[] [a] material fact,” and that the statements set forth therein were “not
misleading.” He was further required to certify that the report disclosed “[a]ll
significant deficiencies and material weaknesses in design or operation of internal
control over financial reporting,” as well as “[a]ny fraud, whether or not material, that
involves management or other employees” with financial reporting responsibilities.
Lundstrom provided similar certifications to the outside accountants, who reviewed
TierOne’s financial statements prior to their inclusion in the bank’s SEC filings.
Lundstrom did not disclose the bank’s outdated appraisals, overvalued loan and
foreclosed-property portfolios, and understated reserves, despite his knowledge of
these facts from Frances’s emails, Furnas’s spreadsheets, and discussions with other
bank executives. Laphen testified that, had this information been disclosed to
TierOne’s outside accountants, they would have had “a great deal of difficulty
certifying” the accuracy of the financial statements included in the bank’s SEC
filings.
In late July 2009, as the bank was preparing its second quarter filing with the
OTS, Laphen and Furnas met with Lundstrom to “go over loan loss provisions,” i.e.,
reserves, and provisions for foreclosed-property losses for the quarter. Lundstrom
reviewed a draft of the OTS filing, which revealed that the “potential charge-offs, the
charges to income,” would leave TierOne “short about $4 million” in its capital ratios
and cause its core capital ratio to fall to 8.37% for the quarter. Lundstrom remarked
to Laphen that the bank “couldn’t afford this” outcome, which Laphen interpreted as
Lundstrom’s “direction to not have . . . losses that large.” Laphen testified that the
next day he spoke with Chief Financial Officer Witkowicz, who “had come up with
an approach that would . . . allow the capital ratios to stay within compliance.”
Witkowicz proposed “a series of changes to small expense items” and a $3.5 million
change to TierOne’s unallocated reserves, i.e., the capital that the bank had allotted
for general losses, but not for losses associated with particular loans. Witkowicz’s
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plan reduced by $3.5 million the sum that TierOne had allotted for unallocated
reserves. These numbers corresponded to Lundstrom’s handwritten notes on the draft
OTS filing. After these adjustments were made, TierOne exceeded the 8.5% core
capital ratio by $309,000, and Lundstrom certified to the accuracy of the figures in
the bank’s second quarter 2009 OTS filing. Lundstrom also certified in TierOne’s
second quarter 2009 report to the SEC that the bank had fulfilled all its obligations
under the Supervisory Agreement with the OTS, including its obligation to maintain
a core capital ratio of at least 8.5%.
TierOne issued press releases when filing reports with the OTS or the SEC,
typically announcing that the bank continued to maintain strong capital levels relative
to peer institutions and continued to meet or exceed its regulatory requirements. The
press release for the second quarter of 2009 stressed that TierOne had maintained its
8.5% core capital ratio. In addition to the press release, Lundstrom emailed all
TierOne employees, many of whom were also shareholders, stating that the bank
“ha[d met] and continues to meet or exceed all regulatory capital requirements.”
Shareholders and potential investors relied on TierOne’s regulatory filings with the
OTS and the SEC, as well as its press releases to the public, when they decided to
purchase or hold shares of TierOne stock. Shareholders also learned of TierOne’s
financial condition during annual shareholder meetings. During his presentation at
the May 2009 meeting, Lundstrom denied that TierOne had applied for funds from
the federal Troubled Asset Relief Program (TARP), which provided financial
assistance to certain banks after regulators determined that eligibility requirements
had been met. In fact, however, TierOne had submitted a TARP application in
November 2008, seeking $86.3 million in assistance. On May 11, 2009, ten days
before the shareholder meeting, the OTS had informed Lundstrom that it would reject
TierOne’s TARP application based on the bank’s poor financial condition.
Lundstrom withdrew the application before it could be officially rejected by the OTS.
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The OTS returned to TierOne in August 2009 to conduct “a limited review of
certain loans to analyze . . . whether . . . the bank was carrying those loans at the
appropriate value,” as required under the Supervisory Agreement. An examiner
specifically questioned the Towne Vistas loan, which had not been reappraised in the
year since the OTS had first instructed to the bank to obtain a new appraisal.
Lundstrom expressed no surprise at the bank’s failure to obtain a new appraisal and
did not order an investigation into that failure. The OTS began its annual
examination of the bank in October 2009. When questioned, Lundstrom denied any
effort to delay new appraisals. Following the examination, the OTS issued
“exceptions”—formal allegations regarding conduct of the bank’s management.
Laphen and Langford testified that Lundstrom was “intimately involved” in the
process, editing, signing, and submitting the bank’s final response to the OTS’s
exceptions. In addition to the exceptions, the OTS instructed Lundstrom by email to
obtain an opinion from the bank’s outside accountants, addressing whether $88.3
million in losses scheduled to be recognized in December 2009 should have been
recorded in earlier quarters and whether the bank’s previous financial statements
should be restated to reflect such a correction. Lundstrom did not contact the bank’s
outside accountants, instead responding to the OTS that the accountants could not
opine on the issue because “an individual asset analysis” was not possible because
such data “was not a driver of [TierOne’s] macro review process.” In fact, however,
an “individual asset analysis” was possible and had been performed by Furnas, who
had set forth that loan-by-loan analysis in his spreadsheets. Lundstrom did not inform
the OTS about Furnas’s analysis or the spreadsheets. TierOne’s outside accountants
later resigned, citing the bank’s failure to disclose Furnas’s spreadsheets in its
resignation letter.
