needed to file those forms. Ortiz acted intentionally to hide his identity from the banks, and therefore, from the Government. Ortiz's actions clearly amount to an intent to deceive or defraud as required pursuant to 18 U.S.C. § 1005." Govt.'s Memo. in Response to Def.'s Rule 29 Motion at 5. Accordingly, the Government contends that Ortiz's actions constituted both deceit and fraud under § 1005 of the banks and the Comptroller of Currency.
The defendant claims that the Government failed to prove that he violated or conspired to violate 18 U.S.C. § 1005 because no evidence was introduced to demonstrate that the defendant possessed the intent to injure and defraud the banks. The banks did not suffer a financial loss as a result of the replacement money order requests, and whether or not a loss is necessary, the defendant alleges that the Government did not produce proof that the defendant had the specific intent to injure and defraud the banks. Moreover, no evidence was set forth "that Ortiz was in a position to cause a false entry into the financial institution's books to be made." Def.'s Sent. Memo. at 3.
The defendant argues that the Government's case attempts to make an omission equivalent to a commission of the offense -- allegedly by causing the bank to fail to file a report, Ortiz has achieved the factual equivalent of causing the bank to make a false entry. However, Ortiz maintains that "the plain language of the statute calls for the commission of an act, not for the omission." Def.'s Sent. Memo. at 2.
Although Ortiz's brief is less than clear, his basic assertion has been upheld in other courts. Most relevant is the Third Circuit's holding in United States v. Barel, 939 F.2d 26 (3d Cir. 1991), which found that § 1005 does not apply to bank customers who, acting in their own personal interest, gave false information to the bank. In Barel, the defendant opened a number of bank accounts with a false social security number in order to evade paying child support, thereby, deceiving the United States. He was convicted of false entry charges in violation of § 1005 and § 2. In reversing the conviction and dismissing the indictment, the Third Circuit reasoned that while the precise language of the statute does not preclude application to bank customers, the legislative history convinced the court "that this is an appropriate case for applying the ancient maxim that criminal statutes should be narrowly construed." Id. at 39. Further, the court explained that § 1005 is based on 12 U.S.C. §§ 592, 597 (1940) which clearly "applied only to officers, directors, agents, or employees of the protected banks." Id. The Reviser's Note to § 1005 explains that "no changes of meaning or substance were made except that . . . the different punishment provisions were reconciled, and one uniform punishment provision was adopted." 18 U.S.C.A. § 1005, "Historical and Revision Notes."
The Third Circuit also found that Barel lacked any specific intent to violate federal law. "His acts causing bank employees to make false entries in the bank's books, although intentional in the general sense of the word, were merely a by-product of his specific intent to defraud his wife." Id. at 42. Consequently, the court did not find Barel liable under § 2 either.
Similarly, in an old Supreme Court case, relying on the predecessor to § 1005, the Court held: "The crime of making false entries by an officer of a national bank with an intent to defraud . . . includes any entry on the books of the bank which is intentionally made to represent what is not true or does not exist, with the intent either to deceive its officers or to defraud the association." Agnew v. United States, 165 U.S. 36, 52, 41 L. Ed. 624, 17 S. Ct. 235 (1897) (emphasis added).
And, lastly, in a Connecticut district court opinion, the court found that only employees, agents, officers and directors of banks acting in connection with their role as bank employees can violate § 1005. In particular, the court reasoned that a bank teller who deposited checks into her account, knowing that there were insufficient funds to support the checks, was not liable under § 1005 "having considered the statute at issue here, as well as the pre-1948 criminal code revision predecessor statute, 12 U.S.C. §§ 592, 597 (1940), the relevant case law, the indictment and bill of particulars in this case, and Justice Blackmun's analysis in Williams v. United States, 458 U.S. 279, 102 S. Ct. 3088, 73 L. Ed. 2d 767 (1982), of a related statute, 18 U.S.C. § 1014, the Court concludes the indictment must be dismissed." Although not apparent from the terms of § 1005, the legislative history and the pre-1948 bill make clear that the statute only reaches to conduct performed by individuals acting in their capacity as bank officials or aiding and abetting such persons. United States v. Edwards, 566 F. Supp. 1219, 1220-21 (D.Conn. 1983).
