United States v. Darrell Van Brocklin

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 96-2326
United States of America, *
*
Appellee, *
*
v. *
*
Darrell Dean Van Brocklin, *
*
Appellant. *
___________ Appeals from the United States
District Court for the
No. 96-2327 District of South Dakota.
___________
United States of America, *
*
Appellee, *
*
v. *
*
Travis Edward Atterberry, *
*
Appellant. *
___________
No. 96-2328
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United States of America, *
*
Appellee, *
*
v. *
*
Lawrence Kermit Pyatt, *
*
Appellant. *
___________
No. 96-2329
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United States of America, *
*
Appellee, *
*
v. *
*
Susan Kay Hastings, *
*
Appellant. *
___________
Submitted: February 12, 1997
Filed: June 6, 1997
___________
Before MAGILL, BEAM, and LOKEN, Circuit Judges.
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BEAM, Circuit Judge.
Defendants were convicted on various counts arising from a
scheme to defraud a South Dakota bank. We affirm the convictions
of all defendants. We conclude, however, that the district court
erred in sentencing defendants Van Brocklin, Pyatt, and Atterberry.
We also vacate the district court’s forfeiture order regarding
defendant Hastings, and remand for new findings regarding the
restitution order and the fine imposed on defendant Hastings.
I. BACKGROUND
We summarize the facts of this case in the light most
favorable to the verdicts. First Federal Savings Bank (First
Federal) is a now defunct bank that had its main office in Rapid
City, South Dakota. In 1989 the federal Office of Thrift
Supervision (OTS) audited the bank and determined that it had a
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large capital deficit and inadequate management. As a result, the
bank entered into a consent agreement with OTS. Thereafter, First
Federal was under the close supervision of OTS.
At the urging of OTS, First Federal hired defendant Darrell
Van Brocklin as its president in 1989. By 1991, however, it became
clear that the bank would have to be sold. Under the agency’s
direction, the bank took steps to increase its liquidity in order
to be more attractive to potential buyers. One of the bank’s
assets targeted for sale was a portfolio of real estate loans that
it had purchased some years earlier. These loans, known as the
First Western Mortgage Corporation (FWMC) loans, were secured by
commercial properties, mostly in California, and had at that time
an aggregate outstanding principal balance of approximately $50
million.
Defendants Travis Atterberry and Lawrence Pyatt owned First
National Funding (FNF), a Florida corporation that brokered loan
sales. In 1991, FNF began negotiating with a First Federal
employee about purchasing the FWMC loans. Beginning in November
1991, Van Brocklin personally continued the discussions with
Atterberry and Pyatt. In December 1991, FNF offered, subject to
OTS approval, to purchase the FWMC loans for a price of "81 cents,"
that is, 81% of the loans’ aggregate principal value.
Van Brocklin sent a letter accepting the offer, but did not
notify the bank's board of directors of the proposed deal. At a
board meeting on December 17, Van Brocklin informed the board that
some Florida buyers were interested in purchasing the loans for
about 80 cents, but not that he had previously accepted FNF's 81
cent offer. The matter rested until mid-January of 1992, when Van
Brocklin asked John Jones, an employee of the Resolution Trust
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Corporation (RTC), to evaluate the FWMC loans and give an opinion
whether an 81 cent offer would be a good deal for the bank.1 After
reviewing the loans, Jones told Van Brocklin on January 17, 1992,
that this was a good price, since the RTC would expect to charge a
purchaser approximately 70 cents if it were to sell the portfolio
after assuming control of the bank.
On January 21, 1992, FNF made a new offer for the entire FWMC
portfolio. This time, FNF offered to purchase the loans for a
price of 70 cents, or approximately $39 million. Van Brocklin
related this offer to William Hawthorne, the OTS agent supervising
the bank, but did not inform Hawthorne of the earlier 81 cent
offer. Hawthorne approved the proposed sale at 70 cents. On
January 29, 1992, the bank’s board of directors voted to accept the
offer.
At the same meeting, the board also approved a second deal
with FNF at Van Brocklin’s recommendation. This was for the sale
to FNF of $8.3 million in "charged-off" loans. The charged-off
loans were approximately 1,200 unrelated loans that the bank had,
at various times, determined were uncollectible or inadequately
collateralized, and had reduced to a zero book value and written
off as assets.2 As with the FWMC loans, OTS had been urging the
bank to find a buyer for the charged-off loans. The board agreed
to sell the charged-off loans to FNF for a price of approximately
$167,000--2% of the loans’ aggregate principal.
1
At that time, RTC was not supervising the bank, but was
reviewing First Federal’s assets in anticipation of the expected
sale of the bank.
2
Although these loans were no longer considered bank assets,
at least some were still considered performing loans, in that the
borrowers continued to make payments to the bank.
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During the meeting, Van Brocklin also informed the board that
he had received an offer of employment from FNF, and for that
reason would not vote on the loan sales. Van Brocklin did not
inform the board, however, that FNF was negotiating a simultaneous
resale of the FWMC loans, and that he would be receiving a share of
FNF’s profits from that transaction. On February 12, 1992, Van
Brocklin signed an employment agreement with FNF. On February 17,
while the loan sales were pending, Van Brocklin and FNF entered
into another agreement. This agreement provided that Van Brocklin
could form a South Dakota corporation also called First National
Funding (FNF-SD), which would service the charged-off loans. Under
this deal, FNF-SD would retain sixty percent of collections on the
loans, with the remaining profits going to FNF. On February 14,
1992, Van Brocklin incorporated FNF-SD. The same day, Van Brocklin
received from FNF a check for a $50,000 "signing bonus."
