Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-13-50136/USCOURTS-ca9-13-50136-0/pdf.json

Parties Involved:
Lawrence Eugene Shaw
Appellant
United States of America
Appellee

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

LAWRENCE EUGENE SHAW,

Defendant-Appellant.

No. 13-50136

D.C. No.

2:12-cr-00862-JFW-1

OPINION

Appeal from the United States District Court

for the Central District of California

John F. Walter, District Judge, Presiding

Argued and Submitted

November 17, 2014—Pasadena California

Filed March 27, 2015

Before: Mary M. Schroeder, Harry Pregerson,

and Jacqueline H. Nguyen, Circuit Judges.

Opinion by Judge Schroeder

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2 UNITED STATES V. SHAW

SUMMARY*

Criminal Law

The panel affirmed a conviction for a scheme to defraud

a financial institution, in violation of 18 U.S.C. § 1344(1), in

a case in which the defendant used PayPal to convince banks

that he was a particular bank customer and thus had authority

to transfer money out of that customer’s bank accounts and

into a PayPal account in the defendant’s control. 

The panel held that for a violation of § 1344(1), the

government need not prove that the defendant intended the

bank to be the principal financial victim of the fraud, and that

the district court therefore correctly refused jury instructions

that included such a requirement.

COUNSEL

Sean Kennedy, Federal Public Defender, Koren L. Bell

(argued), Deputy Federal Public Defender, Los Angeles,

California, for Defendant-Appellant.

André Birotte, Jr., United States Attorney, Robert E. Dugdale,

Assistant United States Attorney, TracyL. Wilkison (argued),

Assistant United States Attorney, Los Angeles, California, for

Plaintiff-Appellee.

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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UNITED STATES V. SHAW 3

OPINION

SCHROEDER, Circuit Judge:

Congress enacted the Bank Fraud Act in 1984, and ever

since, the federal courts have grappled with whether its

provisions require proof of an intent to cause harm to the

bank itself. The Act contains two clauses: the first

criminalizes schemes “to defraud a financial institution,” and

the second schemes to obtain bank assets or property under its

control “by means of false or fraudulent pretenses,

representations, or promises.” 18 U.S.C. § 1344. Last year,

the Supreme Court held that the second clause does not

require proof that the defendant intended to defraud the bank. 

Loughrin v. United States, 134 S. Ct. 2384, 2387 (2014). In

this case, we deal with the first clause, which by its terms

does require such proof. The question here is whether that

means the government must prove the defendant intended the

bank to be the principal financial victim of the fraud.

The principal intended victim in this case, at least

according to the defendant, was a bank customer, Stanley

Hsu. The defendant, Lawrence Shaw, had access to the

victim’s bank statements. The gist of Shaw’s scheme was to

use PayPal, an online payment and money transfer service, to

convince the banks that he was Hsu and thus had authority to

transfer money out of Hsu’s bank accounts and into the

PayPal account in Shaw’s control.

The government charged Shaw with violating § 1344(1). 

Shaw sought a jury instruction that, under § 1344(1), the

government had to prove not only that he intended to deceive

the bank, but that he also intended to target the bank as the

principal financial victim of the fraud, rather than the account

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4 UNITED STATES V. SHAW

holder or PayPal. The district court refused to give such an

instruction, concluding that clause 1 required proof only that

the defendant intended to deceive the bank, not that he also

intended the bank to bear the loss.

While the circuits are divided as to the requirements of

§ 1344(1), our Ninth Circuit case law answers Shaw’s

argument. We have held that, to the extent § 1344(1) requires

any intent to expose the bank to a risk of loss, the requirement

is easily satisfied by the bank’s having to bear some potential

administrative expenses that necessarily result from being

defrauded. See United States v. Wolfswinkel, 44 F.3d 782,

786 (9th Cir. 1995). We did not hold that the bank needed to

be the intended financial victim of the fraud. In this case, a

principal intended financial victim of the fraud was the bank

customer who held the account, and our law has dealt with

that specific situation. We have held that the statute is

violated where the bank is the target of the deception, even if

bank customers were the intended financial victims of the

fraud. See United States v. Bonallo, 858 F.2d 1427, 1429–30,

1430 n.2 (9th Cir. 1988).

