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

Heading: Bank Fraud with Respect to the Gutiérrez Loans

Text: 49 The jury found all four appellants guilty of bank fraud with respect to the Gutiérrez loans. To prove bank fraud under 18 U.S.C. § 1344, the government must show that the appellants knowingly engaged in a scheme or artifice to defraud or obtain money from a federally insured financial institution by means of materially false statements or misrepresentations. See United States v. Kenrick, 221 F.3d 19, 30 (1st Cir.2000). 14 We first consider the evidence against bank officers Muñoz-Franco and Sánchez-Arán, and then the evidence against Gutiérrez and Umpierre-Hernández.
50 In their positions as President and Executive Vice President, respectively, Muñoz-Franco and Sánchez-Arán were responsible for keeping the Board informed of information relevant to current and prospective loans. Moreover, Sánchez-Arán was the primary supervisor of the construction and commercial loans to Modules, a Gutiérrez-owned company involved in many of the fraudulent transactions. Muñoz-Franco supported Sánchez-Arán's recommendations on these projects. At trial, Lugo, the president of the Board of Directors, explained that he and the other Board members relied on the reports prepared by Muñoz-Franco and Sánchez-Arán in making decisions regarding loans. Lugo explained that it was not his job to verify the accuracy of information that was being given to him by the management of the bank, and added that he trusted fully that the information that was being provided me was whole and true. 51 Despite their responsibility to keep the Board fully apprised, Muñoz-Franco and Sánchez-Arán concealed important information on many occasions. For example, in July 1985 Caguas considered the Jardines de Villa Alba project, for which Modules would be the contractor. As of October 29, 1984, Modules had completed none of the 212 units planned for the La Marina project, even though the original loan agreement from June 25, 1980 called for construction to begin in thirty days and for seventy-five units to be completed within twelve months. Despite the lack of progress, the loan amount had been increased four times between August 7, 1980 and September 17, 1981. Lugo testified that this poor performance history was not discussed during the loan presentation for the Jardines de Villa Alba project. Lugo stated unequivocally that he would have wanted to know Modules' performance history in evaluating the Jardines de Villa Alba loan, demonstrating the materiality of such information. 52 Lugo further testified that, after the original loan presentation, Muñoz-Franco and Sánchez-Arán continued to withhold information from the Board regarding the Jardines de Villa Alba loan. Although the record shows $231,000 was paid to Modules before the Jardines de Villa Alba loan agreement was signed, even at trial Lugo expressed surprise that this had happened and stated that it would have been difficult for me to believe that this occurred. More than a year after the Jardines de Villa Alba loan was approved, in September 1986, Lugo did not know that only one house had been built on the project. Lugo also testified that as of September 1986 the performance history of Modules as to construction of homes that were to be constructed versus the ones that were constructed . . . was not discussed. Finally, on January 10, 1988, Lugo signed the Denby letter, which was prepared by Muñoz-Franco and which referred to the units built on Jardines de Villa Alba, without realizing that only one house had been built on the project. 53 Lugo also testified that Muñoz-Franco and Sánchez-Arán did not inform him and the Board of other material information relating to Modules. For example, he did not know that Modules remained the contractor after the La Marina, Country Club, and Levittown projects were sold from Transglobe to DO.W in October 1984. He also did not know that, between 1984 and 1986, Modules did not make any principal or interest payment on any loan to Caguas with funds generated from its own business as opposed to proceeds from other loans. Likewise, he was not informed, when the Board approved the sale of Modules to Camero on September 10, 1986, in conjunction with a restructuring of its loans, that approximately seventy percent of Modules' debt was with Caguas and that over seventy-one percent of Modules' assets were intangibles. 