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

.

L A W R E N C E E U G E

N E S H A W , D efendant-Appellant

. No. 13-50136

D.C. No. 2:12-cr-00862-J F W

- 1

OPI NI ON

A ppeal from the United States District Court for the Central District of California J ohn F . W a lter, District J udg e, Presiding

Arg ued and Submitted November 17, 2014—Pasadena California

F iled March 27, 2015

B efore: Mary M. Schroeder, Harry Preg erson, and J acqueline H. Ng

uy en, Circuit J u d g es.

Opinion by

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

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SUMMARY *

Crim inal Law

The panel affirmed a conviction for a scheme to defraud

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

a case in which the defendant u sed Pay Pal to convince b anks that h e was a particular bank customer and thus had authority
to transfer money out of that customer’s bank accounts and into a Pay Pal account in the defendant’s control.

The pan e l h eld that for a violation of § 1344(1), the
g overnment need not prove that the d efen d ant intended the bank to be the principal financial victim of the f raud, and that the district c ourt therefore correctly refused jury instructions that included such a requirement.

COUNSEL

Sean Ke n n e d y , F ederal Public Defender, Koren L

. B ell (arg ued), Deputy F e deral Public Defender, L os Ang eles, California, for Defendant-Appellant.

André B irotte, Jr

. , United States Attorney
, Robert E. Dug dale, Assistant Uni t ed States Attorney
, Tracy L

. W ilkison (arg ued), A s s istant U nited States Attorney
, L os Ang eles, California, f o r 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

SCHROEDER, Circuit J udg e:

Cong r ess enacted the B ank F raud Ac t i n 1984, and ever

s i n c e , the federal courts have g rappled with whether its provisions r equire proof of an intent to cause harm t o t he bank its e l f

. The Act contains two clauses: the first criminaliz es schemes “to defraud a financial institution,” a nd the second schemes to obtain bank assets or property under its control “by means of false o r fraudulent pretenses, representations, or promises.” 18 U.S.C. § 1344. L ast y ear, the Supreme Court held that the second clause does not require proof that the defendant intended to defraud the b ank. Loughrin v. United States , 134 S. Ct. 2384, 2387 (2014). I n th i s c a s e , we deal with the first c lause, which b y its terms does require such proof. T he question here is w h e t h e r that

means the g overnment must prove the defendant intended the bank to be the principal financial victim of the fraud.

The principal intended victim in t his case, at least according to the defendant, was a bank customer, S t a nley Hsu. The d efendant, L awrence Shaw, h ad access to the victim’s bank statements. T h e g ist of Shaw’s scheme was to

use Pay Pal, an online pay

ment and money transfer service, to convince the banks that he was H su and thus had a uthority to transfer money out of Hsu’s bank accounts and int o t he Pay Pal account in Shaw’s control.

The g overnment c harg e d Shaw w ith violating § 1344(1). Shaw soug ht a jury instruction that, under § 1344( 1 )
, t h e g overnment had to prove not only that he intended to deceive the bank, but tha t h e a l s o intended to targ et the b a nk as the principal f

inancial victim of the fraud, rather than the accountU N I T E D S T A T E S V

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h o l d er or Pay

Pal. T he district court refused to g ive such a n instruction, c oncluding that clause 1 required proof only that the def e n d a n t intended to deceive the bank, not that he also intended the bank to bear the loss.

W hile the circuits are divided as to the requirements of § 1344(1), our Ninth Circuit case law a nswers Shaw’s
arg ument. W e have held that, to the ex tent § 1344(1) requires
any intent to ex pose the bank to a risk of loss, the r equirement is easily satisfied by the bank’s having to bear some potential administrative ex penses that n ecessarily result from being defrauded. See United States v. W o lfswinkel
, 4 4 F

. 3d 782, 786 (9th Cir. 1995). W e d id n ot h old that the bank needed to be t h e intended f

inancial victim of the f

raud. I n this case, a principal intended financial victim of the fraud was the bank
customer who held the a ccount, and o u r l a w has dealt with that specific situation. W e have held th at the statute is violated where the b ank is the targ e t of the deception, e ven if bank customers were the intended finan c i al victims of the fraud. S e e United States v. Bonallo
, 858 F .2d 1427, 1429–30, 1430 n.2 (9th Cir. 1988).