The only case which appears to convict a customer of a bank who was not a bank officer or employee under § 1005 convicted the customer along with several of the bank's executives of defrauding the bank of more than $ 750,000 through a scheme involving the cashing of overdrafts. United States v. Austin, 585 F.2d 1271, 1272 (5th Cir. 1978). Austin wrote the checks and his co-defendants, the employees of the bank, approved them for cashing. Although the Fifth Circuit affirmed the district court's holding without reference to the distinction between customer and insider, it must be recognized that Austin was in fact an aider and abettor and thus need not commit the overt act that accomplished the offense or have knowledge of the particular means his principals employed to carry out the criminal activity in order to be charged with the underlying crime. Of course, here, Ortiz was the principal actor and not the aider or abettor, in these money order transactions.
While no other cases could be found which discuss the necessity of the defendant to be an employee or agent of the bank in order to convict under § 1005, there are many cases which find bank employees or trustees or officers guilty, but none that find general customers guilty.
At Ortiz's trial, the Government particularly relied upon United States v. Castro, 887 F.2d 988 (9th Cir. 1989) when persuading this court that the § 1005 charges should be allowed to go to the jury. In Castro, the Ninth Circuit affirmed the conviction under § 1005 of a vice-president of the bank who approved loan applications containing information that he knew was incorrect, thereby misapplying bank funds and falsifying bank records. The Assistant United States Attorney in making her argument to the court first quoted from the case: "Bank funds are misapplied when they are disbursed under a record containing misrepresentations of fact with intent to deceive officials or bank examiners intent to injure need not be shown if there's intent to deceive or defraud." 887 F.2d at 995. She attempted to point out the relevance of this case, stating: "Deceive. Is the bank not being deceived when it is being told that the purchaser of these money orders was not the defendant?" Tr. at 1316-17. However, upon further reflection, it appears that the Assistant -- as well as the court -- overlooked the crucial fact that the defendant in Castro was a bank officer not a bank customer.
Furthermore, the Second Circuit in United States v. Docherty, 468 F.2d 989 (2d Cir. 1972), rejected the district court's application of § 1005 to a case in which the vice-president of the bank embezzled money by having his friends take out loans for him and reversed the conviction. The defendant would ask his friends to take out loans in their names and give him the money explaining that bank policy prohibited his borrowing from the bank and frowned upon his borrowing from other banks as well. This lie to innocent alders who had no knowledge of the criminal intent of the defendant is identical to Ortiz, except for the fact that the defendant in Docherty was a vice-president of the bank while Ortiz was just a customer. This distinction, as previously described, takes Ortiz out of the scope of § 1005. Interestingly, in Docherty, the court went on to recognize that the transactions involved did not provide an "intent to injure" the bank because the defendant was "putting his own credit on the line, and it was not suggested that he lacked the means to repay." Id. at 995. "As to defrauding, even if we assume arguendo that failure to disclose the true recipient of the proceeds was a misrepresentation, the case lacks the element of foreseeability of damages essential even for a civil suit." Id. Here, applying these principles, Ortiz did not intend to defraud or injure the bank, because the money orders were not replaced with duplicates until the original orders were canceled, thus, the bank was never in danger of losing money. Consequently, not only was Ortiz, being a bank customer instead of a bank employee or officer, outside of the ambit of the statute.
Accordingly, for the reasons provided, Ortiz's motion pursuant to Fed. R. Crim. Proc. 29 to dismiss Counts Five through Fourteen of the indictment as charged to the jury was granted.
Dated: Brooklyn, New York
November 21, 1995
David G. Trager
United States District Judge