Defendant Susan Hastings was a senior vice-president of the
bank and a member of the board of directors. It was Hastings who
prepared FNF-SD’s articles of incorporation for Van Brocklin. On
the same day, Hastings also sent a check (postdated to February 18)
to Pyatt and Atterberry for $71,010.31. This money was to
represent an interest rate adjustment for overcharges made to the
FWMC loans’ borrowers. Van Brocklin, however, had instructed Pam
Brekke, a bank employee, to calculate the adjustment based not on
the entire portfolio, but for only certain loans representing less
than half the value of the $50 million portfolio. Hastings sent
this partial payment even though FNF’s offer had been for the
entire portfolio, and the board had agreed to sell FNF all of the
FWMC loans at the 70 cent price. Atterberry and Pyatt deposited
this check, but never passed the funds on to the institution that
ultimately purchased the FWMC loans.
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On February 18, 1992, Van Brocklin attended the first closing
for the FWMC loan sales in California. At the closing, FNF
purchased less than half of the loans. At the same closing, FNF
immediately resold the loans to another loan broker for a price of
78 cents. The escrow agent conducting the closing issued a check
to FNF for $1,343,138.75, representing most of its profit from the
resale. The agent also issued a second check, made out to "First
National Funding, Inc." for $230,000. This check went, however, to
South Dakota, and was deposited in a bank account established for
Van Brocklin’s company FNF-SD. The same day, Hastings prepared
checks, which were signed by Van Brocklin, transferring these funds
to two other accounts.
On February 20, 1992, Van Brocklin reported to the bank’s
board that FNF had purchased some of the loans, but that closings
on the rest of the portfolio were expected by the end of the month.
Van Brocklin also announced that he had signed an employment
contract with FNF. Neither Van Brocklin nor Hastings informed the
board that Van Brocklin had already received the $50,000 "signing
bonus" and $230,000 from the first closing, nor that they had
incorporated FNF-SD to service the charged-off loans.
There were two more closings for the FWMC loans. In meetings
on February 28 and March 2, 1992, FNF purchased three loans for 70
cents, then immediately resold them for 91.4 cents. Van Brocklin
represented First Federal at the closing, although by now he had
entered into an employment agreement with FNF, and had received
$280,000 from FNF. From this sale, Atterberry and Pyatt received
$386,059.10. On March 6, the last closing took place. Pam Brekke
represented the bank at the closing. FNF bought five loans with an
aggregate principal value of approximately $10 million, again at
the 70 cent price, and immediately resold them for 91.4 cents.
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From this sale, the escrow agent wired $1,362,142.92 to FNF in
Florida. Much as in the first closing, the agent issued to "First
National Funding, Inc.," an additional check for $750,000.
Atterberry gave Brekke an envelope containing this check and
instructed her to give it to Van Brocklin.
The next day, a Saturday with the bank closed, Brekke met Van
Brocklin and Hastings at the bank and delivered the envelope to Van
Brocklin. The following Monday, Hastings deposited this check in
FNF-SD’s account, then immediately prepared checks that transferred
the money to a variety of accounts, investment funds, and to Van
Brocklin’s personal account. In the end, First Federal realized
about $22 million from the FWMC loan sales, even though FNF had
agreed to buy the entire portfolio for approximately $39 million.
Pyatt’s and Atterberry’s profit from FNF’s simultaneous resale of
the loans at the three closings totaled more than $3 million. Van
Brocklin received $980,000.
Meanwhile, the charged-off loans began to pay off handsomely.
Three loans involved commercial properties in Minnesota known as
the HDA properties, which had been in receivership. The receiver
had been holding $97,000 in rental payments from the properties and
seeking instruction from Van Brocklin and Brekke on how to dispose
of those funds. Shortly after the sale of the charged-off loans,
Van Brocklin directed Brekke to instruct the receiver to release
those funds. The receiver issued a check for these funds to First
Federal. Brekke instructed another bank employee to endorse the
check to First National Funding, and Hastings then deposited the
check in FNF-SD’s account.
Furthermore, for some time prior to the loan sale, First
Federal had been the plaintiff in a lawsuit involving the HDA
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properties. In November of 1991, Van Brocklin had taken part in
settlement negotiations on behalf of the bank and had made a
settlement demand of $1 million. Van Brocklin did not, however,
inform the board or OTS that a settlement was possible when the
board voted to approve charging off the HDA loans in January 1992.
Late in 1992, the suit settled, resulting in payments to FNF-SD
totaling $700,000, which Van Brocklin split with Atterberry and
Pyatt. Atterberry, Pyatt, and Van Brocklin also received
substantial profits from certain other charged-off loans, most of
which--including the HDA loans--were charged-off by bank employees
at Van Brocklin’s direction days before the sale to FNF. By the
end of 1992, the charged-off loans purchased for $167,000 that same
February had produced more than $1 million.
OTS began investigating these transactions in April 1992,
after bank employees reported that Van Brocklin, Hastings, and
Brekke were working for FNF-SD, and indeed maintaining an office
for FNF-SD, while still employed by First Federal. The government
issued a thirty-three count superseding indictment on April 13,
1995. The government alleged that Pyatt and Atterberry bribed Van
Brocklin in order to allow them to "cherry-pick" the most desirable
of the FWMC loans at the 70 cent price, rather than purchasing the
entire portfolio, thus defrauding the bank. The government also
alleged that part of the fraud was the addition to the charged-off
loans shortly before their sale of a number of loans that Van
Brocklin knew, but did not disclose, to be of substantial value.
Defendants then attempted to conceal the fraud by laundering the
proceeds.
