Opinion ID: 418131
Heading Depth: 1
Heading Rank: 4

Heading: The Bank Misapplication Counts

Text: 122 Cauble challenges the convictions under Sec. 656 on the ground that the indictment fails to state an offense and the evidence is insufficient to support a conviction. Each count is predicated on a bank loan made to Charles Foster at Cauble's request. 123 Count Five charges that Cauble willfully misapplied $37,706 of Western State Bank's funds on March 13, 1978. Count Six charges that Cauble willfully misapplied $10,000 of South Main Bank's funds on March 31, 1978. Count Seven charges that Cauble willfully misapplied $50,000 of Western State Bank's funds on May 2, 1978. Count Eight charges that Cauble willfully misapplied $50,000 of South Main Bank's funds on May 30, 1978. Each loan was ultimately repaid in full; Cauble personally guaranteed the $37,000 loan and the $50,000 South Main loan. 124 Cauble argues that the indictment fails to charge a crime because it does not allege what acts constituted the willful misapplication subjecting him to criminal liability. The essential elements of a violation of Sec. 656 are that the accused was a bank officer, the bank was connected in some capacity with a national bank, the accused willfully misapplied bank funds, and the accused acted with intent to injure or defraud the bank. 119 We have long held that an indictment framed in the statutory language charges an offense under Sec. 656 and that the term willful misapplication is not so vague as to require supplementation by further averment. 120 This claim of error is, therefore, without merit. 125 Cauble next claims that the evidence was insufficient to support his convictions. He contends first that consent by the bank to a loan is a defense to the charge of willful misapplication. Therefore, he urges, the board of directors' approval of the loan charged in Count Seven and the loan committee's approval of the loan charged in Count Eight compel reversal of these convictions. 126 Although some cases state that the bank's consent to a loan is a complete defense to a willful misapplication charge, 121 it is not clear that consent alone is an absolute bar. Thus, in Mulloney v. United States, 79 F.2d 566, 583 (1st Cir.1935), cert. denied, 296 U.S. 658, 56 S.Ct. 383, 80 L.Ed. 468 (1936), the court said: It is, no doubt, true that consent by a bank to a loan would be a defense to the crime of willful misapplication, since there could be no conversion of funds if there was a valid consent by the bank or its board of directors. The court found no valid assent, however, because a disinterested majority of the board had never approved the transaction. 127 However, in a number of other cases courts have held that knowledge, 122 ratification, 123 and consent 124 are not per se defenses to the charge. Instead these are evidentiary matters that may be considered as part of the defense that there was either no willful misapplication or no intent to injure the bank. As the court stated in United States v. Breese, 173 F. 402, 410 (C.C.W.D.N.C.1909), aff'd 203 F. 824 (4th Cir.1913), The most formal vote of the board of directors could not authorize the embezzlement, abstraction, or willful misapplication of the funds of the bank. In Mann, we rejected the contention that the indictment must allege that the misapplication was without the consent of the bank or its directors. We stated, citing Mulloney and United States v. Klock, 210 F.2d 217 (2d Cir.1954): consent is a matter of defense. 517 F.2d at 268. In United States v. Riley, 550 F.2d 233 (5th Cir.1977), the trial court excluded evidence that the bank frequently allowed other persons to conduct business as the defendant had. We reversed the conviction, reasoning that although a general practice is not an absolute defense to criminality ... the wiser ... approach is to let the jury consider the practice in determining whether [the defendant] intended to injure and defraud the bank. Id. at 236. We stated that Mann had implicitly recognized that the jury should consider whether the bank's consent vitiated the defendant's intent to injure or defraud the bank and added: 128 The government's contention that [the defendant] was the chief executive officer of the bank and therefore could not rely on this [authorization] defense is a jury argument, not a legal one. The jury might have rejected this defense as a sham. It might have considered the alleged policy to be [the defendant's] cynical generosity to a few cronies at the expense of others, but that was for the jury to resolve. 129 In United States v. Salinas, 654 F.2d 319 (5th Cir.1981), the defendant contended that a series of loans could not constitute criminal misapplication because they were authorized by the bank's board of directors. We stated: 130 [W]hile valid consent by a bank's board of directors may be a defense to a charge of misapplication, no such board can vitiate a fraud on the bank. Thus, if the [defendants] ... had an intent to defraud, approval of the board of directors is no longer material to whether there was a misapplication of bank funds. The jury ... found such an intent; the fact that the board of directors may have reviewed the loan at some point does not absolve the [defendants] from culpability. 