F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

U N I T E D S T A T E S O F A M E R I C A , Plaintiff-Appellee

,

v

.

N I C H O L A S L I N D S E Y , Defendant-Appellant. N o. 14-10004

D.C. No. 2:11-cr-00217- L DG-CW H -1

OPI NI ON

A ppeal from the United States District Court for the District of Nevada L loy d D. Georg e, Senior District J udg e, Presiding

Arg ued and Submitted March 18, 2016 San F rancisco, California

F iled J une 28, 2016

B e fore: J ohn T. Noonan, Ronald M. Gould, and Michelle T. F riedland, Circuit J udg es.

O pinion by

J udg e GouldU N I T E D S T A T E S V

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SUMMARY *

Crim inal Law

Affirming the defendant’s convictions in a mortg ag e fraud case, the panel h eld that lender n eg lig e nce in verify ing loan application information, or even intentional disreg ard o f the information, is not a defense to fraud, and so evidence o f such neg lig ence or intentional disreg ard is inadmissible as a defense ag ainst charg es of mortg ag e fraud.

The panel further h eld that, when a lender requests specific information in its loan applications, that information is objectively material as a m a tter of law, reg ardless o f the lenders’ policies or practices w ith r e spect to us e o f that information.

COUNSEL

W illiam H. Ga m a ge , Gamag e & Gamag e, L as Veg as, Nevada, for Defendant-Appellant.

Peter S. L evitt (arg

u e d ), Assistant Uni t e d S tates Attorney ; Eli z a b e th O. White, Appellate Chief; Daniel G. B og den, United States Attorney ; United States Attorney ’s Office, L a s Veg as, Nevada; for Plaintiff-Appellee.

* T h is su m m ary co n stitu

tes n o part o f th e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.U N I T E D S T A T E S V

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OP INION

GOUL D, Circuit J udg e :

W e address the admissibility of c ertain evide n ce in mortg ag e fraud cases. W e affirm the convictions, rejecting appellant’s contentions that eviden ce was improperly

ex c lud e d a n d that he was denied the ability to present a defen se. I n a separate memorandum disposition filed
concurrent l y , w e reject other challeng es to the convictions and some challeng es to the sentence.

Nicholas L indsey

, a former mortg ag e loan officer and real
estate broke r , appeals his convictions and sentence for n ine
counts o f w i r e fraud and one c ount of ag g ravated theft. F o r several y ears, L indsey was involved i n a complex mortg ag e fraud scheme that involved convincing ind ividuals to “buy ” residential properties in ex chang e for financial assistance. I n

some cases, L indsey built up these individuals’ credit r ating s and deposited money into their bank accoun t s i n order to fraudulently secure mortg a g es. He a l s o s ubmitted falsified loan documents to lenders in order t o make the individuals
appear m o r e creditworthy

, including falsely stating the applicants’ earned income. The p roperties secured throug h this scheme were destined for foreclosure, c r eating larg e losses for financial institutions 1 while L indsey benefitted

1 A s ref lected in th e P resen ten ce Rep ort an d as testim o n y at sen ten cin g in d icated , th e lo an s an d /o r p ro p erties at issu e in th is case ap p ear to h av e b een p u rch ased f ro m th e o rig i n al l en der b y a seco n d f in an cial in stitu

tio n

. T h u s th e v ictim s in

th i s case—at least f

o r th e p u rp o ses o f

restitu tio n

—is th e seco n d f

in an cial in s t i t u tio n th at su f f ered lo sses at th e tim e of f o reclo su re, n o t th e o rig in al len d ers.U N I T E D S T A T E S V

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financially from com m i s s ions, rent pay ments, and diverted escrow monies.