The OTS eventually learned about Furnas’s spreadsheets from Frances. An
OTS examiner had searched the binders and official minutes from the bank’s Board
meetings for copies of the spreadsheets, but Lundstrom had instructed the Board
secretary not to include those documents in the official Board record. The examiner
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finally obtained copies of the spreadsheets from Langford. During a meeting with
Lundstrom after the OTS had obtained copies of Furnas’s spreadsheets, Laphen
suggested that Lundstrom tell the OTS that the spreadsheets had not been prepared
to quantify potential losses or reserve requirements but for consideration by an
investment firm TierOne had hired to facilitate a potential sale of the bank. Laphen
admitted that this explanation was untrue. When the OTS later asked Lundstrom
about Furnas’s spreadsheets, Lundstrom responded as Laphen had suggested, i.e., that
Furnas had prepared the spreadsheets in advance of meetings with the investment
firm and that they were intended to provide loss projections in the event that TierOne
implemented an aggressive liquidation strategy for its loan portfolio prior to a sale of
the bank.
As contemplated under the conspirators’ plan, new appraisals on the bank’s
foreclosed properties and loan collateral were ordered beginning in the third quarter
of 2009. Langford described the resulting effect on the bank’s finances as “horrific”
and “remarkably close” to, or even worse than, the worst-case scenario set forth in
Furnas’s spreadsheets. TierOne was required to file a restatement with the SEC in
October 2009 that corrected its second quarter 2009 filing to reflect an “additional
loss provision” of $13.9 million. The restatement also disclosed that the bank’s core
capital ratio had fallen below 8.5% as of June 30, 2009. Following the receipt of the
new appraisals that were obtained in November 2009, TierOne reported an additional
$120 million in losses and a corresponding increase in reserves for the third quarter
of 2009, with the result that the bank’s core capital ratio had dropped to 4%.
Lundstrom was replaced as CEO in January 2010. The OTS closed the bank
in June 2010, with the Federal Deposit Insurance Corporation (FDIC) being named
as its Receiver. TierOne filed for bankruptcy shortly thereafter. Its stock price fell
below $1 per share and was delisted from the NASDAQ Exchange. Many TierOne
employees lost their jobs and many TierOne shareholders lost the money they had
invested in the bank’s stock.
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Motion for Judgment of Acquittal
Lundstrom first argues that the district court erred in denying his motion for
judgment of acquittal. We review de novo the denial of a motion for judgment of
acquittal that challenges the sufficiency of the evidence to support a conviction. See
Kelley, 861 F.3d 790, 796 (8th Cir. 2017). We consider the evidence, and all
reasonable inferences that may be drawn therefrom, in the light most favorable to the
jury’s verdict. Id. We do not weigh the evidence or assess the credibility of the
witnesses. United States v. Wallace, 852 F.3d 778, 783 (8th Cir. 2017). If evidence
consistent with guilt exists, we will not reverse simply because the facts and
circumstances may also be consistent with some innocent explanation. See Kelley,
861 F.3d at 796. Under this “very strict standard of review,” id. (citation omitted),
we will reverse “only if no reasonable jury could have found [the defendant] guilty,”
United States v. Delgrosso, 852 F.3d 821, 829 (8th Cir. 2017).
Lundstrom contends that the government failed to demonstrate that he
possessed the “requisite knowledge of any conspiracy or the requisite intent to
defraud investors or bank regulators.” Br. of Appellant at 14. He argues that the
government failed to present direct evidence that he had knowingly agreed to any
plan to delay appraisals for the purpose of deferring losses and increases to reserves
or that he had done so with the intent to defraud shareholders and regulators. Such
evidence was not required, however, for “[c]ircumstantial evidence alone can prove
the elements of conspiracy,” including knowledge. United States v. Foster, 740 F.3d
1202, 1205 (8th Cir. 2014) (quoting United States v. Dotson, 570 F.3d 1067, 1068
(8th Cir. 2009)). “Even when there is no direct proof of a conspiracy, ‘the jury is free
to consider all the evidence—direct and indirect—presented of the defendant’s
statements and actions’ and they may ‘draw reasonable inferences from the evidence
presented about what the defendant’s state of mind was when he did or said the things
presented in the evidence.’” United States v. Turner, 583 F.3d 1062, 1067 (8th Cir.
2009) (quoting United States v. Wilson, 103 F.3d 1402, 1406-07 (8th Cir. 1997)).
Moreover, conspiracy “may be implied by the surrounding circumstances or by
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inferences from the actions of the parties.” United States v. Boesen, 491 F.3d 852,
857 (8th Cir. 2007) (quoting United States v. Fitz, 317 F.3d 878, 881 (8th Cir. 2003)).
Similarly, an intent to defraud “need not be shown by direct evidence,” but may
instead “be inferred from all the facts and circumstances surrounding the
defendant[’s] actions.” Id. (citation omitted); see also United States v. Louper-
Morris, 672 F.3d 539, 556 (8th Cir. 2012) (“Fraudulent intent need not be proved
directly and can be inferred from the facts and circumstances surrounding a
defendant’s actions.” (citation omitted)); United States v. Krug, 822 F.3d 994, 999-
1000 (8th Cir. 2016) (same).
We conclude that the evidence was sufficient for the jury to find beyond a
reasonable doubt that Lundstrom possessed the knowledge and intent required to
sustain his convictions.