Following a twenty-one day trial, Van Brocklin was convicted
of one count of bank fraud (18 U.S.C. § 1344), three counts of
bribery (18 U.S.C. § 215), one count of engaging in fraudulent bank
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transactions (18 U.S.C. § 1005), ten counts of engaging in a
monetary transaction with unlawfully derived funds (18 U.S.C.
§ 1957), and two counts of money laundering (18 U.S.C. § 1956).
Hastings was convicted of one count of bank fraud, seven counts of
engaging in a monetary transaction with unlawfully derived funds,
and two counts of money laundering. Pyatt and Atterberry were each
convicted of one count of bank fraud, three counts of bribery, one
count of engaging in fraudulent bank transactions, and ten counts
of engaging in monetary transactions with unlawfully derived
funds.3 After a hearing, the district court entered forfeiture
judgments against all defendants. Van Brocklin was sentenced to
108 months of imprisonment, a $150,000 fine, and $1,395,000 of
restitution. Hastings received 51 months of imprisonment, a
$10,000 fine, and a $250,000 restitution order. Pyatt and
Atterberry each received 57 months of imprisonment, fines of
$75,000, and $1,051,000 in restitution.
On appeal, the defendants' allegations include that the
government withheld material evidence from the defense; that the
district court erroneously instructed the jury; that the evidence
was insufficient for conviction on various charges; and that the
district court erroneously calculated their sentences.
3
Hastings was acquitted of one count of money laundering. The
district court dismissed without prejudice Count IX, which charged
Van Brocklin and Atterberry of conducting a continuing financial
crimes enterprise, 11 U.S.C. § 225.
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II. DISCUSSION
A. Withholding of Material Evidence
Defendants claim that the government withheld documentary
evidence material to the issue of their guilt, violating Brady v.
Maryland, 373 U.S. 83 (1963). Under Brady, the government’s
suppression of material, exculpatory evidence violates due process.
Id. at 87. To establish a Brady violation, a defendant must show
that: (1) the prosecution suppressed evidence; (2) the evidence was
favorable to the defendant; and (3) the evidence was material.
United States v. Willis, 89 F.3d 1371, 1381 (8th Cir. 1996).
Evidence is "material" for Brady purposes if its cumulative effect
would be to undermine confidence in the verdict. Kyles v. Whitley,
115 S. Ct. 1555, 1566 (1995). Impeachment evidence may also come
within Brady. United States v. Bagley, 473 U.S. 667, 676 (1985).
Prior to trial, defendants made a variety of motions seeking to
compel production of certain materials, and unsuccessfully moved to
dismiss the indictments for the government’s alleged failures to
produce evidence.
The government admits that it refused to produce one of these
documents: the personnel file of William Hawthorne, the OTS agent
who supervised the bank. The government maintains, however, that
it withheld the file only after it had examined the file and
determined that it contained no Brady material. It is the
prosecutor’s duty to examine documents to determine whether they
contain Brady material. United States v. Pou, 953 F.2d 363, 366
(8th Cir. 1992). Despite the government’s representations,
defendants assert that the file may have contained impeaching
information or evidence of OTS’s knowledge of the events in
question. Mere speculation that materials may contain exculpatory
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evidence is not, however, sufficient to sustain a Brady claim.
United States v. Agurs, 427 U.S. 97, 109-10 (1976). Furthermore,
when the government has reviewed a personnel file for Brady
material, the defendant’s speculation that the file may contain
impeaching information does not compel the district court to review
the file in camera. Pou, 953 F.2d at 367. Here, the district
court’s denial of the defendants’ motion to compel production of
Hawthorne’s file was essentially a discovery ruling, and absent a
colorable showing that the file in fact contained Brady material or
that the government acted in bad faith, the district court did not
abuse its discretion in denying the motion. See Willis, 89 F.3d at
1381 n.6.
Other documents in dispute include an RTC asset valuation
review (AVR) of the FWMC loans prepared by RTC agent Jones, various
materials regarding the FWMC loans, agency investigative notes and
telephone logs, correspondence, and other records. Defendants
assert that these documents would have been material in impeaching
government witnesses, in demonstrating that OTS and RTC were fully
aware of the transactions in issue, and in demonstrating that the
sale of the FWMC loans and the charged-off loans was proper. The
government contends that it made available all material that was in
its possession or controlled by OTS and RTC. There is evidence
that at least some information the defense failed to find in the
agency files did, in fact, exist at some point.4 It is much less
clear whether other requested documents, such as Van Brocklin’s
correspondence and agency files on the FWMC loans, were actually
4
For example, RTC agent Jones testified that he conducted the
asset valuation review of the FWMC loans and recounted his
conclusions at trial. The written report of the AVR, however, was
never produced (although a summary report was). In addition, OTS
agent Hawthorne testified that he made numerous call reports of his
telephone contacts with First Federal, but the government produced
only seven such reports.
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retained by the agencies. The upshot is that, for much of the
material sought by the defense, we face an impasse: the defendants
say that exculpatory material was missing from the files it
examined, while the government maintains that the defense had
access to everything, and that any "missing" material simply does
not exist.
This discrepancy is troubling, but it does not give rise to a
Brady violation. Defendants’ belief that certain documents were
missing from the files they examined does not, without more,
establish that the government has actually suppressed those
purported documents. Even for those documents that probably did
exist, the record does not indicate that the absence was due to the
prosecution. In determining whether a Brady violation has occurred
when the government has lost or destroyed evidence, "courts face
the treacherous task of divining the import of materials whose
contents are unknown and, very often, disputed." California v.
Trombetta, 467 U.S. 479, 486 (1984). Here, our task is even more
difficult, as we cannot be sure whether or not much of the material
in dispute was ever in the government's possession.