L indsey was charg ed with wire fr a u d u nder 1 8 U .S.C. § 1 3 43, which requires the go v e r n ment to p rove that the defendant made “material” fraudulent representations, i.e.
, representations t h a t h a d “a natural tendency to influence, o r [ were] capable o f influencing ” the decisions of the lenders who made the loans. United States v. Gaudin

, 515 U.S. 506, 509 ( 1995) (quoting Kungys v. United States
, 485 U

. S. 759, 770 (1988)); Neder v. United States
, 5 27 U.S. 1, 16 (1999). At his trial, the district court precluded L indsey from
p r e s enting e vidence of lenders’ practices and p olicies. He appeals his convictions on the g round that he was d enied his constitutional rig ht to present a defense. W e have jurisdiction under 1 8 U.S.C. § 3742(a) and 28 U .S.C. § 1291, and w e hold that lender neg lig ence in verify ing loan ap p l ication information, or even intentional d isreg ard of the information, is not a defense to fraud, and so evidence of such neg lig e nce

or intentional disreg ard is inadmissible as a d efense ag ainst charg es of mortg ag e fraud. W e further hold t hat, w hen a lender requests specific information in its loan a pplications, that information is objecti v e ly material as a matter of law,
reg ardless of the lenders’ policies or practices with respect to use of that information.

I

L indsey worked for Clear Mortg ag e, I nc. in Nevada as a mortg ag e loan officer a

nd team leader for a mortg ag e g roup. During h is employ

m e n t with Clear Mortg ag e, L indsey recruited straw buy ers f

or L as Veg a s real estate, and, in the
process, made false statements in loa n a p p lications. I n o ne illustrative ex ample pre s e n ted at trial, L indsey recruitedU N I T E D S T A T E S V

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Madelon B ridg es, a woman living in L o uisiana with only fifty dollars to her name, to “purchase” Villa Del Mar, a house in L as Veg as worth $720,000. L indsey flew B ri d ges to L a s Veg as and promised to pay off her debt and g ive her $10,000 in e x c h a n ge for acting as a straw b uy er. B ridg es g ave L indsey her personal identification information, includi n g h e r social security number and fing erprints, and L indsey paid off her d ebt a n d transferred money into her bank account. L indsey also had B ridg es sig n a loan application that falsely represented, inter alia

, that she intended to live at the property she was apply ing for a loan to purchase, paid $3,300

a month in rent, was g ainfully employ ed, and had a siz eable bank account. After she was approved for the loan, L indsey used B ridg es’s personal information to apply for another loan and purchase another home in her n a m e w i thout her knowledg e. W hen L indsey did not make mortg ag e pay ments

as promised, V illa Del Mar went into foreclosure, neg atively affecting B ridg es’ credit rating and cau s i n g l osses to the lender. L indsey perpetrated similar fraud s w i th five straw buy ers—including his sister—on nine home loans, and eig ht different properties. F r om this sche m e, L indsey profited b y receiving sig n ificant commis s ions, rent pay ments, a nd diverted escrow monies.

L indsey w as arrested and indicted on nine counts of wire frau d u n der 18 U.S.C. § 1343 and one count of ag g ravated identity theft u nder 18 U .S.C. § 1028A. B efore trial, the
g overnment s u s p ected that L indsey was planning to d efend himself by claiming that the lenders were at fault for failing
to verify the information in the fraudulent loan a pplications. The g overnment filed a moti o n in limine to prevent L indsey from introducing evidence of lender neg lig ence. The district
court declined to rule on the issue, c o n c l u ding that a finalU N I T E D S T A T E S V

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r u ling “would be more appropriately made in the contex t o f the development of the evidence at trial.”

At trial, the district c o urt warned L indsey ’s attorney to “st a y a w ay ” f

rom the issue of lender neg lig ence in his opening statement. W h en defense counsel described 2 006 to 2007 as “a wild time” of mortg ag e lending and attempted to describe the ty

pes of loans a t issue as “stated income” a nd “no income, n o a s s ets,” 2 the district court sustained the
g overnment’s objections and w arned counsel ag ain to “stay
away ” from the issue of lender neg lig ence. The district court subsequently told the parties that it was “inclined” to ex clude evidence of lender neg lig ence from the rest of trial.

During trial, L inds e y ’ s c ounsel questioned a witness about previous b ad loans that her e m p l o y e r, a lender, h ad provided. The g overnment objected. The question was stricken during a sidebar in which the p r o s e cutor informed the district court that it had already ruled on t h e issue o f lender neg lig ence, and he arg ued that defense counsel’s question was irrelevant. The distric t c o u rt sustained the objection, striking the question from the record.

