Opinion ID: 11175
Heading Depth: 2
Heading Rank: 2

Heading: The Cheng/Schapiro Loans

Text: 4 In 1987, Diana Cheng, a Dallas businesswoman, needed $400,000 and a $1,000,000 letter of credit in order to undertake a $2,000,000 Indonesian lumber import deal. A customer and shareholder of Willow Bend, Cheng had been involved in commercial real estate in the Dallas area for several years. Cheng discussed her needs for the Indonesian transaction with Thomas C. Flood, a loan officer at Willow Bend. Flood informed Cheng that Willow Bend could not grant her the loan because she had reached her borrowing limit. Nevertheless, Flood arranged a meeting among Harvard, Cheng, and himself at which Harvard informed Cheng that Willow Bend could lend the money if something was in it for him. By the end of the meeting, Cheng had agreed to give Harvard and Flood, respectively, a 10% and 5% share of the import business. At the meeting, Flood intimated that Cheng should create a real estate note to pledge as collateral for the loan. Cheng did so by creating a $395,600 note payable by her joint venture to the fictitious name of C.D. Donge (the Donge note). In connection with these events, Cheng pleaded guilty to conspiring to give money to Harvard and Flood and creating a false document to obtain a loan from Willow Bend. She testified against Harvard. 5 Harvard then asked Jay Paul Schapiro, an acquaintance through bank-related business and various civic activities, to purchase the Donge note from Willow Bend to get it off the books. 1 Harvard told Schapiro that the note was secured by undeveloped real estate. When Schapiro stated that he could not pay off the note in the event of default, Harvard assured him that he would find a guarantor, who turned out to be Ms. Cheng. Schapiro purchased the note. Although such notes would usually be purchased at a discount, in this transaction Schapiro borrowed the face value of the note--$395,000--from Willow Bend in return for a $9,000 fee. Apparently unbeknownst to Schapiro, the actual discounted price of the note was $345,000; the remaining balance, less Schapiro's fee, went to Willow Bend. Schapiro never made any payments on the note and was told by Harvard and Flood to ignore late notices and demands for collection. In May of 1987, Flood had the deed of trust for the Donge note recorded in the county real estate records, even though the Donge note was dated December 9, 1985. Cheng gave cash payments of $15,000 to Flood and $10,000 to Harvard. Flood pleaded guilty to bank bribery.