Nevertheless, we have carefully reviewed the appellants’
arguments for why the disputed material constituted Brady material.
Even if we were to accept defendants’ representations of the
content of the material they sought, and assume that the material
was in fact retained by the government, we conclude that defendants
have not shown that material was either favorable to the defense or
that it was material in that its collective effect would undermine
confidence in the verdicts. We therefore hold that the defendants
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have failed to establish any of the three elements that show a
Brady violation.5
B. Jury Instructions
Defendants objected to a number of the district court’s jury
instructions, and renew their challenges on appeal. We review the
district court’s formulation of the jury instructions for abuse of
discretion. United States v. Kime, 99 F.3d 870, 877 (8th Cir.
1996). We uphold an instruction if it "fairly and adequately
contains the law applicable to the case." United States v. Casas,
999 F.2d 1225, 1230 (8th Cir. 1993).
1. Instructions 17 and 23
All four defendants were convicted of one count of bank fraud
under 18 U.S.C. § 1344. Van Brocklin, Pyatt, and Atterberry were
also convicted of engaging in fraudulent bank transactions under 18
U.S.C. § 1005. Van Brocklin, Pyatt, and Hastings6 assert that the
district court's jury instructions on these counts impermissibly
broadened the scope of the indictment, thus depriving them of their
right to a grand jury indictment. See United States v. Neff, 525
5
Atterberry, Pyatt, and Hastings also argue that the
government’s alleged failure to produce evidence violates the Sixth
Amendment’s Compulsory Process Clause. See Washington v. Texas,
388 U.S. 14, 18-19 (1967). This argument is without merit.
Compulsory process applies only to a defendant’s right to produce
witnesses and to offer witness testimony. Taylor v. Illinois, 484
U.S. 400, 407-09 (1988); Anderson v. Groose, 106 F.3d 242, 246 (8th
Cir. 1997).
6
As with a number of other issues, defendant Atterberry
neither argued this issue in his brief nor incorporated it by
reference, and so appears to have waived this issue. In light of
our conclusions, however, this oversight does not prejudice
Atterberry.
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F.2d 361, 363 (8th Cir. 1975). Defendants argue that the
indictment alleged only that they defrauded the directors of the
bank, whereas the applicable jury instructions, 17 and 23, stated
that intent to defraud could be established by showing deception of
the bank's "officers, directors and examiners." Because the
indictment did not mention officers or examiners, defendants argue,
the jury instructions broadened the scope of the indictment.
We disagree. Sections 1005 and 1344 require proof of fraud on
the bank, but such fraud can be established by misrepresentations
made to those groups delineated in the jury instructions. See
United States v. Molinaro, 11 F.3d 853, 861 (9th Cir.
1993)(rejecting a similar challenge to a § 1344 conviction).
Instructions 17 and 23 do not allow conviction of these defendants
on crimes or facts not charged in the indictment. We therefore
conclude that those instructions were not erroneous.
Furthermore, even if we were to accept the defendants' reading
of the indictment, any error was harmless. The instructions
required the jury to find defendants deceived the bank’s "officers,
directors and examiners" (emphasis added). The instructions thus
required the jury to find intent to deceive the directors, which
defendants allege is the sole fraud theory charged in the
indictment. Indeed, by being framed in the conjunctive,
Instructions 17 and 23 arguably required a greater degree of proof
than either the statutes or the indictment require.
2. Instruction 25
Hastings and Pyatt challenge their convictions for engaging in
monetary transactions with unlawfully derived funds, pursuant to 18
U.S.C. § 1957. They claim that the applicable instruction, number
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25, did not instruct the jury that conviction required proof of an
effect on interstate commerce. They argue that "effect on
interstate commerce" is an essential element of a § 1957 violation,
and Instruction 25 allowed the jury to convict without finding such
an effect.
Other circuits are split on whether "effect on interstate
commerce" is an essential element of a § 1957 charge or simply a
jurisdictional requirement. Compare United States v. Kelley, 929
F.2d 582, 586 (10th Cir. 1991) (holding that effect on interstate
commerce is a jurisdictional requirement that need not be submitted
to the jury), with United States v. Aramony, 88 F.3d 1369, 1387
(4th Cir. 1996) (holding it an essential element of the crime); see
also United States v. Spriggs, 102 F.3d 1245, 1260 (D.C. Cir. 1996)
(questioning Kelley). We need not enter this debate in this case.
Instruction 25 required the jury to find a "monetary transaction,"
and then correctly defined "monetary transaction" as a transaction
"in or affecting interstate or foreign commerce." Assuming the
jury followed the instruction, it could not have found a monetary
transaction without finding an effect on interstate commerce. Not
only does Instruction 25 fairly and adequately contain the
applicable law, but it tracks § 1957 nearly verbatim. The
district court did not err in submitting Instruction 25 to the
jury.
C. Denial of Judgment of Acquittal for Fraudulent Bank
Transactions, 18 U.S.C. § 1005
Count VIII of the indictment charged Van Brocklin, Atterberry,
and Pyatt with violating the fourth paragraph of 18 U.S.C. § 1005,
which provides:
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Whoever with intent to defraud the United States or any
agency thereof, or any financial institution referred to
in this section, participates or shares in or receives
(directly or indirectly) any money, profit, property, or
benefits through any transaction, loan, commission,
contract, or any other act of any such financial
institution--
Shall be fined not more than $1,000,000 or
imprisoned not more than 30 years, or both.
Pyatt and Atterberry moved for a judgment of acquittal on Count
VIII, arguing that § 1005 applies only to bank officers, directors,
agents, or employees. The district court denied the motion, and
Pyatt appeals.