15 54 Finally, Lugo testified that when the board approved a loan of $1,412,077 for land acquisition for the Cerrovista project, for which Modules also was the contractor, Muñoz-Franco and Sánchez-Arán did not advise him or the Board that the cost of the land was actually only $480,000—in other words, that $932,177 would be used to make principal and interest payments on other Modules loans. 55 Lugo's testimony is corroborated by the absence of this and other material information from the Board minutes. Although the government did not rely heavily on the absence of such information, we have found these omissions properly admissible under Federal Rule of Evidence 803(7) and note that they lend support to the prosecution's case. 56 There was substantial evidence that Muñoz-Franco and Sánchez-Arán withheld all of this information from the Board with full knowledge of the problems with Modules and other Gutiérrez companies. Anabel Enriquez, who reported directly to Sánchez-Arán, explained that the handling of Gutiérrez certifications at Caguas concerned her [b]ecause practically monthly, each time they invoiced[,] the certifications would be ahead of the construction. She discussed her concerns with Muñoz-Franco at least by the time La Marina was going to be sold to DO.W in 1984, and with Sánchez-Arán around the same time. She also discussed her concern with Muñoz-Franco that, following the sale, Modules would remain a contractor for La Marina, Levittown, and Country Club. However, Muñoz-Franco and Sánchez-Arán took no action in response to Enriquez's concerns. 57 Finally, Muñoz-Franco and Sánchez-Arán took steps to conceal their misrepresentations from both internal and external auditors. Juan Hernández, Caguas' internal auditor, testified that, in 1981, Kareh (the assistant vice president of the construction loan department) initially provided information in connection with an audit of the construction loan department, but, after a short meeting with Sánchez-Arán, Kareh stopped providing the information Hernández requested. Hernández further testified that, although he requested the auditing committee several times between 1980 and 1990 to allow him to audit the construction loan department, Muñoz-Franco and Sánchez-Arán did not allow the audit to take place. In a letter dated January 22, 1985, an external auditing firm, Stephen P. Bradics and Company, recommended that the scope of internal auditing be expanded to include . . . construction loans. After Caguas received this letter, Hernández again recommended to the audit committee on several occasions that he should be allowed to audit the construction department, but he still was not allowed to do so. The audit committee minutes reflect his recommendation at several meetings at which Muñoz-Franco and Sánchez-Arán were present. At one meeting, on January 28, 1988, Muñoz-Franco responded by telling Hernández that construction loans was the area most audited by senior management. 16 Sánchez-Arán heard and agreed with Muñoz-Franco's response, and Sánchez-Arán had also made similar statements to Hernández in the past. However, Hernández was never provided with any internal audit conducted by either Muñoz-Franco or Sánchez-Arán. 58 Muñoz-Franco and Sánchez-Arán also concealed information regarding Caguas' lending practices from external authorities. Critically, Muñoz-Franco drafted and obtained Board approval to send the Denby letter, which states: This Board of Directors wishes to state in no unclear and uncertain terms that it has never considered and much less approved any policy or practice of permitting borrowers to use construction loan proceeds to satisfy or make interest payment[s] on other unrelated loans. 17 At the time of the letter, however, Muñoz-Franco and Sánchez-Arán had, as discussed above, approved loans for such purposes on many occasions. 59 Taken in the light most favorable to the government, the evidence demonstrates that Muñoz-Franco and Sánchez-Arán repeatedly concealed material information regarding the status of the Gutiérrez loans from the Board, approved disbursements for work that was not completed, and prevented audits. Such conduct caused Caguas to continue lending money to Gutiérrez-owned companies despite the companies' financial instability, which demonstrates appellants' knowing scheme to defraud Caguas by means of material misrepresentations within the meaning of 18 U.S.C. § 1344. Consequently, we affirm the district court's finding that a rational jury could have found Muñoz-Franco and Sánchez-Arán guilty of bank fraud.