Laphen testified that he, “Lundstrom, Furnas, Langford and others . . . agreed
to delay the ordering of certain appraisals, and that [this] delay resulted in delaying
[TierOne’s] recognition of losses . . . and improper reporting to . . . shareholders.”
He further explained that delaying appraisals allowed the bank “to delay the taking
of losses,” providing the bank “time to try to raise capital” to improve its balance
sheet. Laphen recalled a conversation with Lundstrom “in which [Lundstrom] was
aware and a part of [this] process.” Moreover, Langford testified that Furnas told him
that TierOne “[couldn’t] afford any more . . . write-downs based on getting appraisals
that we could avoid getting . . . because of management discretion in the timing” of
appraisals. Furnas told Langford that the bank would thus delay new appraisals to the
third quarter of 2009 and that these directions originated “from the corner officers”
on the eighth floor—offices occupied by Lundstrom and Laphen. Frances’s emails
identified multiple loans and properties on which appraisals were, or would be, “older
than 12 months . . . as of March 2009.”
-17-
It was Lundstrom himself who directed Furnas to prepare spreadsheets to
quantify the losses embedded in TierOne’s loan portfolio. As recounted above, not
only did Lundstrom take no corrective action upon receiving the requested
information, he opposed the disclosure of the spreadsheets to the Board of Directors
and, that effort failing, insisted that the spreadsheets be distributed and re-collected
during the Board meeting, rather than being placed in the Board binders, where they
would be subject to OTS inspection and ordered that a reference to the Board’s
discussion at its May 2009 meeting on nonperforming loans be removed from the
official minutes.
As also recounted above, the jury heard testimony that Lundstrom personally
approved actions that deferred TierOne’s recognition of losses on the Towne Vistas,
Escapa, and Canyon Creek projects after the OTS questioned the viability of those
loans or the validity of the appraisals on the property underlying them. He agreed not
to get a new appraisal, opting instead to extend the Towne Vistas loan and provide
an additional $5 million in financing without obtaining a new appraisal, while at the
same time reporting to the OTS that TierOne had “satisfied” the OTS’s concerns
about the project. Rather than initiating foreclosures on properties underlying certain
Escapa loans, the bank then attempted to sell those properties at the inflated values
listed in their outdated appraisals in an effort to delay the foreclosures until the third
quarter of 2009. Lundstrom falsely informed the OTS that the bank had “satisfied”
the directive that it obtain a new appraisal on the underlying collateral supporting the
Canyon Creek loan and instead had approved a loan modification with the specific
stipulation that “[r]eceipt of [an] appraisal shall not be a condition of closing.”
The evidence that Lundstrom took specific steps to conceal TierOne’s losses
and deteriorating financial health from shareholders and regulators further supports
the jury’s finding that Lundstrom knew about and entered into a conspiracy with
others to commit fraud and to submit false information to the OTS and the SEC and
that he intended to and did commit the charged offenses.
-18-
Despite his knowledge of the bank’s outdated appraisals, overvalued loan and
foreclosed-property portfolios, and understated reserves, Lundstrom certified a July
2009 OTS report which stated that TierOne had adequate reserves and an 8.51% core
capital ratio which was followed that day by a press release announcing that TierOne
was “in compliance” with the 8.5% ratio.
Likewise, TierOne’s August 2009 mandatory SEC filing stated that TierOne
had “met or exceeded the[] elevated ratios mandated by the OTS,” had “fulfilled all
of the obligations set forth in the [S]upervisory [A]greement,” and “continue[d] to
comply with the ongoing reporting requirements.” The filing further stated that
TierOne “review[ed] [its] other real estate owned,” i.e., its foreclosed-property
portfolio, “for impairment in value whenever events or circumstances indicate that
the carrying value . . . may not be recoverable.” Lundstrom certified that this SEC
filing “fairly present[ed] in all material respects the financial condition” of the bank,
despite his knowledge of the nonperforming loans, outdated appraisals, and
inadequate reserves set forth in Furnas’s spreadsheet and Frances’s emails.
Lundstrom’s certified filings with the OTS at the end of July and August 2009
stated that TierOne had maintained a core capital ratio above 8.5%, despite his
knowledge from Furnas’s spreadsheets that this statement was inaccurate. His
response to an OTS inquiry in September 2009 stated “that it is probable that
[TierOne] will ultimately collect all amounts due” on the Canyon Creek loan. The
jury heard evidence, however, that Lundstrom knew that this statement was
inaccurate, for he knew that the Canyon Creek project was worth $6 million less than
the outstanding loan balance and that the borrowers had already failed to comply with
an earlier modification of the loan.
Lundstrom’s response to an OTS inquiry in October 2009 stated that TierOne’s
outside accountants could not perform the requested individual analysis of the bank’s
loan portfolio because of the bank’s particular bookkeeping protocol. The evidence
-19-
showed, however, that not only was Lundstrom aware that had TierOne had never
asked the accountants to conduct the analysis, but also that Furnas had in fact
performed the loan-by-loan analysis that the OTS had requested. Lundstrom’s
December 2009 response to the OTS stated that management “ha[d] implemented the
various plans and polices and undertaken the analysis required by the provisions in
its Supervisory Agreement.” The jury could reasonably conclude from this evidence
that his representations were false and that Lundstrom had knowingly submitted them
with the intent to mislead the OTS.
