Submitted: June 14, 2013.
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
Joseph S. Friedberg, argued, Minneapolis, MN (Robert D. Richman, Saint Louis Park, MN, on the brief), for Plaintiff-Appellee.
William J. Otteson, AUSA, argued, Minneapolis, MN (David Genrich, AUSA, on the brief), for Defendant-Appellant.
Before LOKEN, BRIGHT, and BYE, Circuit Judges.
LOKEN, Circuit Judge.
Bank President John Markert approved five nominee loans by the bank to friends and family of bank customer George Wintz. The proceeds were used to cover a $1.9 million overdraft in a Wintz checking account at the bank caused by the collapse of Wintz's fraudulent check-kiting scheme. After the fraud was discovered, Markert and Wintz were charged with bank fraud, 18 U.S.C. § 1344; five counts of willful misapplication of bank funds by a bank officer, 18 U.S.C. § 656; and aiding and abetting and conspiring to commit those offenses. After a lengthy trial and three days of deliberations, the jury convicted Markert of willful misapplication but acquitted him of bank fraud. The jury convicted Wintz of bank fraud but acquitted him of aiding and abetting willful misapplication, and it acquitted Gregory Pederson, the commercial loan officer involved in the transactions, of all charges. At sentencing, the district court found that Markert's offenses caused a loss equal to the total amount of the five nominee loans (approximately $1.9 million), resulting in a 16-level guidelines enhancement, and sentenced him to 42 months in prison. Markert appeals his conviction, arguing there was insufficient evidence and jury instruction error, and his sentence, challenging the court's calculation of loss. We affirm the conviction but agree loss was erroneously calculated and remand for resentencing.
We summarize the evidence at trial viewed in the light most favorable to the jury verdict. See United States v. Thomas, 422 F.3d 665, 667 (8th Cir.2005). In 2007, Markert was named President and CEO of Pinehurst Bank (" Pinehurst" or " the Bank" ), a small bank in Saint Paul. Prior to joining Pinehurst, Markert was President of Northstar Bank, a community bank with branches in suburban Roseville and White Bear Lake. As Pinehurst's President, Markert had unilateral authority to approve loans up to $250,000 to any one customer. Loans totaling between $250,000 and $500,000 required approval by a majority of a four-person Officer Loan Committee (" OLC" ) dominated by Markert and officers he recruited from Northstar. Loans totaling over $500,000 required approval by the Bank's Board of Directors.
Markert brought to Pinehurst his long-time friend and bank customer, George Wintz, the owner of trucking and warehouse entities named McCallum Transfer, Triangle Warehouse, and Cue Properties. Wintz opened two business checking accounts at Pinehurst, one for McCallum Transfer and one for Cue Properties; he left Triangle Warehouse's account with Northstar. Markert approved a series of loans to Wintz, quickly reaching the $250,000 limit of his unilateral lending authority. Wintz soon reached the $500,000 limit of the OLC and sought additional loans. Markert personally vouched for Wintz, informing the Board that he had been Wintz's banker for twenty-one years. The Board approved additional loans. By February 2009, Wintz reached the Bank's legal lending limit of nearly $1.2 million. JoAnn Crowley, who had been Pinehurst's Chief Financial Officer since the Bank opened in 2004, repeatedly warned Markert that Wintz may be " kiting checks,"  using a system that allowed him to make deposits without coming to the bank. These concerns went unheeded. Indeed, Markert fired Crowley.
In early March, Northstar employees discovered that Wintz was kiting checks between his accounts at the two banks. On Thursday, March 5, Northstar returned to Pinehurst fifteen checks totaling nearly $1.9 million due to insufficient funds. Wintz had drawn these checks on his Triangle Warehouse account at Northstar and deposited them into his McCallum Transfer account at Pinehurst, which had credited the deposits. With the deposit checks dishonored by Northstar, Pinehurst faced a nearly $1.9 million loss on Wintz's overdrawn McCallum Transfer account. On Saturday, March 7, Markert and Wintz met with two of Wintz's friends, both of whom had previously lent Wintz money, to ask for additional loans. Without disclosing the check-kiting, Markert advised that Wintz's account at Pinehurst was overdrawn, and he was over the Bank's lending limit. Markert said the Bank could fail, ending Markert's banking career, unless Wintz came up with money to cover the overdraft. The friends expressed sympathy but refused to lend Wintz more money.