These cases help defi n e the meaning in this circuit o f § 1344(1)’s element of intent “to defraud,” and establish that it does not i n c l u d e intent to financially victimiz e the b ank. That r esult is fully consistent with the Supreme Court’s decision in Loughrin
, a

n d i n d e e d complements Loughrin ’s holding that § 1344(2) o f the s t a t u t e does not require any intent to defraud the bank. Section 1344(1) doe s r e q u i re intent to defraud the b ank, but neither clause r equires the bank to be the intended fin an c i a l v i ctim of the fraud. W e therefore affirm the conviction.U N I T E D S T A T E S V

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BACK G ROUND

The charg es in this case arose from a schem e d ef endant Shaw devised to take m oney from bank accounts belong ing
to S t a n l e y Hsu, a Taiwanese businessman. Hsu o pened a B ank of America account while working in the United States. W h en he returned to Taiwan, he arrang ed for the daug hter o f

one of h is employ ees to receive his mail in the St a t e s a nd forward it to him in Taiwan. S h a w wa s l iving with the daug hter a

nd routinely checked h er mail. W hen Hsu’s B a nk of A m er ica statements beg an to a rrive, Shaw opened them and learned Hsu’s account and personal information.

Shaw used th e information from Hsu’s statements to

ex e c ute 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 Pay Pal acco u n t

. Shaw “linked” the Pay Pal account to H su’s account with B ank of A merica. He

was able to circumvent Pay Pal’s securi t y measures because of his access to the information in Hsu’s bank statements.

On J une 4
, 2007, Shaw opened two accounts wi th W a shingt on Mutual under the name of his father, Richard S h aw, without his father’s knowledg e o r permission. O n e account was a sav i n gs account (“Tier 1” account), which Shaw linked to the fak e Hsu Pay Pal account. During the
process of linking the Tier 1 account with the Hsu Pay Pal account, Pay

Pal identified the request as suspicious. Pay Pal
sent an e m a il to the fake Hsu email account asking for additional information. I n response, Shaw fax ed P a y P al a copy of Hsu’s B ank of America account statement, and a bank statement he had altered to appear as if Hsu owned the Richard S h a w a c c o unts. He also sent a copy of H su’s driver’s license, which he had altered to have a y oung er birthU N I T E D S T A T E S V

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date. On the basis o f these falsified documents, W ashing ton Mutual and Pay

Pal allowed the saving s account in the name of Shaw’s father and the Pay Pal account in Hsu’s name to be linked.

The sec o n d account Shaw o pened in h is father’s name

was a checking account (“Tier 2” account). This account was linked to the Tier 1 saving s account. Shaw’s s cheme ultimately siphoned the funds into a third W ashing ton Mutual account, a joint account whic h Shaw had previously opened in his and the d aug hter’s name, a lthoug h without her knowledg e.

Once the a ccounts were set up and linked, Shaw b eg an to withdraw money from Hsu’s B ank of A m e rica account throug h a series of online transfers and c h e c k s written to himself. He would transfer money fr o m the Hsu B ank o f America account first to the Hsu Pay Pal accou n t , then transfer it from the Hsu Pay Pal account to the Tier 1 saving s account with W ashing ton Mutual. Then, Shaw would transfer money from the Tier 1 account to the Tier 2 c hecking account, which allowed him to write checks to himself, sig ning his father’s name. F i n a l l y , he would d e posit those checks into t h e W ashing ton Mutual joint account that he controlled.

Using this scheme, Shaw was able to convince the b anks
to transfer a

nd release a

p prox im a t ely $307,000 of H su’s
money to Shaw between J une and October 2007. H su’s son discovered the missing money in October 2007, reported the fraud and closed the B ank of America account.

B a nk of America returned approx imately $131,000 to Hsu, covering the fraudulent activity that occurred within 60U N I T E D S T A T E S V

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day s of the reported fraud. P a y P a l r eimbursed B ank o f America fo r t h i s amount. I n the end, Pay Pal bore
approx imately $106,000 of the loss and Hsu over $170,000, because Hsu did not notify the banks of the losses within 60 day s of many o f the f

raudulent transactions, as the parties all
ag ree was required by

standard banking

practice.

