Opinion ID: 1032017
Heading Depth: 3
Heading Rank: 1

Heading: Counts I and II: Conspiracy, Theft and

Text: Conversion of Indian Tribal Organization Property In Counts I and II, the government alleged that White Eagle and Greybull conspired to embezzle or convert Credit Program funds. According to the government, the object of the conspiracy was White Eagle’s $15,000 loan modification. We note that these charges are narrowly targeted, particularly in comparison to the wide-ranging nominee borrower scheme. Counts I and II focus on Menz’s discovery of the loans in her name, White Eagle’s assistance in the attempted cover-up, and White Eagle’s receipt of a loan modification—events beginning in late 2007, long after Greybull’s nominee scheme occurred was implemented. The jury was properly instructed that conspiracy required “an agreement between two or more persons” and “a plan to commit at least one of the crimes alleged in the indictment as an object of the conspiracy.” Ninth Circuit Model Criminal Jury Instruction No. 8.20. The government argues that “[t]he jury could infer an agreement” from Greybull’s loans and White Eagle’s attempt to cover up the fraudulent activity. However, it does not argue that Greybull’s loans, which predated the alleged conspiracy, were its object. Instead, under each of the misappropriation theories, White Eagle’s loan modification is touted as the object of the conspiracy: “obtaining monies that her supervisor had prohibited” (misapplication) or using “her lawful authority over the funds 10 UNITED STATES V . WHITE EAGLE to gain what was an otherwise unauthorized possession of the funds” (embezzlement and conversion). Hence, we analyze White Eagle’s loan modification, not Greybull’s fraudulent nominee loans, as the basis for the convictions on Counts I and II. The government presented no evidence that White Eagle defrauded the Credit Program or that the applications for her long-term loan and subsequent modifications were inaccurate or incomplete. See Carlos-Blaza v. Holder, 611 F.3d 583, 588 (9th Cir. 2010) (analyzing charge for misapplication of bank funds and holding that “a conviction for misapplication . . . necessarily involves intent to defraud”); United States v. Dreitzler, 577 F.2d 539, 546 (9th Cir. 1978) (to show misapplication, the government must prove that “the bank’s funds were disbursed under a false record”). Unlike core participants in the nominee borrower scheme, White Eagle did not use nominee borrowers to surreptitiously gain a personal benefit. Cf. id. at 545 (upholding misapplication conviction where defendant “set up bogus loan transactions, presented . . . forged documents to the bank, and received the proceeds of the ‘loans’ which he used for his [insurance] agency’s benefit”). The posture of White Eagle’s participation forecloses a conviction under a traditional misapplication theory involving fraud or misrepresentation of some kind. The government instead tethers its theory to two restrictions affecting White Eagle’s participation in the Credit Program. The first restriction is that White Eagle’s supervisor in 2007 instructed her not to borrow from the Credit Program; the second, 5 C.F.R. § 2635.101(b)(2), prohibits holding financial interests that conflict with conscientious performance of duty. However, neither UNITED STATES V . WHITE EAGLE 11 violation of an employer’s instruction nor a civil rule by itself supports a conviction for conversion, theft, or misapplication of funds. This conclusion follows from analogous cases involving prosecutions for misapplication of bank funds under 18 U.S.C. § 656. In United States v. Wolf, 820 F.2d 1499, 1505 (9th Cir. 1987), the defendant submitted fraudulent loan applications in the name of stand-in borrowers and additionally failed to make disclosures required by Federal Reserve Regulation O. Despite evidence that the loan applications were fraudulent, we reversed the misapplication conviction because of the “serious risk that the jury would find Wolf guilty of criminal misapplication . . . because he failed to comply with Regulation O,” a civil regulation. Id.; see also United States v. Christo, 614 F.2d 486, 492 (5th Cir. 1980) (“A conviction, resulting from the government’s attempt to bootstrap a series of checking account overdrafts, a civil regulatory violation, into an equal amount of misapplication felonies, cannot be allowed to stand.”). “[U]nder the logic of Christo and Wolf, it is impermissible to use the violation of a civil statute to ipso facto ‘supply a crucial element’ of a criminal offense.” United States v. Eriksen, 639 F.3d 1138, 1150 (9th Cir. 2011). The government’s misapplication theory, predicated at best on an employer directive and a civil regulation, cannot support a conviction here. The government’s embezzlement and conversion theories also fail because White Eagle never controlled or had custody of the funds that she later borrowed. Even though she signed paperwork for loans involving the pledge of trust assets as collateral, the Credit Committee (of which White Eagle was not a member) approved loans before a check would issue. 12 UNITED STATES V . WHITE EAGLE See id. at 1145 (explaining that “[e]mbezzlement is the fraudulent appropriation of property by a person to whom such property has been entrusted, or into whose hands it has lawfully come”) (alteration in original; citation and internal quotation marks omitted); United States v. Andreen, 628 F.2d 1236, 1241 (9th Cir. 1980) (“[C]onversion encompasses the use of property, placed in one’s custody for a limited purpose, in an unauthorized manner or to an unauthorized extent.”). Nor does Greybull’s shepherding White Eagle’s loan modification through the approval process and signing paperwork constitute embezzlement. In contrast to Greybull’s own nominee loans (which circumvented the Credit Committee), White Eagle’s loan modification was ultimately approved by the Credit Committee. Even in the light most favorable to the government, the evidence contradicts an embezzlement or conversion theory. Because the alleged object of the conspiracy—the loan modification—was not itself criminal, there can be no conspiracy. See United States v. Montgomery, 384 F.3d 1050, 1062 (9th Cir.2004) (holding that a conspiracy requires an agreement to engage in criminal conduct). The government cannot bootstrap itself to a criminal conviction simply because White Eagle disobeyed a supervisor’s order or contravened a general civil conflict of interest statute. We reverse White Eagle’s convictions on Counts I and II.