These cases help define the meaning in this circuit of

§ 1344(1)’s element of intent “to defraud,” and establish that

it does not include intent to financially victimize the bank. 

That result is fully consistent with the Supreme Court’s

decision in Loughrin, and indeed complements Loughrin’s

holding that § 1344(2) of the statute does not require any

intent to defraud the bank. Section 1344(1) does require

intent to defraud the bank, but neither clause requires the

bank to be the intended financial victim of the fraud. We

therefore affirm the conviction.

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UNITED STATES V. SHAW 5

BACKGROUND

The charges in this case arose from a scheme defendant

Shaw devised to take money from bank accounts belonging

to Stanley Hsu, a Taiwanese businessman. Hsu opened a

Bank of America account while working in the United States. 

When he returned to Taiwan, he arranged for the daughter of

one of his employees to receive his mail in the States and

forward it to him in Taiwan. Shaw was living with the

daughter and routinely checked her mail. When Hsu’s Bank

of America statements began to arrive, Shaw opened them

and learned Hsu’s account and personal information.

Shaw used the information from Hsu’s statements to

execute the following scheme: he opened an email account in

Hsu’s name, then used this email account and Hsu’s personal

information to open a PayPal account. Shaw “linked” the

PayPal account to Hsu’s account with Bank of America. He

was able to circumvent PayPal’s security measures because

of his access to the information in Hsu’s bank statements.

On June 4, 2007, Shaw opened two accounts with

Washington Mutual under the name of his father, Richard

Shaw, without his father’s knowledge or permission. One

account was a savings account (“Tier 1” account), which

Shaw linked to the fake Hsu PayPal account. During the

process of linking the Tier 1 account with the Hsu PayPal

account, PayPal identified the request as suspicious. PayPal

sent an email to the fake Hsu email account asking for

additional information. In response, Shaw faxed PayPal a

copy of Hsu’s Bank of America account statement, and a

bank statement he had altered to appear as if Hsu owned the

Richard Shaw accounts. He also sent a copy of Hsu’s

driver’s license, which he had altered to have a younger birth

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6 UNITED STATES V. SHAW

date. On the basis of these falsified documents, Washington

Mutual and PayPal allowed the savings account in the name

of Shaw’s father and the PayPal account in Hsu’s name to be

linked.

The second account Shaw opened in his father’s name

was a checking account (“Tier 2” account). This account was

linked to the Tier 1 savings account. Shaw’s scheme

ultimately siphoned the funds into a third Washington Mutual

account, a joint account which Shaw had previously opened

in his and the daughter’s name, although without her

knowledge.

Once the accounts were set up and linked, Shaw began to

withdraw money from Hsu’s Bank of America account

through a series of online transfers and checks written to

himself. He would transfer money from the Hsu Bank of

America account first to the Hsu PayPal account, then

transfer it from the Hsu PayPal account to the Tier 1 savings

account with Washington Mutual. Then, Shaw would

transfer money from the Tier 1 account to the Tier 2 checking

account, which allowed him to write checks to himself,

signing his father’s name. Finally, he would deposit those

checks into the Washington Mutual joint account that he

controlled.

Using this scheme, Shaw was able to convince the banks

to transfer and release approximately $307,000 of Hsu’s

money to Shaw between June and October 2007. Hsu’s son

discovered the missing money in October 2007, reported the

fraud and closed the Bank of America account.

Bank of America returned approximately $131,000 to

Hsu, covering the fraudulent activity that occurred within 60

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UNITED STATES V. SHAW 7

days of the reported fraud. PayPal reimbursed Bank of

America for this amount. In the end, PayPal bore

approximately $106,000 of the loss and Hsu over $170,000,

because Hsu did not notify the banks of the losses within 60

days of many of the fraudulent transactions, as the parties all

agree was required by standard banking practice.