DISTRICT COURT P ROCEEDING S

Th e g overnment charg ed Shaw with 17 counts of bank fraud in violat i o n o f § 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 e x pose the b ank itself to monetary loss, a nd Sh aw intended only to e x p o s e Pay Pal and Stanley Hsu to any monetary loss. Shaw arg ued that “intent t o d ef r aud” means intent to deceive and cheat the bank. Shaw ther e fo r e asked for jury instructions which would require the g overnment to prove that Shaw had intended the bank t o b e not only the targ e t of t he deception, but to suffer an actual loss or risk o f loss as the financial victim o f the frau d

. His requested instructions provided:

(1) The d e f

endant knowing ly c arried out a scheme to defraud [ the bank] ; that is a scheme desig ned to v ictimiz e [ the bank] by causing [ the bank]
, n o t only Stanley Hsu, monetary loss;

(2) The defendant actively decei v e d [ the bank] as to a mate r i a l fa ct; that is, a fact that had a n atural tendency to influence, or was capable of influencing
, [ the bank] to part with
money or property ;U N I T E D S T A T E S V

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(3) The defendant acted with t h e specific intent to defraud [ the b ank] ; that i s , with the intent to deceive and cheat [ the bank] in order
to ex pose [ the bank]
, not only Stanley Hsu, to monetary loss.

(4) [ The bank] w a s federally insured by the F DI C.

I t is no t enoug h for the g overnment to prove that Mr. Shaw carried out a scheme to obtain Mr. Hsu’s money b y deceiving [ the bank]

. I n order to convict Mr. Shaw, y o u must find that [ the bank] itself wa s b o t h the targ et of his deception and an intended victim of the fraud.

The district court declined to g ive Shaw’s requested jury instructions. The district c o urt concluded that r isk of loss was

an element that the bank fraud statute did not require, a nd that the bank need n ot be an intended financial victim of the fraud. I nstead, the trial judg e g ave instructions based on a combination of model jury instructions a nd instructions used in p revious bank fraud cases in the Ninth Circuit. The judg e instructed the jury

that:

[ i] n order for the defendant to be found g uilty of bank fraud, the g overnme n t must prove each of the followin g e l ements bey ond a reasonable doubt:

F irst, the defendant knowing ly ex ec u t ed a scheme to d efraud a financial institution as to a material matter;U N I T E D S T A T E S V

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Second, the defendant did so w ith the intent to defraud the financial institution; and

Third, the financial institution was insured b y the F ederal Deposit I

nsurance Corporation.

. . . .

The phrase “schem e t o defraud” means any deliberate plan of action or course of conduct b y w h ich someone intends to d eceive, cheat,

or deprive a financial institution of something of value. I t is not necessary for the
g overnment to p rove that a financial i n s titution was the only o r sole victim of th e scheme to defraud. I t is also not necessary for
t he g overnment to prove that the defend a n t

was actually successful in d e frauding any financial institu tion. F inally
, it is not

necess ary for the g overnment to prove that
any financial institution lost an y money o r property as a result of the scheme to defraud.

. . . .

An intent to defraud is an intent to deceive o r cheat.

The jury c onvicted Shaw of 14 counts o f b a n k fraud on December 13, 2012, and this appeal followed.U N I T E D S T A T E S V

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D ISCUSSION

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

W h oever knowing ly ex ecutes, or attempts to

ex e cute a scheme or artifice—

(1) to defraud a financial institution; or

(2) to obtain any of the money s, funds, credits, assets, securities, or other property owned by
, o r under the custody or c ontrol of, a financial institution, by means

o f f a l s e o r f

r a u d u l e n t p r e t e n s e s , representations, or promises;

shall be fined not more than $1,0 00,000 o r imprisoned not more than 30 y ears, or both.

I n Loughrin v

. United States
, the Supreme Court construed the second clause, and held that it does not require the
g overnment to prove that the defenda n t intended to defraud the bank. 134 S. Ct. 2 384, 2387 (2014). S ection 1344(2) targ e ts sche m e s to o btain property held by the bank via misrepresentation to a third party , while § 1344(1) penaliz e s schemes to defraud the bank itself. S ee id. at 2389–92. The Supreme Court effectively r equi r e d courts to treat the two clauses separately
, h olding that while they overlap substantially
, the clauses are disjunctive and establish d istinct offenses. I

d. at 2390, 2390 n.4.