The first four paragraphs of § 1005 define four categories of
fraudulent conduct that the statute criminalizes. The first
paragraph states that "[w]hoever, being an officer, director, agent
or employee of any [bank] without authority . . . issues or puts in
circulation any notes of such bank" is liable. (emphasis added).
The following three paragraphs (including paragraph four, under
which defendants were charged) contain no such class restriction.
Pyatt argues that, despite the lack of a class restriction in
the text of paragraph four, Congress' intent was to limit liability
under § 1005 to bank insiders. Pyatt relies on United States v.
Edwards, 566 F. Supp. 1219, 1221 (D. Conn. 1983), in which the
court held that paragraph three, which also contains no class
restriction, applies only to officers, directors, employees, and
agents. In a case not cited by the parties, the Third Circuit
reached a similar conclusion about paragraph three. United States
v. Barel, 939 F.2d 26, 38-41 (3d Cir. 1991). The courts in Edwards
and Barel reasoned that the predecessor statute to § 1005 limited
criminal liability to bank insiders, and the legislative history
suggested that Congress intended no substantive changes when it
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amended and recodified the statute in 1948. Barel, 939 F.2d at 40-
41; Edwards, 566 F. Supp. at 1220-21; but cf. United States v.
Edick, 432 F.2d 350, 352-353 (4th Cir. 1970) (affirming conviction
of non-insider because plain language of paragraph three contains
no class restriction).
We need not decide whether the courts in Edwards and Barel
correctly interpreted Congress’ intent with regard to paragraph
three, because paragraph four has a much different history than the
rest of § 1005. Congress added paragraph four to the statute in
1989 as part of the Financial Institutions Reform, Recovery, and
Enforcement Act (FIRREA), Pub. L. No. 101-73, 103 Stat. 183, 499,
§ 961(d)(3) (1989). A response to the savings and loan disaster of
the 1980s, FIRREA was intended, in part, "[t]o strengthen the
enforcement powers of Federal regulators of depository institutions
[and to] strengthen the civil sanctions and criminal penalties for
defrauding or otherwise damaging depository institutions and their
depositors." Id. at § 101(9)-(10). FIRREA’s legislative history
notes the addition of paragraph four, but in no way indicates that
liability under that provision is limited to bank insiders. See
H.R. Rep. No. 101-54(I), at 399-400, 472-73, reprinted in 1989
U.S.C.C.A.N. 195-96, 268-69. The legislative history of the other
provisions of § 1005 upon which Edwards and Barel relied is simply
not applicable to paragraph four.
Paragraph four is not by its terms restricted to bank
insiders. Furthermore, the conduct that the paragraph
criminalizes--participation in or receipt of funds derived from a
bank transaction with the intent to defraud--clearly encompasses
the kinds of acts charged in this case. Nor is the described
conduct the sort that, in most cases, would require insider status
or access to bank records. Given Congress’ concerns in enacting
FIRREA, we decline to read into paragraph four of § 1005 a class
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restriction that Congress did not itself mention. We hold that
when a person "with intent to defraud . . . participates or shares
in or receives" funds derived from a transaction with the bank,
that person may be convicted under paragraph four of § 1005,
regardless of whether he or she is a bank employee, officer,
director, or agent.
D. Sufficiency of the Evidence
Defendants challenge the sufficiency of the evidence to
convict them on a number of charges. Our review of the sufficiency
of evidence is narrow, viewing all evidence in the light most
favorable to the verdict and affording the government the benefit
of all reasonable inferences that can be drawn from the evidence.
United States v. Smith, 104 F.3d 145, 147 (8th Cir. 1997). We must
affirm if any interpretation of the evidence would allow a
reasonable-minded jury to find the defendants guilty beyond a
reasonable doubt. Id.
1. Fraudulent Bank Transactions
Pyatt challenges the evidence supporting his conviction for
engaging in fraudulent bank transactions, in violation of 18 U.S.C.
§ 1005. A defendant violates § 1005 if he or she "with intent to
defraud . . . participates or shares in or receives (directly or
indirectly) any money . . . through any transaction" with a
financial institution. The evidence showed that Pyatt and
Atterberry received more than $3 million in profit from the FWMC
loan sales and a sizable share of the proceeds from FNF-SD’s
collections on the charged-off loans. Van Brocklin received nearly
$1 million in payments from these sales, and allowed FNF to
purchase a portion of the FWMC portfolio when it was committed to
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buying the entire package, enabling FNF to resell those loans at a
substantial profit. A reasonable jury could conclude that the
defendants received money from the loan sales as part of an intent
to defraud the bank, and we affirm this conviction.
2. Bank Fraud
Hastings and Pyatt challenge their convictions for bank fraud,
18 U.S.C. § 1344. To prove a violation of § 1344, the government
must show that defendants "knowingly executed a scheme to defraud
a federally insured bank." United States v. Britton, 9 F.3d 708,
709 (8th Cir. 1993). Hastings and Pyatt argue that the evidence
was insufficient to establish their knowing participation in fraud.
Pyatt further argues that FNF’s dealings with First Federal merely
reflect bona fide transactions and "aggressive brokering."
The evidence showed that Pyatt and Atterberry covertly paid
Van Brocklin more than a million dollars in three separate
payments. Pyatt and Atterberry then purchased less than half of
the FWMC loans though they were obligated to purchase the entire
portfolio, and then made immediate and substantial profits by
reselling the loans. Hastings, who was a high ranking bank
officer, board member, and who worked closely with Van Brocklin,
was aware of these payments. She assisted in transferring the
proceeds, sent FNF a check for over $71,000 that went directly to
Pyatt and Atterberry, and did not disclose these dealings to the
board or OTS. Hastings was aware of the substantial profits from
the charged-off loans, which Van Brocklin shared with Pyatt and
Atterberry, assisted in processing those funds, and did this even
while continuing to work for First Federal. A reasonable jury
could have inferred that Hastings and Pyatt knowingly engaged in a
scheme to defraud the bank, and we affirm the convictions.