DISTRICT COURT PROCEEDINGS

The government charged Shaw with 17 counts of bank

fraud in violation of § 1344(1) and in December 2012 the

case went to trial before a jury. The defense theory was that

a bank fraud conviction under § 1344(1) requires fraudulent

intent to expose the bank itself to monetary loss, and Shaw

intended only to expose PayPal and Stanley Hsu to any

monetary loss. Shaw argued that “intent to defraud” means

intent to deceive and cheat the bank. Shaw therefore asked

for jury instructions which would require the government to

prove that Shaw had intended the bank to be not only the

target of the deception, but to suffer an actual loss or risk of

loss as the financial victim of the fraud. His requested

instructions provided:

(1) The defendant knowingly carried out a

scheme to defraud [the bank]; that is a scheme

designed to victimize [the bank] by causing

[the bank], not only Stanley Hsu, monetary

loss;

(2) The defendant actively deceived [the

bank] as to a material fact; that is, a fact that

had a natural tendency to influence, or was

capable of influencing, [the bank] to part with

money or property;

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8 UNITED STATES V. SHAW

(3) The defendant acted with the specific

intent to defraud [the bank]; that is, with the

intent to deceive and cheat [the bank] in order

to expose [the bank], not only Stanley Hsu, to

monetary loss.

(4) [The bank] was federally insured by the

FDIC.

It is not enough for the government to prove

that Mr. Shaw carried out a scheme to obtain

Mr. Hsu’s money by deceiving [the bank]. In

order to convict Mr. Shaw, you must find that

[the bank] itself was both the target of his

deception and an intended victim of the fraud.

The district court declined to give Shaw’s requested jury

instructions. The district court concluded that risk of loss was

an element that the bank fraud statute did not require, and that

the bank need not be an intended financial victim of the fraud. 

Instead, the trial judge gave instructions based on a

combination of model jury instructions and instructions used

in previous bank fraud cases in the Ninth Circuit. The judge

instructed the jury that:

[i]n order for the defendant to be found guilty

of bank fraud, the government must prove

each of the following elements beyond a

reasonable doubt:

First, the defendant knowingly executed a

scheme to defraud a financial institution as to

a material matter;

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UNITED STATES V. SHAW 9

Second, the defendant did so with the intent to

defraud the financial institution; and

Third, the financial institution was insured by

the Federal Deposit Insurance Corporation.

. . . .

The phrase “scheme to defraud” means any

deliberate plan of action or course of conduct

by which someone intends to deceive, cheat,

or deprive a financial institution of something

of value. It is not necessary for the

government to prove that a financial

institution was the only or sole victim of the

scheme to defraud. It is also not necessary for

the government to prove that the defendant

was actually successful in defrauding any

financial institution. Finally, it is not

necessary for the government to prove that

any financial institution lost any money or

property as a result of the scheme to defraud.

. . . .

An intent to defraud is an intent to deceive or

cheat.

The jury convicted Shaw of 14 counts of bank fraud on

December 13, 2012, and this appeal followed.

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10 UNITED STATES V. SHAW

DISCUSSION

The bank fraud statute, 18 U.S.C. § 1344, provides:

Whoever knowingly executes, or attempts to

execute a scheme or artifice—

(1) to defraud a financial institution; or

(2) to obtain any of the moneys, funds,

credits, assets, securities, or other property

owned by, or under the custody or control

of, a financial institution, by means

of false or fraudulent pretenses,

representations, or promises;

shall be fined not more than $1,000,000 or

imprisoned not more than 30 years, or both.

In Loughrin v. United States, the Supreme Court construed

the second clause, and held that it does not require the

government to prove that the defendant intended to defraud

the bank. 134 S. Ct. 2384, 2387 (2014). Section 1344(2)

targets schemes to obtain property held by the bank via

misrepresentation to a third party, while § 1344(1) penalizes

schemes to defraud the bank itself. See id. at 2389–92. The

Supreme Court effectively required courts to treat the two

clauses separately, holding that while they overlap

substantially, the clauses are disjunctive and establish distinct

offenses. Id. at 2390, 2390 n.4.