I n holding that the two clauses create separate o ff e nses, the Court rejected the reasoning o f the Third Circuit. See id.
at 2388–89. The Third Circu i t h eld that clauses 1 and 2U N I T E D S T A T E S V

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conjunctively c reate only one offense, and thus all violations of the statute require both the intent to defraud the bank and that the b ank be ex posed to a risk of loss u n d e r t he relevant law. United States v. Thomas
, 3 15 F .3d 190, 199–2 01 (3d Cir. 2002) (holding that u n d er both clauses, “a defendant
must intend to cause a bank a loss or potential liab ility
, whether by way of statutory law, common law, or business practice” (internal quotation marks omitted)). The Supreme Court ex press ly held that § 1344(2) d oes 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. I n doing so, it emphasiz ed that intent to defraud a bank is the essence of § 1344(1). Id. at 2389–90.

Shaw’s a rg ument in this case therefore focuses on the d ifference between the two clauses. He points out t h a t t h e second clause covers schemes int e n ded to obtain a third party ’s property

. He arg ues that the first clause, under which he was convicted, therefore must requi r e that a defendant intend to obtain the bank’s property

. T h u s , h e asks us to conclude that a c on v iction under § 1344(1) requires a showing that the defendant intended to ex pose the bank to the principal risk of loss. S u c h a r e quirement was not satisfied since, in this case, Shaw intended his principal targ et to have been the bank’s customer, Hsu.

Shaw thus seeks to characteriz e the difference be t w e e n the two clauses as involving the intended financial victim of the fraud, i.e., the intended bearer of the loss. The lang uag e of neither clause of the statute, howe v er, refers to monetary l o ss or to the risk of such loss. The statutory l an gu a ge focuses on the intende d v i ctim of the deception, n ot the intended bearer of the lo s s

. Section 1344(1) requires the intent to deceive the bank. Section 1344(2) requires f alse o rU N I T E D S T A T E S V

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fraudulent representations or pretenses t o third parties. The Supreme Cour t m a d e this point in Loughrin when it noted that the second clause was inte n d ed to broaden the scope o f bank fraud to include schemes that did not involve deception of the bank d irectly
, such as schemes to use stolen c r e dit

c a r d s

. S ee 134 S. Ct. a t 2391–92. Section 1344(1) thus

covers schemes to deceive the bank directly

. Neither clause requires the g ov e r n m ent to establish the defendant intended the bank to suffer a financial loss.

Analy sis of our c ircuit’s law before Loughrin counsels the

same result. I n United States v. Bonallo
, 858 F

. 2d 1427 (9th Cir. 1988), w e recog niz ed that under § 1344(1) the bank itself need not be the sole or primary victim o f the scheme. Rather, the bank is defrauded within the meaning of § 1344(1) when it is the targ et of the deceit, even if the scheme targ eted the bank’s customer accounts as the source of the money

. See id. at 1434 n.9.

I n Bonallo
, a bank employ e e withdrew f u n d s from his

own account via the ATM, then man i p u l a ted the bank’s

co mputer sy stem to charg e the withdrawals ag ainst other customers’ accounts. Id. a t 1429–30. The defendant a rg u ed that the other customers were the intended v i c tims of his scheme and therefore the bank was not defrauded within the meaning o f the statut e

. W e rejected this arg ument, finding that the bank was the targ et of his misrepresentation, even if the c ustomers’ accounts w ere the source of the funds. S ee id.
at 1434 n .9. I n short, the defendant was g uilty of bank fraud because he intended to deceive the bank.

I n United States v. W

olfswinkel
, 4 4 F .3d 782 (9th Cir. 1995), we considered whet h e r a ri sk of financial loss to a bank w as as a

n element o f § 1 3 4 4 ( 1 ). We held that even ifU N I T E D S T A T E S V

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

was easily satisfied. The d efendant was convicted of b ank fraud u nder § 1344(1) after he eng ag ed in a che c k-kiting scheme, during which he convinced a bank officer to sell him cashier’s checks paid for with insufficiently -backed checks. Id. at 7 8 4. On appeal, W olfswinkel a rg ued that the
g overnment had to show he ex posed the bank to a risk of loss under § 1344(1), and he h ad not, because h e pr o v i d e d collateral to t h e b ank to secure any losses f or the bounced checks. Id. at 785–86.