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3. Bank Bribery
Pyatt challenges his convictions, under Counts II, III, and
IV, for bank bribery, 18 U.S.C. § 215.7 The basis of these charges
was the $50,000 "signing bonus" to Van Brocklin and the two
payments of $230,000 and $750,000 from the FWMC loan closings.
Pyatt contends that the government failed to prove that the
payments to Van Brocklin were anything other than bona fide
compensation pursuant to his employment agreement with FNF. The
evidence showed that Pyatt and Atterberry negotiated the loan
transactions with Van Brocklin, and that their offer for the FWMC
loans dropped from 81 cents to 70 cents after RTC agent Jones told
Van Brocklin 70 cents was a fair price. Van Brocklin failed to
inform either the bank directors or OTS of the 81 cent offer. Van
Brocklin did not disclose the payments from FNF. The two checks to
Van Brocklin from the FWMC loan proceeds were made out to "First
National Funding, Inc." rather than to him, which the government
argued indicated an attempt to conceal those payments. Van
Brocklin allowed FNF to buy only a portion of the FWMC portfolio,
and Pyatt and Atterberry obtained quick and sizeable profits from
7
Section 215 imposes criminal liability on whomever:
(1) corruptly gives, offers, or promises anything of
value to any person, with intent to influence or reward
an officer, director, employee, agent, or attorney of a
financial institution in connection with any business or
transaction of such institution; or
(2) as an officer, director, employee, agent, or attorney
of a financial institution, corruptly solicits or demands
for the benefit of any person, or corruptly accepts or
agrees to accept, anything of value from any person,
intending to be influenced or rewarded in connection with
any business or transaction of such institution.
18 U.S.C. § 215(a)(1) & (2). The statute thus criminalizes both
making and receiving a bribe in connection with a bank transaction.
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the transactions, which they shared with Van Brocklin. This
evidence would allow a reasonable jury to agree with the
government’s theory that Pyatt and Atterberry paid Van Brocklin in
exchange for allowing them to cherry-pick the FWMC loans. The
convictions are affirmed.
4. Money Laundering/Monetary Transactions With
Unlawfully Derived Funds
Van Brocklin, Hastings, and Pyatt challenge their convictions,
on multiple counts, of money laundering, 18 U.S.C. § 1956, and
engaging in monetary transactions with unlawfully derived funds, 18
U.S.C. § 1957. The elements of a § 1956 violation are: (1) the
defendant conducted a financial transaction which involved the
proceeds of unlawful activity; (2) defendant knew that the property
involved in the transaction was the proceeds of specified unlawful
activity; and (3) that defendant intended to promote the carrying
on of specified unlawful activity. United States v. Williams, 87
F.3d 249, 254-55 (8th Cir. 1996). A conviction under § 1957
requires a showing that: (1) defendant knowingly engaged in a
monetary transaction; (2) the defendant knew that the property
involved derived from specified unlawful activity; and (3) the
property is of a value greater than $10,000. See United States v.
Hare, 49 F.3d 447, 451 (8th Cir 1995).
The § 1957 counts involved a number of deposits, payments, and
transfers of the proceeds of the charged-off loans after the sale
to FNF, the profits on the resale of the FWMC loans, and the
$71,010.31 "interest adjustment" sent to FNF for the FWMC loans.
Hastings’s and Van Brocklin’s § 1956 money laundering convictions
stemmed from their deposit and immediate transfer of the two checks
totaling $980,000 that Van Brocklin received from the FWMC loan
sales, and which were the basis of the bribery convictions. In
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light of the evidence already summarized, the jury could reasonably
have found that these transactions met the elements set forth
above.
As noted previously, defendants contend that an effect on
interstate commerce is an essential element of these crimes, rather
than simply a jurisdictional requirement. If we assume, without
deciding, that such an effect is an element of these crimes, there
was nonetheless ample evidence to support these convictions. The
smallest of these transactions involved $14,000 and the largest
$1,362,142.92. Defendants’ conduct involved a number of banks and
individuals in three different states. A reasonable jury could
find that each of these transactions had an effect on interstate
commerce.8
Finally, Defendants challenge the forfeiture judgments entered
against them, on the basis that there was insufficient evidence for
conviction on the predicate crimes. Because we find the evidence
sufficient for all of the convictions, we affirm the forfeiture
judgments, except as otherwise discussed below.
8
Hastings and Pyatt also argue that conviction required that
the government prove that the transactions involved "financial
institutions," which they claim is an essential element of these
crimes. Even if we were to agree with this premise, we find that
the evidence clearly supported an affirmative jury finding in this
regard.
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E. Sentencing Issues
1. Enhancement for Loss
Van Brocklin, Atterberry, and Pyatt were sentenced under the
sentencing guideline applicable to bank fraud. U.S. Sentencing
Guidelines Manual § 2F1.1. The district court found that
defendants’ conduct caused a loss to First Federal of $3.892
million, resulting in a thirteen-level specific offense
characteristic enhancement under § 2F1.1(b)(1)(N). In determining
the total loss, the district court considered the following sums:
(1) the $980,000 that Van Brocklin received in bribe money from
Atterberry and Pyatt; (2) FNF’s profits from the FWMC loan sales;
(3) the $97,000 released by the HDA property receiver; and (4) the
settlement from the HDA litigation. Defendants claim that the
district court erroneously equated the bank’s loss with the profit
made by the defendants. We review the district court’s
interpretation of the Guidelines de novo, and the factual findings
supporting its conclusions for clear error. United States v.