In holding that the two clauses create separate offenses,

the Court rejected the reasoning of the Third Circuit. See id.

at 2388–89. The Third Circuit held that clauses 1 and 2

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UNITED STATES V. SHAW 11

conjunctively create only one offense, and thus all violations

of the statute require both the intent to defraud the bank and

that the bank be exposed to a risk of loss under the relevant

law. United States v. Thomas, 315 F.3d 190, 199–201 (3d

Cir. 2002) (holding that under both clauses, “a defendant

must intend to cause a bank a loss or potential liability,

whether by way of statutory law, common law, or business

practice” (internal quotation marks omitted)). The Supreme

Court expressly held that § 1344(2) does not require either

intent to defraud a bank or a risk of loss to a bank. Loughrin,

134 S. Ct. at 2389–90, 2395 n.9. In doing so, it emphasized

that intent to defraud a bank is the essence of § 1344(1). Id.

at 2389–90.

Shaw’s argument in this case therefore focuses on the

difference between the two clauses. He points out that the

second clause covers schemes intended to obtain a third

party’s property. He argues that the first clause, under which

he was convicted, therefore must require that a defendant

intend to obtain the bank’s property. Thus, he asks us to

conclude that a conviction under § 1344(1) requires a

showing that the defendant intended to expose the bank to the

principal risk of loss. Such a requirement was not satisfied

since, in this case, Shaw intended his principal target to have

been the bank’s customer, Hsu.

Shaw thus seeks to characterize the difference between

the two clauses as involving the intended financial victim of

the fraud, i.e., the intended bearer of the loss. The language

of neither clause of the statute, however, refers to monetary

loss or to the risk of such loss. The statutory language

focuses on the intended victim of the deception, not the

intended bearer of the loss. Section 1344(1) requires the

intent to deceive the bank. Section 1344(2) requires false or

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12 UNITED STATES V. SHAW

fraudulent representations or pretenses to third parties. The

Supreme Court made this point in Loughrin when it noted

that the second clause was intended to broaden the scope of

bank fraud to include schemes that did not involve deception

of the bank directly, such as schemes to use stolen credit

cards. See 134 S. Ct. at 2391–92. Section 1344(1) thus

covers schemes to deceive the bank directly. Neither clause

requires the government to establish the defendant intended

the bank to suffer a financial loss.

Analysis of our circuit’s law before Loughrin counsels the

same result. In United States v. Bonallo, 858 F.2d 1427 (9th

Cir. 1988), we recognized that under § 1344(1) the bank itself

need not be the sole or primary victim of the scheme. Rather,

the bank is defrauded within the meaning of § 1344(1) when

it is the target of the deceit, even if the scheme targeted the

bank’s customer accounts as the source of the money. See id.

at 1434 n.9.

In Bonallo, a bank employee withdrew funds from his

own account via the ATM, then manipulated the bank’s

computer system to charge the withdrawals against other

customers’ accounts. Id. at 1429–30. The defendant argued

that the other customers were the intended victims of his

scheme and therefore the bank was not defrauded within the

meaning of the statute. We rejected this argument, finding

that the bank was the target of his misrepresentation, even if

the customers’ accounts were the source of the funds. See id.

at 1434 n.9. In short, the defendant was guilty of bank fraud

because he intended to deceive the bank.

In United States v. Wolfswinkel, 44 F.3d 782 (9th Cir.

1995), we considered whether a risk of financial loss to a

bank was as an element of § 1344(1). We held that even if

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UNITED STATES V. SHAW 13

there were such a requirement of financial loss to the bank, it

was easily satisfied. The defendant was convicted of bank

fraud under § 1344(1) after he engaged in a check-kiting

scheme, during which he convinced a bank officer to sell him

cashier’s checks paid for with insufficiently-backed checks. 

Id. at 784. On appeal, Wolfswinkel argued that the

government had to show he exposed the bank to a risk of loss

under § 1344(1), and he had not, because he provided

collateral to the bank to secure any losses for the bounced

checks. Id. at 785–86.

In affirming Wolfswinkel’s conviction, we recognized a

circuit split as to whether § 1344(1) requires proof of risk of

loss to the bank to establish the defendant’s intent to defraud. 