The jury con v i c t e d L indsey of all counts. The district
court sentenced L i n d s e y to consecutive sentences of 108 months for wire fraud and 24 months for identity theft, for a

2 Du rin g o p en in g statem en ts, L in d sey ’ s co u n sel u rg ed th at a “ stated in co m e” lo an “ m ean s t

h at th e l en d er w ill rely o n th e b o rro w er to state th eir in co m e an d s tate th eir assets,” an d th at a “ n o in co m e, n o assets” lo an

m ean s “ th e len d er d id n o t ap pear to k n o w ab ou t th e in co m e o r assets on th at p articu lar lo an .” On ap peal, L in d sey d escrib es “ th e stated /n o d o c lo an ty p e as a lo an th at b an k s o f

f ered [] w h ich allo w ed ap p lican ts to p ro v id e n o b ack u p d o cu m en tatio n f o r th eir in co m e an d assets.”U N I T E D S T A T E S V

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total of 132 months. The court also imposed $ 2,286,911 i n restitution. L indsey

timely appealed.

II

T o co n vict a defendant of wire fraud, the jury must f ind bey ond a reasonable doubt: “(1) the ex istence of a scheme to defraud; (2) the use of w ire, radio, or television to further the

sc h e m e ; a n d (3) a specific intent to defraud.” United States

v. Jinian
, 7 2 5 F .3d 9 54, 9 60 (9th Cir. 2013). I n o rder to prove a “scheme t o d e fraud,” the jury must find that the defendant e mploy ed “ material falsehoods.” Neder

, 527 U.S.
at 20. “I n g e n e ra l

, a f

alse statement is material if it has ‘a natural tendency to influence, or [ is] c apable of influencing

, the decision of the d ecisionmaking body to which it was ad d r e s s ed.’” Id. at 16 (alteration in the orig inal) (quoting Gaudin , 515 U.S. at 509).

The element o f materiality is evaluated under an objective test, in which the Court must e x amine “the intrinsic capabilities of the false statement i tself, rather than the possibility of the actual attainment of its end.” United States

v. Peterson
, 5 38 F .3d 1 064, 1072 (9th Cir. 2 0 0 8) (quoting United States v. Facchini

, 832 F .2d 1159, 1162 (9th Ci r. 1987)). To be material, “the statement need have only the propensity o r c apacity to influence or affect [ the lender’s] decision. Materiality

, therefore, is not measured by e ffect o r mag nitude.” Facchini

, 832 F .2d at 1162 (citations omitted). I n sum, “the g overnment does not have t o prove actual reliance upon the defendant’s misrepresentations” to satisfy the el e m e n t of materiality

. Neder

, 527 U.S. at 25 (quoting United States v. Stewart
, 872 F .2d 957, 960 (10th Cir. 1989)).U N I T E D S T A T E S V

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L indsey contends that the d istrict c ourt e r r ed b y preventing him from p r e senting evidence about the “stated income/no doc” loans, thus barring him “from challeng ing the materiality

of f alse statements on a loan ty pe that invites the applicant to state their income w ithout justification o r

s u p p o r t.” According to L indsey

, this prevented him f r om presenting a complete defense, a rig h t that is constitutionally protected. See Crane v

. Kentucky

, 476 U.S. 683, 690 (1986) (“[ T] he Constitution g uarantees criminal defendants a meaning ful opportunity to present a c omplete defense.”) (internal citations and quotation marks omitted). W e r eview

a district court’s decision to preclude a defendant’s p roffered defense de novo

. S

ee United S

tates v

. Ibarra-Pino

, 657 F .3d 1000, 1003 (9th C i r

. 2011); U nited States v. Forrester
, 616 F .3d 929, 934 (9th Cir. 2010).