125 131 Patently an entire bank board, acting unanimously, could not without violating the statute invest bank funds to purchase a boatload of marijuana or make a loan secured only by a chattel mortgage on a kilogram of cocaine. Approval by the bank is a factor, indeed an important one, to be considered in deciding whether the making of the loan itself constituted a misapplication and whether a defendant had the intent to injure or defraud the bank required to sustain a conviction under Sec. 656. But it is not a complete defense. 132 Cauble next argues that his personal guarantee of the loans charged as misapplications in Counts Five and Eight serves as a complete defense. He contends that, because the purpose of Sec. 656 is to protect national banks, their customers, and the Federal Deposit Insurance Corporation from losses, 126 there can be no violation of the statute when the loan is guaranteed by a solvent party. 133 Conviction under Sec. 656 does not require proof that the bank suffered a loss. 127 But the government must demonstrate more than that the defendant was guilty of maladministration or that funds were irregularly or improperly used. 128 Nonetheless, ultimate restitution is not a defense to the crime of willful misapplication because the crime is complete at the time the misapplication occurs. 129 The gravamen of the offense under Sec. 656 is the defendant's depriving the bank of its right to have custody of its funds, that is, the right to make its own decisions as to how the funds are used. United States v. Dreitzler, 577 F.2d 539, 546 (9th Cir.1978), cert. denied, 440 U.S. 921, 99 S.Ct. 1246, 59 L.Ed.2d 473 (1979). 130 134 Therefore, that the defendant personally guaranteed a misapplied loan does not absolve him absolutely from criminal responsibility. The bank is deprived of custody of and control over its funds when the loan is made and remains so deprived until either the borrower or guarantor repays the money. The existence of a personal guarantee is certainly relevant in determining whether the defendant acted with intent to injure or defraud the bank, but it does not negate such an intent as a matter of law. 131 135 Intent in a Sec. 656 case is basically a question for the jury. 132 It exists if the defendant acts knowingly and the natural result of his conduct is or may be to injure the bank; there is no requirement that the accused desire the injury. 133 136 Here a reasonable juror might have inferred Cauble's intent to defraud from all of the circumstances. These include Foster's financial incapability 134 and mental instability; 135 the illicit purpose of the loan, which the jury might reasonably have concluded Cauble knew; Cauble's cash-poor situation and the weakness of his guarantee, given his involvement in a major smuggling operation; the diversion of the bank's assets, and Cauble's disregard for the bank's routine procedures. 136 A reasonable jury might have concluded that Cauble's personal guarantee and the directors' or committee's consent was simply insufficient to negate an inference of intent from these facts. 137 137 Cauble finally argues that the jury was permitted to convict him of misapplication on a reckless disregard standard. In United States v. Adamson, 700 F.2d 953 (5th Cir.1983) (en banc), we held that the proper mens rea for a Sec. 656 conviction is knowledge rather than reckless disregard. We added, however: Where sufficiency is at issue, a finding that the accused acted recklessly may be enough to sustain a jury verdict, because a jury may properly infer the requisite intent. Id. at 962 (emphasis in original). 138 Although this case was tried before Adamson was decided, the jury instruction on intent precisely stated this standard. 138 Cauble nevertheless argues that the instruction on reckless disregard permitted the jury wrongly to convict him solely because he authorized loans to Foster, who was emotionally unstable. This claim of error essentially asks us to reinterpret the facts and conclude that Cauble's actions were not, after all, reckless. We decline this invitation. A reasonable jury might have concluded that Cauble acted with intent to injure or defraud the banks. That is the limit of our inquiry. 139 Cauble had a fair trial. Trial counsel was able and diligent. The trial court's rulings were considered and impartial. After appraising the post-conviction attack on virtually every aspect of the complex proceeding, we are satisfied that the indictment properly charged offenses punishable under the laws of the United States, and that the evidence sufficed to persuade a reasonable jury. Its verdict is, in the ancient words, the verdict of the country. The judgment of conviction and forfeiture entered on that verdict is, accordingly, AFFIRMED.