As Laphen testified, while Lundstrom’s statement during a 2009 shareholder
meeting that “TierOne is not seeking to participate in the TARP program” may have
been “technically true,” it was misleading because shareholders would not have
known that TierOne had applied for TARP funds and had withdrawn the application
only after learning that it would have been denied by the OTS. A reasonable jury
could conclude that Lundstrom’s statements gave shareholders the false impression
that the bank’s financial strength did not warrant TARP assistance.
Lundstrom’s arguments on appeal mirror those that he made to the jury: that
he had Furnas prepare the spreadsheets as a valuation model for consultants; that it
was implausible that he would request the preparation of spreadsheets that revealed
allegedly criminal conduct and permit their presentation to the Board; and that he
disclosed to the OTS in August 2009 that it was the bank’s practice to estimate
declines in real estate prices by discounting appraisal values that were older than six
months rather than to obtain new appraisals. It was for the jury to consider and
determine the truth of Lundstrom’s assertions. See United States v. Hodge, 594 F.3d
614, 618 (8th Cir. 2010) (“A jury’s credibility determinations are well-nigh
unreviewable because the jury is in the best position to assess the credibility of
witnesses and resolve inconsistent testimony.”). The jury ultimately rejected
Lundstrom’s theory that he did not have the requisite knowledge and intent and
accepted the government’s competing theory that he did. See Krug, 822 F.3d at 1000
-20-
(concluding that the evidence was sufficient to support a guilty verdict, where the
evidence was consistent with both the defendant’s and the government’s theories of
the case).
To summarize, the evidence at trial established that Lundstrom and other
TierOne executives agreed to delay new appraisals of assets in the bank’s loan and
foreclosed-property portfolios in order to avoid recognizing losses on those assets and
setting aside additional reserves to account for those losses. Lundstrom helped
execute the plan by refusing to authorize new appraisals, by approving extensions or
modifications of nonperforming loans without obtaining new appraisals, and by
delaying foreclosures on nonperforming loans. The evidence pointed inexorably to
the conclusion that Lundstrom knew of the deteriorating quality of the bank’s loan
and foreclosed-on property portfolios and its precarious overall financial condition,
and that he then offered false representations in regulatory filings and press releases
about TierOne’s capital position and regulatory compliance. We thus conclude that
the evidence was sufficient to permit a reasonable jury to conclude beyond a
reasonable doubt that Lundstrom possessed the knowledge and intent necessary to
sustain his convictions, and the district court thus did not err in denying his motion
for judgment of acquittal.
Bill of Particulars
Lundstrom contends that the district court erred in denying his motion for a bill
of particulars, which argued that the indictment and discovery materials were not
sufficiently detailed to allow him to prepare for trial. A bill of particulars is not a
discovery device to be used to require the government to provide a detailed disclosure
of the evidence that it will present at trial. United States v. Wessels, 12 F.3d 746, 750
(8th Cir. 1993). We review for abuse of discretion the denial of a motion for a bill of
particulars and will not overturn a conviction based on such a denial unless the
defendant suffered prejudice due to actual surprise at trial. United States v.
Livingstone, 576 F.3d 881, 883 (8th Cir. 2009).
-21-
In denying the motion, the magistrate judge noted that the government had
provided Lundstrom with a searchable electronic database of discovery documents,
a Bates-stamped index of database materials, a lengthy index of paper documents, an
index of exhibits labeled during an earlier SEC enforcement proceeding, and copies
of depositions of former TierOne employees and outside accountants taken during the
SEC proceedings. The magistrate judge further noted that the government had
disclosed a list of 400 “hot documents,” which represented the materials most
relevant to the government’s case. The government also identified the key documents
that corresponded to each count of the indictment.
We conclude that the district court did not abuse its discretion in overruling
Lundstrom’s objections to the magistrate judge’s ruling. See id. (affirming denial of
a motion for bill of particulars where “the government explained its theory of the
case” and “provided [the defendant] with considerable discovery”). The
government’s disclosures were sufficient to enable Lundstrom to understand the
nature of the charges against him, prepare a defense, and avoid any surprise. See id.Hearsay - “Agent or Employee”
Lundstrom next challenges several of the district court’s evidentiary rulings,
which we review for abuse of discretion. See United States v. Stong, 773 F.3d 920,
923 (8th Cir. 2014).4 He first argues that the district court improperly admitted
hearsay statements of Tom McCool and problem-loan manager David Frances as
statements of an “agent or employee” under Federal Rule of Evidence 801(d)(2)(D).
Prior to trial, the district court conditionally admitted these statements under Rule
801(d)(2)(E) as statements by co-conspirators during the course of and in furtherance
of the conspiracy. The court granted Lundstrom a continuing objection to this ruling.
4
The government argues that a clear-error standard of review applies to the
district court’s finding that an agency relationship exists, citing Industrial Indemnity
Co. v. Harms, 28 F.3d 761, 762 (8th Cir. 1994). We need not resolve the issue,
however, for the admission of these statements was proper under either standard.
-22-
The jury heard testimony from Laphen that TierOne had hired McCool as a credit
specialist to negotiate with borrowers and to solicit purchase offers for the bank’s
portfolio of nonperforming loans and foreclosed properties in Las Vegas. Laphen
testified that he received an email from McCool stating that TierOne’s outdated
appraisal of the Towne Vistas project overvalued the project by at least $10 million.