I n affirming W olfswinkel’s c onviction, we recog niz ed a circuit split a s to whether § 1344(1) requires proof of risk of loss to the bank to e stablish the d e f endant’s intent to defraud. Id. at 7 86. W e held, however, that even assuming there were such a requirement, W olfswinkel’s scheme satisfied i t. See i d

. Althoug h he had provided security for potential loss e s , W o lfswinkel ex posed the bank to a risk of loss in the f orm o f administrative costs and the threat of c o m p eting creditor

c l a i m s if it were forced to liquidate the collateral. Id. The defendant need not have intended the bank to bear the risk o f losing the amount involved in the financial scheme itself.

The Supreme Court’s decision in Loughrin does not affe ct the validity of our precedent, or u ndermine it in any way

. I f
any thing
, it lends cr edence to our r eluctance to impose any risk of loss requirement in a p rosecution under the bank fraud
statute. Loughrin confirms our conclusion that the difference between the two clauses is which entit y the defendant intended to d eceive, not which entity the defendant intended
to bear the financial l o s s

. See 134 S. Ct. at 2389–90 (emphasiz ing that noth i n g in § 1344(2) requires specific intent to deceive a bank, which § 1344(1) already covers).U N I T E D S T A T E S V

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Shaw stresses that under the applicable law, the bank, in the end, did not actually lose any thing

. The losses ultimately fell on H s u f

o r f ailing to spot much of the fraud within the leg ally required 60 day s, an d o n Pay Pal, which had to reimburse the bank for th e r e s t. Shaw therefore asks us to conclude that he could n ot have intended to defraud the b ank. A similar arg ument w ith re s p e c t t o clause 2 was dismissed summarily in Loughrin on the g round that the federal statute

was inten d ed t o avoid h aving c a ses turn on the technical ramifica t i o n s o f banking law. Id. at 2395 n.9. I n characteriz ing § 1344(2), the Court said that the lang uag e “app e ars calculated to avoid entang ling courts in technical issues o f banking law about whether the financial institution

o r , alternatively
, a depositor would suffer the loss from a successful fraud.” Id. W e conclude that the same leg islative in t e n t m u s t b e ascribed to § 1344(1). There is n o reason to believe Cong r ess wanted courts to become more entang led in such technical issues under the first clause t h a n under the second clause.

W e reco gniz e that some circuits have held that risk o f 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 t o harm or cause the bank

a risk of loss is required). Th e r e a s o n g iven is that the
purpose of the statute is protection of the federal fisc, a nd that
purpose is not served if the bank faces no financial risk. See,
e.g. , Thomas
, 315 F .3d at 2 01. Circui t s adopting the requirement cite to the leg islative hi story of the bank fraud statute, which shows that Cong ress enacted it because of the “strong federal interest in protecting the financial integ rity o f [ federally insured financial] institu t i ons.” See, e.g. , id. (quoting S. Rep. No. 9 8-225, at 377 (1984), reprinted in 1984U N I T E D S T A T E S V

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

. 3d 7 43, 759 ( 2d Cir. 2 012) (same). B ut requiring proof of intent that a bank bear a risk of loss do e s not serve this end. The entity that bears the r isk o f loss does not necessarily depend upon the e n tity (i.e., t h e federally insured financial institution) that the defendant intends to harm. I t depends on the operation of banking laws that, as this case demonstrates,
may result in ha v i n g t h e instruments of the fraud, like the ba n k ’s customers or entities like Pay Pal, ultimately bear the loss. A scheme that is intended to harm third parties may , in fact, end u

p hurting the bank, and vice versa. F ew criminals have any k

nowledg e o f t h e rules of law that g overn which entity bears the risk of loss. Requiring intent to harm the bank only makes it more difficult to prosecu t e b a n k fraud. Nkansah
, 6 99 F .3d at 759 (L y nch, J
., concur

ring ); see also Loughrin
, 134 S. Ct. a t 2395 n.9 (citing Nkansah concurrence with approval).

The Court in Loughrin held that § 134 4 (2) does not require intent to d efraud a b ank because the plain lang uag e o f that section includes no such r equiremen t. 134 S. Ct. at 2389–2390. W e similarly decline to read an additional element into § 1344(1) that Cong res s d i d not include; that d o e s not serve the Cong ressional purpose; and that cou l d needlessly e ntang le judge s and juries in the intricacies o f banking law. T he district court correctly refused instructions that included such a requirement.

AF F IRMED

.