What Markert did next formed the basis for his misapplication conviction. By Monday, March 9, Wintz had persuaded five friends and family members to sign documents obligating them to repay the following loans by Pinehurst Bank:
• William McDonald, Wintz's friend and former banker at Northstar, borrowed $200,000. McDonald was led to believe that Wintz needed a short-term loan to make payroll. Wintz's overdraft and check-kiting were not disclosed.
• Julianne Lenertz, Wintz's former girlfriend, borrowed $350,000, ostensibly to pay taxes owing from her sale of a business to Wintz in 2007 that Wintz had agreed to pay. Lenertz testified she knew nothing about the terms of the loan.
• Lance Edlin, Lenertz's brother, borrowed $350,000, believing he was co-signing a loan to help pay his sister's tax debt. He knew nothing of Wintz's overdraft or check-kiting.
• Nancy Cook, Wintz's long-time secretary, borrowed $500,000 in the name of Triangle Logistics, a company that Wintz " gave" to Cook in 2004. Cook
testified that she agreed to borrow money but did not know why Wintz needed it. She did not know the amount of the loan or the interest rate before arriving at the Bank on March 9.
• Debra Strom, Wintz's daughter, borrowed $500,000 in the name of Win Properties, another Wintz-owned company. Wintz made her President of Win Properties so she could sign loan documents.
Although the nominal borrowers signed loan documents obligating them to repay, each understood that Wintz was the real borrower and would be responsible for the principal and interest payments. Markert with the assistance of his allies on the OLC prepared and closed the five nominee loans on Monday, March 9. Disguised as investments in Cue Properties, the loan proceeds were first funneled into Wintz's Cue Properties account, then immediately re-directed and credited to his McCallum Transfer account. After discussions with Markert on March 9, the Bank's new CFO did not post the checks returned by Northstar that would have caused a $1.9 million overdraft until March 10. No overdraft was recorded because by then the loan proceeds had infused the account with sufficient funds.
That week, the Board of Directors met for its monthly meeting. The five nominee loans were included in the monthly information packet, but nothing linked them to Wintz. Markert attended the meeting but did not tell the Board about Wintz's near-overdraft or his check-kiting activities. There was also evidence that Markert and his OLC allies backdated the loan documents and concealed the nominee loans from the member of the OLC who was not part of Markert's inner circle. In January 2010, during a routine audit of bank files, an auditor uncovered the true purpose of the five nominee loans. Markert was immediately terminated. Bank regulators reviewed the Bank's loans to Wintz and determined it must book an additional $2.2 million of reserves for the increased loss exposure, which rendered the Bank insolvent. Three months later, regulators closed Pinehurst Bank.
Markert was convicted of being an officer of a federally insured bank who " willfully misapplie[d] any of the moneys, funds or credits of such bank." 18 U.S.C. § 656. Conviction of a bank officer under this statute requires proof that he " wil[l]fully misapplied funds for the benefit of himself or another person, for the purpose of defrauding or injuring the bank." United States v. Barket, 530 F.2d 181, 186 (8th Cir.1975), cert. denied, 429 U.S. 917, 97 S.Ct. 308, 50 L.Ed.2d 282 (1976). On appeal, Markert argues that he was wrongly convicted because five nominee loans he caused the Bank to approve were simply " a series of intrabank transfers" in which (i) the Bank never lost control of the loan proceeds, and (ii) the effect of the transactions was to benefit, not to harm the Bank financially. Based on this interpretation of the transactions, Markert argues that the evidence was insufficient, and the district court's instructions erroneous, on the essential elements of willful misapplication and intent to defraud. We address these two challenges in turn, reviewing questions of statutory interpretation de novo. See United States v. Reed, 668 F.3d 978, 982 (8th Cir.2012).
A. Willful Misapplication.
It has been a crime to embezzle or " willfully misapply" the funds or credits of a federally-chartered or regulated bank since 1864. See Act of June 3, 1864, § 55, 13 Stat. 116. Because willful misapplication, unlike embezzlement, had no settled technical meaning at common law, the Supreme Court prescribed an important limitation on this
potentially elastic term in United States v. Britton, 107 U.S. 655, 666-67, 2 S.Ct. ...