Langford testified that McCool provided regular updates to him and other TierOne
executives by phone and email. Langford further testified that after receiving an
email from McCool in July 2008, Langford understood that “land prices [in Las
Vegas] had just been decimated” and that the bank should “expect[] a significant
downfall” in the value of the Towne Vistas project. Langford testified that McCool
participated in TierOne’s problem-asset meetings, which Lundstrom also attended.
The government called Frances to testify, and also introduced the two emails that
Frances had sent to Langford and Furnas, each of which complained about TierOne’s
appraisal practices, loan-rating procedures, and valuation deficiencies, and each of
which was forwarded to Lundstrom.
At the close of trial, the district court determined that the government’s
evidence was insufficient to establish that McCool and Frances were members of the
conspiracy and that their statements thus were not admissible under Rule 801(d)(2)(E)
as co-conspirator statements. The court concluded, however, that these statements
were admissible under Rule 801(d)(2)(D) because McCool and Frances each qualified
as Lundstrom’s “agent or employee” and their statements were made on a matter
within the scope of that agency or employment relationship.
Even assuming that the district court erred in admitting these statements, we
conclude that the error was harmless. An evidentiary error is harmless if the record
demonstrates that the defendant’s substantial rights were unaffected and that the error
“did not influence or had only a slight influence on the verdict.” United States v.
Lewis, 483 F.3d 871, 875 (8th Cir. 2007) (citation omitted). The “[i]mproper
admission of evidence which is cumulative of matters shown by admissible evidence
-23-
is harmless error.” Id. (citation omitted). The information set forth in McCool’s
emails was cumulative of and less damaging than that set forth in Furnas’s
spreadsheets. Likewise, any error in admitting Frances’s two emails was harmless
because Frances testified extensively at trial regarding the statements set forth therein,
thereby “vitiat[ing] the main concern of the hearsay rule, which is the lack of any
opportunity for the adversary to cross-examine [an] absent declarant.” United States
v. Renville, 779 F.2d 430, 440 (8th Cir. 1985).
Hearsay - “Business Records”
Lundstrom next argues that the district court improperly admitted certain
reports written by OTS employees as business records under Federal Rule of
Evidence 803(6). He contends that reports prepared by government agencies do not
qualify as business records under Rule 803(6) and that the OTS reports at issue here
contained extraneous and unfairly prejudicial statements by OTS employees.
The district court ruled that the reports were admissible as business records,
provided that the government satisfied the requirements of Rule 803(6).5 The court
further stated that Lundstrom’s separate objection regarding the danger of unfair
prejudice under Federal Rule of Evidence 403 “depend[ed] on the purposes for the
offer and the contents of the OTS reports.” The court gave Lundstrom “an
opportunity to examine the reports and propose redactions,” noting that it would rule
on his contemporaneous objections during trial if the parties could not agree on
redactions. Lundstrom did not renew his Rule 403 objections or raise any challenge
to the redactions when these documents were discussed during testimony at trial.
5
To be admissible under Rule 803(6), a document must have been prepared
contemporaneously by an individual with knowledge and kept in the course of
regularly conducted activity and as a regular practice, and the documents’ custodian
or another qualified individual must testify that these conditions were satisfied. The
document will be admitted unless the opponent shows that the documents’ source or
method of preparation were untrustworthy.
-24-
Lundstrom asserts that the reports prepared by government agencies cannot be
admitted as business records under Rule 803(6), given that the public records
exception to the rule against hearsay—Rule 803(8)(A)(iii)—excludes “factual
findings from a legally authorized” investigation when a report containing such
findings is offered against a criminal defendant.
We have affirmed the admission of government reports under Rule 803(6) in
criminal cases. In United States v. Williams, 720 F.3d 674, 698-99 (8th Cir. 2013),
we concluded that law-enforcement fingerprint cards from a prior arrest were
business records admissible under Rule 803(6) in a later drug-distribution and money-
laundering prosecution. We reasoned that the fingerprint cards “were created as part
of a routine booking procedure and not in anticipation of litigation, i.e., ‘for the
administration of an entity’s affairs and not for the purpose of establishing or proving
some fact at trial.’” Id. at 698 (quoting Melendez-Diaz v. Massachusetts, 557 U.S.
305, 324 (2009)). Thus, the cards were admissible as business records “because they
were created ‘in the regular course of business’” and not “‘solely for an evidentiary
purpose.’” Id. at 699 (quoting Melendez-Diaz, 557 U.S. at 321-22, and Bullcoming
v. New Mexico, 564 U.S. 647, 664 (2011)). In United States v. Voice, 622 F.3d 870,
879 (8th Cir. 2010), we held that the defendant’s sex-offender registration document
was admissible as a business record under Rule 803(6) in a SORNA prosecution
because the registration was maintained by the state’s division of criminal
investigation in normal course of business and not in anticipation of litigation.
We conclude that the foregoing considerations likewise rendered admissible
the OTS reports at issue here. OTS examiners supervise banks to ensure their
soundness and compliance with financial laws and regulation; they do not conduct
criminal investigations, collect evidence, or bring criminal charges. Accordingly, the
OTS reports were admissible as business records under Rule 803(6) because the
reports were created for the administration of the OTS’s affairs and not for the
purpose of establishing facts at trial.
-25-
Rule 803(8)(A)(iii) does not require the exclusion of the OTS Reports. Rule
803(8)(A)(iii) was intended to protect a criminal defendant’s Confrontation Clause
rights by ensuring that a police report could not be admitted unless its author testified.