Willis, 997 F.2d 407, 417 (8th Cir. 1993).
A number of courts have held that, in some cases, it is
inappropriate to determine loss under § 2F1.1 in accordance with
the gain to the defendants. See United States v. Kopp, 951 F.2d
521, 526-36 (3d Cir. 1991) (summarizing cases). The guideline’s
application notes are ambiguous as to whether or when such a method
is appropriate, stating that "loss need not be determined with
precision. The court need only make a reasonable estimate of the
loss, given the available information. . . . The offender’s gain
from committing the fraud is an alternative estimate that
ordinarily will overestimate the loss." U.S.S.G. § 2F1.1, comment.
(n.8).
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Given the wide latitude the guideline gives sentencing courts
in determining loss, we are not prepared to say that determining
loss according to a defendant’s profit is necessarily erroneous, so
long as the evidence indicates that such a method provides a
reasonable estimate of the actual loss.9 We find that in this
case, however, the district court clearly erred in equating "loss"
solely with the defendants’ profit. The district court apparently
found that the entire profit that FNF made from its resale of the
FWMC loans was money that should have gone to First Federal, and
was therefore "loss" to the bank. The court also concluded that
the $980,000 that Van Brocklin received from the FWMC sales, which
was paid out of FNF’s profit margin from those sales, also should
have gone to the bank and was thus "loss."
The problem with this is that the government never established
by a preponderance of the evidence what FNF would have or should
have paid for those loans had the sales been legitimate. In this
case, both the bank directors and OTS wanted those loans sold. Any
loss to the bank from defendants’ scheme did not occur simply
because the loans were sold, but only if the loans were sold at an
artificially low price. This was the very nature of the
government’s cherry-picking theory: that FNF selectively purchased
high-value loans from the FWMC portfolio, yet paid a 70 cent price
that was based on the quality of the portfolio as a whole.
The government has the burden of proof in showing loss under
§ 2F1.1, and the evidence at trial and at sentencing simply did not
9
In several of the cases summarized in Kopp, for example, the
defendant had fraudulently obtained a loan, but then fully
performed according to the terms of the loan. In those cases, the
amount of the loan would have greatly overestimated any actual loss
to the bank. Kopp, 951 F.2d at 531-33. Those defendants’ gains
were thus not a reasonable estimate of actual loss.
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establish with any certainty what that loss was. Even if we were
to assume that FNF, acting without fraud and bribery, would have
paid a higher price to First Federal for the loans it cherry-
picked, FNF presumably would still have resold those loans at a yet
higher price in order to turn a profit. Similarly, using the
bribes paid to Van Brocklin as a proxy for loss is inappropriate,
since those funds also came out of FNF’s profit margin from the
sales. The evidence did not establish what First Federal should
have received on those sales in a completely legitimate
transaction. Equating defendants' entire profit with "loss" to
First Federal in all likelihood overestimates the actual loss to
the bank.10 We therefore hold that the district court clearly erred
in its determination of the bank’s loss under § 2F1.1. We remand
to the district court for a new determination of loss to the bank
under § 2F1.1 or for recalculation of the sentences under another
appropriate guideline.
2. Denial of Reduction for Mitigating Role for Hastings
Hastings’s presentence report recommended that she receive a
four-level reduction in her offense level as a "minimal
participant" pursuant to U.S.S.G. § 3B1.2(a). Hastings
alternatively argued that she is entitled to at least a two-level
reduction under § 3B1.2(b) as a "minor participant." The district
court declined to apply either reduction. We review the district
court’s determination of § 3B1.2 adjustments for clear error.
United States v. Field, 110 F.3d 587, 590 (8th Cir. 1997).
10
Establishing loss is even more complicated in this case,
because the government stipulated that 70 cents was a fair price
for the FWMC loan portfolio. Furthermore, the evidence that might
most clearly establish the actual loss to the bank, the asset
valuation review conducted by RTC agent John Jones, was one of the
documents that defendants allege the government failed to produce.
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A four-level reduction under § 3B1.2(a) is appropriate for
defendants "who are plainly among the least culpable of those
involved in the conduct of a group." U.S.S.G. § 3B1.2, comment.
(n.1). It is meant to be "used infrequently" and is "appropriate,
for example, for someone who played no other role in a very large
drug smuggling operation than to offload part of a single marihuana
shipment, or in a case where an individual was recruited as a
courier for a single smuggling transaction involving a small amount
of drugs." Id. (n.2). Hastings’s conduct in this case is not
comparable to the infrequent situations contemplated by the
guideline. Hastings was a high-ranking bank officer and a member
of the board, knew of the scheme, and concealed Van Brocklin’s
conduct from the board and OTS. Hastings was present when Van
Brocklin received $750,000 in bribe money and personally
participated in transferring the funds that were the subject of her
money laundering convictions. The court’s denial of a four-level
adjustment was not clearly erroneous.
Whether Hastings should have at least received a two-level
reduction as a minor participant is a closer question. "For
purposes of §3B1.2(b), a minor participant means any participant
who is less culpable than most other participants, but whose role
could not be described as minimal." U.S.S.G. § 3B1.2, comment.
