Opinion ID: 202748
Heading Depth: 2
Heading Rank: 1

Heading: Evidence Regarding Loss

Text: 135 Appellants challenge three aspects of the admission and treatment of evidence regarding financial loss to Caguas. First, they protest that such evidence was irrelevant and prejudicial in violation of Federal Rule of Evidence 403. Second, they argue more specifically that the government's Exhibit 40, aspects of which were later shown to be inaccurate, was erroneously admitted. Finally, they argue that, even if evidence of loss and Exhibit 40 were properly admitted, the district court erred in refusing to guide the jury with an instruction about the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Pub.L. No. 101-73, 103 Stat. 183 (codified in scattered sections of 12 U.S.C.).
136 We review evidentiary rulings on relevance and unfair prejudice for abuse of discretion. United States v. Richardson, 421 F.3d 17, 37-38 (1st Cir.2005). Loss is not an element of bank fraud. United States v. Blasini-Lluberas, 169 F.3d 57, 65 (1st Cir.1999). However, courts have held repeatedly that loss is relevant in fraud cases to demonstrate a defendant's knowledge or intent to commit fraud. See, e.g., United States v. Heimann, 705 F.2d 662, 669 (2d Cir.1983)(While technically the success or failure of a scheme to defraud is irrelevant in a mail fraud case, realistically, when the contested issue is intent, whether or not victims lost money can be a substantial factor in a jury's determination of guilt or innocence. (citation omitted)). Thus, while an ultimate purpose of either causing some financial loss to another or bringing about some financial gain to oneself is not the essence of fraudulent intent, United States v. Kenrick, 221 F.3d 19, 29 (1st Cir.2000) (citation and internal quotation marks omitted), the knowledge that one's actions are, in fact, bringing about such losses may demonstrate one's intent to commit fraud. 137 In this case, the government referred to loss throughout the trial to demonstrate appellants' knowledge of the consequences of their ongoing practices of using loan proceeds to make principal and interest payments on unrelated loans, authorizing disbursements for work not completed, and using funds for purposes not authorized by the Board. For example, during its opening statement and closing argument, the government noted that federal regulators closed Caguas in 1990 due to the bank's lack of funds. On a few occasions, the government also questioned witnesses about the amount of loss that certain projects sustained and whether those losses would have caused concern. However, these references did not dominate the evidence because the government also presented considerable other evidence of defendants' conduct, as we have discussed at length in Section III, supra. Moreover, the district court carefully managed the effect of evidence relating to loss on the jury by preventing both parties from addressing loss in their closing arguments and instructing the jury that loss was not an element of the offenses charged. Finally, the court permitted appellants to cross-examine vigorously the government witnesses who discussed loss. 138 In sum, the general references to loss were relevant as a means of demonstrating appellants' intent to defraud Caguas, and, given the carefully limited presentation of this evidence to the jury, were not unduly prejudicial. The district court did not abuse its discretion in admitting this evidence.
139 Following Caguas' closure in 1990, Banco Santander acquired many of its assets, and prepared a document—government Exhibit 40—listing hundreds of Caguas' loans, the outstanding balances on those loans, Banco Santander's valuation of the loans, and the resulting discount (the difference between the outstanding balance of the loan and the loan's value). At trial, Banco Santander's comptroller attested that the bank had acquired all of the loans summarized in Exhibit 40, and the exhibit served as part of the basis for expert testimony regarding accounting practices by Kathy McKinless, a partner at an accounting firm. By the time of sentencing, however, the government discovered that the Resolution Trust Company (RTC), a government-owned asset management company, had retained many of the loans. Thus, the exhibit could not actually have reflected valuations of the loans made by Banco Santander upon purchase, and was not a reliable means of establishing the magnitude of the loss experienced by Caguas. 140 Appellants now contend that Exhibit 40 was both testimonial, in violation of the Confrontation Clause, and that the exhibit was improperly admitted under the Federal Rules of Evidence. The government's acknowledgment that Exhibit 40 contained inaccurate information indicates that the exhibit should have been excluded on that basis alone. However, we agree with the district court that any error in its admission was harmless. Under Fahy v. Connecticut, 375 U.S. 85, 86-87, 84 S.Ct. 229, 11 L.Ed.2d 171 (1963), the critical question in assessing harmless error is whether there is a reasonable possibility that the evidence complained of might have contributed to the conviction. 141 Several circumstances indicate that there is no reasonable possibility that Exhibit 40 contributed to the convictions here. First, the exhibit was relevant only to prove appellants' fraudulent intent, and the government presented considerable evidence of this intent from other sources. Second, the court explicitly instructed the jury that loss was not an element of bank fraud. Third, the exhibit was the subject of direct examination for less than one-half of one day of a trial spanning fifteen months. Fourth, defense counsel subjected McKinless to searching cross-examination regarding the exhibit, revealing several typographical errors and inaccuracies and eliciting McKinless' acknowledgment that she could not confirm the document's completeness. Finally, even if the loss calculations in Exhibit 40 were not entirely accurate, other evidence at trial demonstrated that Caguas suffered large losses on many of the loans at issue. To some extent, the Exhibit 40 calculations replicated evidence already in the record. Taking into account all of these circumstances, there is no reasonable possibility that the isolated use of Exhibit 40 could have contributed to appellants' convictions, and thus any error in its admission was harmless.
142 Appellants also challenge the district court's refusal to give an instruction explaining that, when FIRREA was enacted in 1989, many institutions immediately fell out of compliance with regulatory capital requirements, making them subject to seizure by thrift regulators. United States v. Winstar Corp., 518 U.S. 839, 857-58, 116 S.Ct. 2432, 135 L.Ed.2d 964 (1996). Appellants contend that, given the admission of evidence relating to financial loss, the jury should have been instructed that bank failures were common in the aftermath of FIRREA's enactment. In other words, the jury should have been told that banks commonly lost money in the absence of fraud. 143 A district court's refusal to issue a jury instruction `constitutes reversible error only if the requested instruction was (1) correct as a matter of substantive law, (2) not substantially incorporated into the charge as rendered, and (3) integral to an important point in the case.' White v. N.H. Dep't of Corrs., 221 F.3d 254, 263-64 (1st Cir.2000) (citation omitted). No such error occurred here. The FIRREA instruction was not integral to an important point in the case because loss is not an element of bank fraud. Moreover, the jury was instructed that the government need not prove loss. Thus, we find no reversible error in the district court's decision.