See United States v. Hayes, 861 F.3d 1225, 1229-31 (10th Cir. 1988). We believe
that the rule should apply to reports prepared by law enforcement officials at the
scene of a crime or in investigating a crime, and not to reports authored by other
government agents regarding routine matters in nonadversarial settings. Even
assuming that Rule 803(8)(A)(iii) applies here, however, the rule does not require the
exclusion of the OTS reports because the authors testified and were subject to cross-
examination. See United States v. Sokolow, 91 F.3d 396, 405 (3d Cir. 1996); United
States v. King, 613 F.2d 670, 673-74 (7th Cir. 1980). In any event, any error in
admitting the OTS reports was harmless, for the content of these reports was
cumulative of other trial testimony and evidence.
Jury Instructions
Lundstrom next argues that the district court improperly instructed the jury. We
review the district court’s jury instructions for abuse of discretion, affirming if the
instructions as a whole “fairly and adequately submitted the issues to the jury.”
United States v. Whitehill, 532 F.3d 746, 751 (8th Cir. 2008) (citation omitted).
Lundstrom first challenges the district court’s willful-blindness instruction,
which told the jury that it could find that Lundstrom “acted knowingly” if it found
“beyond a reasonable doubt that [he] believed there was a high probability that his
representations to regulators or the public were false or fraudulent, and that he took
deliberate actions to avoid learning of that fact.” A willful-blindness instruction is
appropriate when “the defendant asserts a lack of guilty knowledge, but the evidence
supports an inference of deliberate ignorance.” Whitehill, 532 F.3d at 751 (citation
omitted). “Ignorance is deliberate if the defendant[] w[as] presented with facts
putting [him] on notice [that] criminal activity was particularly likely and yet
intentionally failed to investigate.” Id.; see also United States v. Novak, 866 F.3d
-26-
921, 927 (8th Cir. 2017) (affirming willful-blindness instruction and noting that “even
if the jury believed [the defendant’s] implausible” explanation, “there was sufficient
evidence that he deliberately turned a blind eye to . . . clearly illicit activity to
warrant” a willful-blindness instruction).
The evidence set forth in detail above established that Lundstrom was aware
of the decline in the real estate market and the resulting effect that the decline had on
the value of TierOne’s loan and foreclosed-property portfolios. He attended problem-
loan meetings, at which these portfolios were discussed, and he was forwarded
McCool’s emails, which set forth appraisal values and purchase offers below those
carried on TierOne’s books. Lundstrom was also presented with evidence that
TierOne’s regulatory reports did not disclose these losses or accurately calculate the
bank’s reserves. The OTS identified deficiencies in the bank’s appraisal and reserve
processes in its 2008 Report. Frances stated in two emails, both of which were
forwarded to Lundstrom, that TierOne had not properly reported losses or allocated
sufficient reserves. Furnas’s spreadsheets—titled “Potential Reserve Additions
Needed Due to Timing of New Appraisals”—estimated millions of dollars in
unrecorded losses and understated reserves. Lundstrom also received an internal
report for the second quarter of 2009, showing that TierOne had fallen $3.9 million
short of its capital requirements and that its core capital ratio had slipped below 8.5%.
Although Lundstrom denied any knowledge of the plan to delay appraisals,
defer recognition of losses, and understate reserves, he was presented with facts
sufficient, at a minimum, to put him on notice that “criminal activity was particularly
likely.” Whitehill, 532 F.3d at 751. Lundstrom testified to his lack of knowledge,
asserting that he relied on other TierOne executives and employees to manage the
bank’s appraisal processes, oversee the bank’s loan and foreclosed-property
portfolios, and ensure that the bank’s financial statements were accurate. But the jury
did not have to accept Lundstrom’s explanations, particularly in light of the evidence
that he undertook a “deliberate effort to avoid learning that TierOne’s financial
-27-
reports were inaccurate.” D. Ct. Order of Feb. 11, 2016, at 8. In light of the evidence
of what could be fairly described as Lundstrom’s almost frantic efforts to forestall the
day of financial reckoning that he must have known was approaching, the district
court did not abuse its discretion in issuing the willful-blindness jury instruction.
Lundstrom also challenges the district court’s refusal to issue an
advice-of-counsel jury instruction. Such an instruction may be appropriate if a
defendant establishes that he “fully disclosed all material facts to his attorney before
seeking advice” and that he “actually relied on his counsel’s advice in the good faith
belief that his conduct was legal.” United States v. Rice, 449 F.3d 887, 897 (8th Cir.
2006).
Lundstrom testified in general that TierOne retained attorneys to assist with
regulatory issues and to review the bank’s press releases, that he consulted counsel
before soliciting potential investors, that the Board’s outside directors retained
counsel to prepare an OTS-requested report evaluating Lundstrom’s performance, and
that the bank’s investor-relations department consulted counsel when drafting
Lundstrom’s presentation for the 2009 shareholders meeting. This testimony does not
establish that Lundstrom consulted an attorney regarding any of his conduct specific
to the charges at issue, and even if it did, Lundstrom “is not immunized from criminal
prosecution merely because he consulted an attorney in connection with a particular
transaction.” Id. at 896-97. Instead, he must show that he fully and accurately
disclosed all material facts to counsel and that he actually relied on counsel’s advice
when making representations to regulators and shareholders. Lundstrom has failed
to point to evidence in the record sufficient to satisfy these requirements, and so the
district court properly declined to issue the requested instruction.