W h ether trial courts may admit evide n c e o f a lenders’ decision-making process—including evi d e n ce that lenders have b een careless in approving undeser ving loans, or even intentional in disreg arding relevant information—is an issue that has been debated in this Circuit ’ s lower courts. See United S tates v. Kuzmenko

, N o

. 2 :11-CR-0210 J AM, 2014 W L 7 140640, at *6 n.5 ( E.D. Cal. D ec. 12, 2014) (collecting

cases and noting that “ [ w ] hether, and to what ex tent, a jury
must know about the lenders’ decision-making process in a mortg ag e fraud prosecution w ould appear to be an issue over which reasonable minds mig ht d isag ree”). W e understand the desire to see lenders shoulder respons i b i l i t y for their role in the mortg ag e crisis of the last decade. See Nevada v. Bank of Am. Corp
., 672 F

. 3d 661, 670–71 (9th Cir. 2012) ( “ T h e Center for Responsible L ending estimates that from 2009 to 201 2
, f oreclosures on neig hboring homes will result in lost home e quity in nearly o ne million hom e s a c ross Nevada, amounting to total lost home equity of $54.5 billion. The cityU N I T E D S T A T E S V

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of L as Veg as has the second hig hest foreclosure r ate in the nation. Considering the d evastating effect of the f oreclosure crisis on Nevada, it is unsurprising that the Attorney General would ex ercise her statutory rig ht to” prosecute decep t ive trade practices by mortga ge lenders) (footnotes omitted). However, that does not mean that lenders can b e victimiz ed 3 by intentional fr a udulent conduct w ith impunity merely because the lenders were neg lig ent, or eve n because the lenders inten t i o n ally disreg arded the information in a loan application. Two wrong s do not make a rig ht, and a lenders’
neg lig ence, or even intentional disreg ard, cannot ex cuse another’s criminal fraud.

Several o f o u r sister circuits have held that a fraud victim’s n e g lig ence is not a defense to c riminal charg es under the federal fraud statutes. See Un ited States v. Colton

, 231 F .3d 890, 903 (4th Cir. 2 000) (“The susceptibility of the

v i c t i m o f the fraud, in this case a financial institution, is irrelevant to the analy sis: I f a scheme to defraud has been o r is intended to be devised, it makes no d ifference whether the
persons the schemers intended to defraud are gu l l i b le o r skeptical, d

ull or b rig ht.”) (intern a l citations and quotation marks omitted); see also United States v. S v e t e , 556 F .3d 1157, 1165 (11th Cir. 2009) (en banc) (“A perpetrator o f fraud is no less g uilty o f f raud because his victim is also
g uilty of neg lig ence.”); United States v. A llen

, 201 F .3d 163, 167 (2d Cir. 2000) (per curiam) (“The victim’s neg lig ence in

3 W e u s e th e w o rd s “ v ictim ized ” an d “ v ictim ” in th is co n tex t t o d escrib e th e o rig in al l en d ers, w

h ile a c k n o w led g in g th at th e en tities th at actu ally lo st m o n ey in th is sch em e at th e tim e o f f o r e c l o su re—th e v ictim s in th is

case f o r t h e p u rp o ses o f restitu tio n —w ere actu ally th ose f in an cial in stitu tio n s th at p u r c h a s ed th e lo an an d /o r co l lateral f ro m th e o rig in al len ders.U N I T E D S T A T E S V

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permitting a crime to t a k e place does n ot ex cuse the defendant fr o m culpability f or [the] substantive offense.”); United States v. Coyle

, 6 3 F. 3d 1239, 1244 (3d Cir. 1 995) (“The neg lig ence of th e victim in failing to discover a fraudulent scheme is n ot a d efense to criminal conduc t

. ”); United S tates v

. Kreimer
, 609 F .2d 126, 132 (5th Cir. 1 980) (“The victim’s neg lig ence is not a d efense to criminal conduct.”).

I n United S

t a t es v

. Ciccone
, we rejected the defendant’s
arg ument that the g overnment was required to prove that the d e fendant’s f

raud was calculated to defraud persons o f ordinary prudence and comprehension. 2 19 F .3d 1078, 1083 (9th Cir. 2000). We held that “the wire-fraud statute protects the naive as well as the worldly -wise

. . . . the lack of g u ile on the part of those solicited may itself point with persuasion to the fraudulent character of the arti f i c e

. ” I d. (internal quotation marks omitted) (quoting United S t a tes v

. Hanley

, 190 F .3d 1017, 1023 (9th Cir. 1999), su p erceded o n other grounds by statute ). A l thoug h Ciccone discussed the elements of wire f

r aud, not p ermissible defenses, its reasoning is also persuasive h ere. W e j oin several of our sister circuits in holding that a victim’s neg lig ence is not a defense to wire fraud. Evidence of lender neg lig ence is thus not admissible as a defense to mortg ag e fraud.