(n.3). Hastings did not receive any direct share of the proceeds
of the loan sales, and it is clear that Van Brocklin, Atterberry,
and Pyatt were the masterminds of the deal. Given the facts
described previously, however, we cannot conclude that the district
court clearly erred in denying a two-level reduction.11
11
We note that although the district court denied a reduction
under § 3B1.2, the court did, in fact, reduce Hastings’s total
offense level from 26 to 24 "in the interest of proportionality."
Sentencing Tr. at 167-68. The government did not appeal this
reduction, which the district court recognized could not "be
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Hastings also appeals the district court’s denial of her
motion for a downward departure. The record shows that the
district court recognized that it had authority to depart downward,
but refused to exercise its discretion to do so. Sentencing Tr. at
167. Such a discretionary refusal to grant a downward departure is
not reviewable. United States v. McCarthy, 97 F.3d 1562, 1578 (8th
Cir. 1996).
3. Hastings’s Forfeiture, Restitution, and Fine
The district court entered a forfeiture judgment against
Hastings for $1,325,910.60. Hastings argues that this forfeiture
order violates the Excessive Fines Clause of the Eighth Amendment,
and we agree.
Criminal forfeitures are monetary punishments subject to the
Eighth Amendment’s Excessive Fines Clause. Alexander v. United
States, 509 U.S. 544, 558-59 (1993). Whether a forfeiture is
"grossly disproportionate" and thus violates the Eighth Amendment
is a fact-sensitive inquiry that depends on a number of factors.
United States v. Alexander, 32 F.3d 1231, 1236 (8th Cir. 1994).
These factors include, but are not limited to: the seriousness of
the offense; an assessment of the personal benefit reaped by the
particular defendant; the defendant’s motive and culpability; and
"the extent that the defendant’s interest and the enterprise itself
are tainted by criminal conduct." Id. at 1236-37 (quoting United
States v. Sarbello, 985 F.2d 716, 724 (3d Cir. 1993)).
classified as a departure." Id. at 167. The district court was,
in part, concerned that Hastings’s calculated total offense level
of 26 would be higher than that of Atterberry and Pyatt, and that
this was unfair in light of Hastings’s role in the crimes. Id. at
166-68. The district court appears to have, in effect, given
Hastings the benefit of a § 3B.1.2 adjustment by another name.
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While Hastings’s convictions for money laundering and bank
fraud constitute serious offenses, the facts of this case indicate
that a $1.3 million forfeiture order is grossly disproportionate.
Although Hastings abused her position of trust as a high-ranking
bank official, she was clearly a secondary figure in the crimes.
Furthermore, her motive appears to have been a misguided loyalty to
Van Brocklin, rather than a direct interest in the success of the
scheme. As the district court noted at sentencing, "Ms. Hastings’
situation provides special difficulty for the Court in [that] much
of her conduct was pressed upon her by Mr. Van Brocklin."
Sentencing Tr. 164.12 Hastings reaped little benefit: while the
scheme earned Van Brocklin, Atterberry, and Pyatt millions of
dollars, Hastings received no direct share of the proceeds.13
Despite this, Hastings’s forfeiture judgment is only marginally
less than Van Brocklin’s.14 In view of these facts, we hold that
the forfeiture judgment against Hastings was an excessive fine.
The district court also entered a $250,000 restitution order
against Hastings. In light of the facts described above, we are
12
Even the prosecutor noted at sentencing that "It is really
a difficult balance . . . regarding this defendant. [B]ut for her
association with Van Brocklin, I don’t believe she’d be sitting in
the courtroom today. . . . So was it out of loyalty to Van
Brocklin? Was it manipulation on his part?" Sentencing Tr. 195-96
13
We thus reject the government’s argument that an excessive
fines analysis is inappropriate because Hastings's forfeiture order
seeks to recover proceeds of the crime. See Alexander, 32 F.3d at
1236 ("Forfeiture of proceeds [is not] subject to the excessive
fines clause, as it simply parts the owner from the fruits of the
criminal activity."). Simply put, Hastings received none of the
fruits of the illegal activity. Hastings’s forfeiture judgment is
thus punitive, not remedial, and subject to the Excessive Fines
Clause.
14
The district court ordered Hastings to forfeit $1,325,910.60;
Van Brocklin, $1,395,323.51.
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troubled that this steep restitution order may also be
disproportionate. In any event, sentencing courts are to consider
a number of factors in determining whether to order restitution,
see 18 U.S.C. § 3664(a), and should in most cases make specific
findings of fact in regard to these factors. Kok v. United States,
17 F.3d 247, 251 (8th Cir. 1994). In this case, the district court
made no findings that show it considered these factors, including
whether Hastings has the ability to pay restitution. A failure to
make such a finding before ordering restitution is an abuse of
discretion. United States v. Mitchell, 893 F.2d 935, 936 (8th Cir.
1990). Similarly, the district court did not make required
findings of fact showing that it considered the relevant Guideline
factors, including ability to pay, in imposing a $10,000 fine
against Hastings. See U.S.S.G. § 5E1.2. Such findings are
mandatory. United States v. Miller, 995 F.2d 865, 869 (8th Cir.
1993); United States v. Walker, 900 F.2d 1201, 1205-06 (8th Cir.
1990). We therefore vacate Hastings’s restitution order and fine,
subject to new determinations by the district court based on the
required findings.
F. Other Claims
We have considered defendants’ remaining arguments, including
challenges to various trial rulings by the district court and
Hastings’s contention of prosecutorial misconduct. We find these
issues to be without merit.
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III. CONCLUSION
The convictions of all defendants are affirmed. We remand to
the district court for resentencing of defendants Van Brocklin,
Atterberry, and Pyatt. We vacate the forfeiture judgment,
restitution order, and fine imposed on defendant Hastings, and
remand for further proceedings consistent with this opinion.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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