Sentencing
Lundstrom challenges his sentence, arguing that the district court committed
procedural error in calculating the amount of loss attributable to his offense conduct
-28-
under § 2B1.1(b)(1) of the U.S. Sentencing Guidelines Manual (U.S.S.G. or
Guidelines) and in applying the leadership enhancement under § 3B1.1(a) of the
Guidelines. In determining whether a district court committed procedural sentencing
error, “‘we review [the] court’s interpretation and application of the guidelines de
novo and its factual findings for clear error.’” United States v. Jenkins, 578 F.3d 745,
749 (8th Cir. 2009) (citation omitted).
A district court’s calculation of loss under § 2B1.1(b)(1) is a finding of fact that
we review for clear error, “affording appropriate deference to the . . . court’s
determination based on its unique position to assess the evidence and estimate the
loss.” Id. The district court calculated the amount of loss attributable to Lundstrom’s
offense conduct to be $24.4 million, which resulted in a 20-level enhancement under
§ 2B1.1(b)(1) (instructing the court to increase base offense level by 20 if loss was
more than $9.5 million but less than $25 million). Lundstrom contends that the
district court should have used available “actual data” to calculate the loss and that
the court’s use of an “estimate methodology,” namely, the modified recessionary
method, resulted in a “grossly overstated” loss amount. He also contends that the
court failed to account for losses caused not by the fraud scheme, but by the overall
adverse market conditions during the period encompassing the fraud scheme.
“A district court’s method of calculating loss ‘must be reasonable, but the loss
need not be determined with precision.’” United States v. Jokhoo, 806 F.3d 1137,
1140 (8th Cir. 2015) (citation omitted). For purposes of determining “the fraudulent
. . . deflation in the value of a publicly traded” stock, the Guidelines state that a court
“may use any method that is appropriate and practicable under the circumstances,”
including “a method under which the actual loss attributable to the change in value”
of the stock is determined by “calculating the difference between the average price
of the security . . . during the period that the fraud occurred and the average price of
the security . . . during the 90-day period after the fraud was disclosed to the market.”
U.S.S.G. § 2B1.1, cmt. n.3(F)(ix). The difference in average price is then multiplied
-29-
by the number of shares outstanding to arrive at an estimate of actual loss. Id. In
determining whether the resulting sum is a reasonable estimate of actual loss, the
court “may consider” whether that sum “includes significant changes in value not
resulting from the offense,” including “changes caused by external market forces.”
Id.
The district court employed the method described in the Guidelines. It first
identified the fraud period as February 23, 2009, the date on which TierOne first
issued fraudulent public statements that shareholders could have relied on in deciding
to purchase TierOne shares, through November 10, 2009, the date on which TierOne
filed a form with the SEC disclosing to the market its true financial state. The court
then calculated the average price of TierOne stock during the fraud period ($2.29) and
during the 90-day period immediately thereafter ($0.78). It multiplied the difference
between those two figures ($1.51) by the average number of TierOne shares
outstanding during the fraud period, excluding the number of shares owned by the
conspirators, (16,183,181) to arrive at a $24.4-million loss amount.
Lundstrom argues that the district court erred by refusing to calculate the loss
based on individual shareholder trading data. The court explained, however, that this
data “[wa]s insufficient because it d[id] not account for shareholders who held stock
during the fraud period in reliance on the fraud, and the evidence presented at trial
clearly established that such shareholders existed and owned substantial holdings of
TierOne stock.” As the district court recognized, mathematical certainty is not
required in loss calculation. Instead, “a reasonable estimate of the loss based on the
available evidence will suffice.” United States v. Wells, 127 F.3d 739, 748 (8th Cir.
1997). We conclude that the court did not clearly err in adopting the loss-calculation
methodology set forth in the Guidelines.
Lundstrom also contends that the district court made no effort to distinguish
between loss caused by the fraud scheme and loss caused by the adverse economic
-30-
and market conditions existing at that time. On the contrary, the district court
considered the evidence offered by Lundstrom that detailed share prices of banks that
he offered as comparators to TierOne, but concluded that the government’s evidence
was “more representative of the impact of general market forces on TierOne’s share
price.” When parties present conflicting expert testimony, “[i]t is the province of the
[factfinder] to decide which expert[] [was] more credible and persuasive.” Stults v.
Am. Pop Corn Co., 815 F.3d 409, 417 (8th Cir. 2016). We discern no clear error in
the district court’s methodology or in its ultimate determination of the loss
attributable to Lundstrom’s conduct. See United States v. Hance, 501 F.3d 900, 909
(8th Cir. 2007) (“The trial court must use a rational calculation method that yields a
reliable estimate of the loss; however, the methodology does not have to be
mathematically precise.”).
Lundstrom also challenges the district court’s application of a 4-level
leadership enhancement under Guidelines § 3B1.1(a), arguing that he must have
“directed or procured the aid of underlings” to be considered an organizer or leader
for purposes of the enhancement. Under § 3B1.1(a), a defendant’s offense level is
increased by 4 if he “was an organizer or leader of a criminal activity that involved
five or more participants or was otherwise extensive.”