L indsey maintains on appe a l t h at he did not seek to in troduce e vidence of lender n eg lig ence at trial, but rather “evidence o f t h e m ateriality of falsehoods that may have appeared on loan applications.” Without say ing so ex plicitly

, L indsey may be a

rg uing in substance that he wanted to introduce evidence that the banks were willing to approve the loans reg ardless of the information included in the a pplicationU N I T E D S T A T E S V

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forms. This implies something more than lender neg lig ence, and approaches intentionality

.

B u t the conduct of the lender cannot provide an effective defense based on alleg ed lack of materiality

. Materiality is an objective test “not measured by effect or m a g n itude,” Fac chini

, 832 F .2d at 1162, but rather by “the intrinsic capabilities of the false statement itself,” Peterson
, 538 F .3d
at 1072 (quoting Facchini

, 832 F. 2 d at 1162). We have previously held that “misrepresentation may be mater i al without i n d u c ing any a c tual r eliance. W hat is important is the intent of the person making the statement that it be in furtherance of some fraudulent purpose.” Uni t e d S tates v

. Blixt

, 548 F .3d 882, 889 ( 9 t h Cir. 2008) (quoting United States v. H

albert

, 640 F .2d 1 000, 1009 (9th Cir. 1981) (p er curiam)).

I n determining w hether a false statement is m a t erial,
courts must ask the question whether t he statement objectively had a natural tendency to influence

, or was capable of influencing

, a lender to approve a l oan. See Facchini

, 832 F .2d at 1162; s e e a lso United States v

. Reynolds

, 189 F .3d 521, 5 25 (7th Cir. 1999) (“Evidence that the b ank would not have relied on [ the defendant’s] representations, and instead would have made a n ex c eption for him, does not establish that the r epresen t a t i ons were immaterial

. . . . the prop e r i n q uiry addresses not the defendant’s a

bility to influence, but rather the nature of the
statements made.”). T h e F irst Circuit recently c reated a brig ht-line appr o ac h o n this issue that we conclude is persuasive, and we follow it h ere. I n United States v

. Appolon

, a mortg ag e fraud case, the d efendant arg ued that the
g overnment failed to present evidence reg arding the lender’s loan ev a l u at i on process, and thus could not satisfy theU N I T E D S T A T E S V

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materiality e lement of wire fraud. 715 F .3d 3 6 2, 368 (1st Cir. 2013). The F irst Circuit ex plained that the loan a p p l i c ation had specifically requested information reg a r d ing the applicant’s income, as sets, and intent to reside in the
p r o p erty , and held that “[ t] h e f act that [ the lender’s] l o a n application ex plicitly soug ht th i s information from the applicant indicates that [ the straw b uy er’s] responses were capable of influencing its decision.” I d. ; see also United States v

. Prieto
, 812 F

. 3d 6, 14 (1st Cir. 2016) (“Even in the face of anecdotal evidence th a t , a t the time, residential mortg ag e lenders were devoting scan t resources to the verification o f applicants’ income levels, i t i s nevertheless fair to presume that a loan applicant’s stated income level a nd plans for u sing the property in question would have a ‘natural tendenc y ’ t o influence a lender’s decision. W hy else, a fter all, did the lender demand the information and Prieto take the risk of providing false information? ” ( internal citations omitted)).

W e adopt the F irst Circuit’s brig ht-line test, and hold, a s

a matter of law, th a t when a lender requests specific information in its loan applications

, false responses to those specific requests a

re objectively m a t e r ial f or purposes o f proving fraud. Apply ing this test to L inds e y ’ s c ase, the district court properly ex cluded e v i d e nce that the lenders

were a lleg edly neg lig e n t o r intentional in disreg arding L indsey ’s fraudulent representations when approving loan applications. T his subjective evidence had no bearing on the objective materiality inquiry

. The g overnment i ntroduced evidence that the lenders specifically requested inf ormation about, i n t e r alia

, employ ment, income, and assets, and thatU N I T E D S T A T E S V

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L indsey provided false information with the intent to fraudulently secure loans. W e affirm L indsey ’s convictions.

AF F IRMED.