60 The record also contained considerable evidence from which a reasonable jury could have found beyond a reasonable doubt that Gutiérrez and Umpierre-Hernández knowingly engaged in a scheme to defraud Caguas by misrepresenting material information. The certifications they submitted and signed contained many misrepresentations. For example, on the Los Mameyes project, between December 9, 1985 and January 10, 1986, Gutiérrez and Umpierre-Hernández submitted nine certifications attesting to the manufacture of 74 housing units and requesting payments totaling $380,000, even though the inspector's report stated that only 19 houses had been built. Between January 16 and February 21, 1986, Gutiérrez and Umpierre-Hernández submitted 10 more certifications attesting to the manufacture of 90 additional housing units and requesting payment of approximately $500,000, at which point payment had been disbursed for at least 164 housing units even though only 40 units had been manufactured. As of February 25, 1986, Gutiérrez and Umpierre-Hernández had certified the completion of 200 units, but an inspection report dated March 23, 1986, indicated that only 55 units had been built. On March 31, 1986, Gutiérrez and Umpierre-Hernández submitted a certification requesting $69,000 for payment of subcontractors along with a list of interest payments they had made on other projects, including Jardines de Villa Alba, Levittown, Country Club, La Marina, and Los Caciques, which equalled exactly $69,000. Finally, on June 26, 1986, Gutiérrez and Umpierre-Hernández submitted a special certification of $85,000 with no justification for work allegedly completed; Kareh testified that such a certification was not a usual practice. Sánchez-Arán authorized the disbursements based on these certifications. 61 Gutiérrez and Umpierre-Hernández submitted similar certifications for work not completed on other projects. For example, on the Jardines de Villa Alba project, Modules had installed only one unit as of the time of the Denby letter on January 10, 1988; however, on October 22, 1985 Gutiérrez and Umpierre-Hernández certified that twenty-two units had been completed, causing $626,000 to be disbursed to Modules. 62 Gutiérrez and Umpierre-Hernández perpetuated their scheme by recruiting other developers to obtain loans from Caguas on the condition that they use Modules as the contractor. This conduct allowed Gutiérrez and Umpierre-Hernández to obtain new funding for Modules, which they would then use to pay down prior loans and keep Modules from collapsing. Developer Burns, the original owner of the Cerrovista project, was a typical example. After unsuccessfully applying to Caguas for a loan to build residential housing on land he owned, Burns met with Umpierre-Hernández, who told him that if he used Modules as his contractor and signed a $2 million note he would be approved for a loan. A week later Burns received financing for the Cerrovista project. He testified that the approval was [d]efinitely[] because of the use of Modules. Burns met with Umpierre-Hernández on many other occasions, and, after problems arose with the Cerrovista project, with Umpierre-Hernández and Sánchez-Arán in Sánchez-Arán's office. Subsequently, Umpierre-Hernández told Burns that the project would be sold to Iantho, and explained that this project was going to contribute to paying off some interest for some of the projects that were in default, which caused Burns to understand that was the reason . . . I was rejected as sponsor. 18 63 On September 10, 1986, Sánchez-Arán presented, and the Board approved, a loan of $8.9 million to Iantho Corporation to take over the Cerrovista project; the loan agreement specified that Modules would be the contractor for the project's two hundred units. Burns testified that, around the time the project was being sold, he received confirmation that the Department of Transportation's plans to build a hospital and expressway would cause the development of four lots of the project to be frozen. When told the news, Umpierre-Hernández responded, hide it, boy. On September 28, 1986, Cerrovista was sold to Iantho with no mention of the impending development. 64 Taken in the light most favorable to the government, the evidence shows that Gutiérrez and Umpierre-Hernández knowingly concealed information relevant to the viability of the Cerrovista project and submitted many certifications for work that was not completed. To sustain their schemes, they recruited other developers and helped them receive funding from Caguas on the condition that these developers use Modules as a contractor. These activities caused Caguas to continue lending money to Gutiérrez-owned companies despite the companies' financial instability, providing an ample basis for a jury to find that appellants knowingly schemed to defraud Caguas by means of material misrepresentations within the meaning of 18 U.S.C. § 1344. Consequently, we conclude that a reasonable jury could have found beyond a reasonable doubt that both Gutiérrez and Umpierre-Hernández were guilty of bank fraud. 65