The record is sufficient to establish not only that Lundstrom directed or
enlisted subordinates, but that the fraud was “otherwise extensive.” Lundstrom
directed and procured the aid of Laphen, Furnas, Langford, and Witkowicz to delay
appraisals in order to avoid the recognition of losses and an increase in reserves. The
fraud scheme was also “otherwise extensive” in light of the number of innocent
participants unwittingly involved in the scheme, i.e., the Board secretary who filed
minutes with the OTS, the loan officers who were unable to obtain updated
appraisals, the outside accountants who relied on false information to certify financial
reports for regulatory filings, and the bank employees who received Lundstrom’s
email encouraging them to inform customers that TierOne had met its regulatory
-31-
requirements. See U.S.S.G. § 3B1.1 cmt. n.3 (noting that use of “the unknowing
services of many outsiders” may render criminal activity “otherwise extensive”). The
district court did not clearly err in applying the § 3B1.1 leadership enhancement.
Lundstrom also argues that his 132-month sentence is substantively
unreasonable. He contends that the district court failed to give the appropriate
consideration to his age and to the nature and circumstances of his offense required
by 18 U.S.C. § 3553(a). “We review the substantive reasonableness of a sentence for
abuse of discretion,” keeping in mind the district court’s “wide latitude to weigh the
§ 3553(a) factors in each case and assign some factors greater weight than others in
determining an appropriate sentence.” United States v. Deering, 762 F.3d 783, 787
(8th Cir. 2014) (citation omitted).
The district court determined that Lundstrom’s total offense level was 45,
which, coupled with a Category I criminal history, resulted in a Guidelines sentencing
range of life imprisonment. Because the statutory maximum sentence applicable to
Lundstrom’s offense conduct was 360 months, however, the Guidelines range became
360 months. U.S.S.G. § 5G1.2(b). The court heard argument from both parties
regarding a downward variance, including a discussion of Lundstrom’s age, health,
and personal circumstances, as well as a discussion of general and specific deterrence
and sentencing disparities. The court then stated that it had “taken all of the [§]
3553(a) factors into consideration,” including Lundstrom’s “history and personal
characteristics,” his “age and . . . medical condition,” and the “letters of reference
from substantial members of [the] community.” The court then granted Lundstrom
a 228-month downward variance before imposing concurrent sentences of 132
months on each count of conviction.
Where, as here, a district court varies below a properly calculated Guidelines
sentence, it is “nearly inconceivable that the court abused its discretion in not varying
downward still further.” Deering, 762 F.3d at 787 (citation omitted). Having
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reviewed the sentencing record and the district court’s thorough explanation of the
sentence imposed, we conclude that the court did not abuse its discretion or impose
a substantively unreasonable sentence.
Restitution
Finally, Lundstrom argues that the district court erred by not accounting for the
effects of external market forces in its calculation of the $3,122,696 restitution award.
“[W]e review a finding as to the amount of loss for clear error . . . .” United States
v. Chalupnik, 514 F.3d 748, 752 (8th Cir. 2008).
Under the Mandatory Victims Restitution Act (MVRA), the district court “shall
order” a defendant convicted of certain offenses to “make restitution to the victim of
the offense.” 18 U.S.C. § 3663A(a)(1), (c)(1). “Restitution is compensatory, not
punitive” and must be proved by a preponderance of the evidence. United States v.
Chaika, 695 F.3d 741, 747-48 (8th Cir. 2012). “In a fraud case, [restitution] is limited
to the actual loss ‘directly caused by the defendant’s criminal conduct in the course
of the scheme alleged in the indictment.’” Id. (citation and emphasis omitted). The
calculation of loss for sentencing purposes does not control the calculation of loss for
restitution purposes. See id.To establish the appropriate amount of restitution, the government presented
evidence of claims data collected in a securities class action brought by TierOne
shareholders against the bank’s executives. That claims data identified the TierOne
shares purchased during the February 23, 2009, through November 10, 2009, fraud
period and sold after the public disclosure of the fraud, as well as the sum each
shareholder lost per share. The government then offset the resulting loss calculation
by a portion of the class-action settlement to arrive at a restitution amount of
$3,122,696.
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As he did before the district court, Lundstrom argues that this methodology
fails to account for any external market forces that caused shareholder losses. The
district court rejected this argument, finding that Lundstrom’s fraud “did not cause
shareholders to lose money by decreasing the value of TierOne’s shares; it caused
them to lose money by inducing them to purchase shares based on information that
grossly overestimated the value of these shares.” In other words, Lundstrom’s fraud
induced shareholders to purchase TierOne stock when they otherwise would not have.
Two TierOne shareholders testified that they purchased shares after reviewing
TierOne’s financial reports, press releases, or annual meeting presentations, each of
which conveyed the false impression that TierOne maintained a strong capital
position. Where a defendant’s fraudulent conduct enticed victims to enter the market
in the first place, the defendant assumes responsibility for their losses, including those
resulting from market forces. See, e.g., United States v. Robers, 698 F.3d 937, 944
(7th Cir. 2012) (“The declining [real estate] market only became an issue because of
[the defendant’s] fraud,” and thus, the defendant, “not his victims, should bear the
risk of market forces beyond his control.”), aff’d, 134 S. Ct. 1854, 1859 (2014);
United States v. Paul, 634 F.3d 668, 678 (2d Cir. 2011) (“The fact that independent
market forces may have contributed to the decline in SLM stock held by [the victims]
is irrelevant to the restitution calculation.”).
The judgment is affirmed.
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