Id. at 786. We held, however, that even assuming there were

such a requirement, Wolfswinkel’s scheme satisfied it. See

id. Although he had provided security for potential losses,

Wolfswinkel exposed the bank to a risk of loss in the form of

administrative costs and the threat of competing creditor

claims if it were forced to liquidate the collateral. Id. The

defendant need not have intended the bank to bear the risk of

losing the amount involved in the financial scheme itself.

The Supreme Court’s decision in Loughrin does not affect

the validity of our precedent, or undermine it in any way. If

anything, it lends credence to our reluctance to impose any

risk of loss requirement in a prosecution under the bank fraud

statute. Loughrin confirms our conclusion that the difference

between the two clauses is which entity the defendant

intended to deceive, not which entity the defendant intended

to bear the financial loss. See 134 S. Ct. at 2389–90

(emphasizing that nothing in § 1344(2) requires specific

intent to deceive a bank, which § 1344(1) already covers).

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14 UNITED STATES V. SHAW

Shaw stresses that under the applicable law, the bank, in

the end, did not actually lose anything. The losses ultimately

fell on Hsu for failing to spot much of the fraud within the

legally required 60 days, and on PayPal, which had to

reimburse the bank for the rest. Shaw therefore asks us to

conclude that he could not have intended to defraud the bank. 

A similar argument with respect to clause 2 was dismissed

summarily in Loughrin on the ground that the federal statute

was intended to avoid having cases turn on the technical

ramifications of banking law. Id. at 2395 n.9. In

characterizing § 1344(2), the Court said that the language

“appears calculated to avoid entangling courts in technical

issues of banking law about whether the financial institution

or, alternatively, a depositor would suffer the loss from a

successful fraud.” Id. We conclude that the same legislative

intent must be ascribed to § 1344(1). There is no reason to

believe Congress wanted courts to become more entangled in

such technical issues under the first clause than under the

second clause.

We recognize that some circuits have held that risk of

financial loss to the bank is an element that must be proven

under § 1344(1). See, e.g., United States v. Staples, 435 F.3d

860, 866–67 (8th Cir. 2006) (discussing difference of opinion

among circuits on whether intent to harm or cause the bank

a risk of loss is required). The reason given is that the

purpose of the statute is protection of the federal fisc, and that

purpose is not served if the bank faces no financial risk. See,

e.g., Thomas, 315 F.3d at 201. Circuits adopting the

requirement cite to the legislative history of the bank fraud

statute, which shows that Congress enacted it because of the

“strong federal interest in protecting the financial integrity of

[federally insured financial] institutions.” See, e.g., id.

(quoting S. Rep. No. 98-225, at 377 (1984), reprinted in 1984

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UNITED STATES V. SHAW 15

U.S.C.C.A.N. 3182, 3517.); United States v. Nkansah,

699 F.3d 743, 759 (2d Cir. 2012) (same). But requiring proof

of intent that a bank bear a risk of loss does not serve this

end. The entity that bears the risk of loss does not necessarily

depend upon the entity (i.e., the federally insured financial

institution) that the defendant intends to harm. It depends on

the operation of banking laws that, as this case demonstrates,

may result in having the instruments of the fraud, like the

bank’s customers or entities like PayPal, ultimately bear the

loss. A scheme that is intended to harm third parties may, in

fact, end up hurting the bank, and vice versa. Few criminals

have any knowledge of the rules of law that govern which

entity bears the risk of loss. Requiring intent to harm the

bank only makes it more difficult to prosecute bank fraud. 

Nkansah, 699 F.3d at 759 (Lynch, J., concurring); see also

Loughrin, 134 S. Ct. at 2395 n.9 (citingNkansah concurrence

with approval).

The Court in Loughrin held that § 1344(2) does not

require intent to defraud a bank because the plain language of

that section includes no such requirement. 134 S. Ct. at

2389–2390. We similarly decline to read an additional

element into § 1344(1) that Congress did not include; that

does not serve the Congressional purpose; and that could

needlessly entangle judges and juries in the intricacies of

banking law. The district court correctly refused instructions

that included such a requirement.

AFFIRMED.

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