Opinion ID: 202748
Heading Depth: 2
Heading Rank: 3

Heading: Misapplication of Bank Funds

Text: 70 The jury found all four appellants guilty of misapplication of bank funds under 18 U.S.C. § 657 for a single transaction related to the Cerrovista project. The crime of misapplication eludes easy definition. 20 As we have previously noted, [t]he problem that has confronted and perplexed the courts is that there is no statutory definition or common law heritage that gives content to the phrase `willfully misapplies.' United States v. Wester, 90 F.3d 592, 595 (1st Cir.1996). However, we have held that misapplication has two key elements: (1) wrongful use of bank funds; and (2) intent to injure or defraud a bank. Blasini-Lluberas, 169 F.3d at 63. We have also explained that the same facts can easily be the basis for deeming the conduct to be wrongful and the intent fraudulent; both misapplication and scienter are required. Wester, 90 F.3d at 595. Finally, the misapplication statute applies only to officers, agents, and employees of a bank. Thus, appellants who do not hold one of these positions—here Gutiérrez and Umpierre-Hernández—may not be convicted as principals for misapplication, but may be convicted as aiders and abettors. See Giragosian v. United States, 349 F.2d 166, 167 (1st Cir.1965)(Since [defendant] was not an officer, director, agent or employee of the bank, he could not be guilty as a principal . . . for misapplication of the bank's funds, but only as an aider and abettor.). 21 71 A reasonable jury could have concluded that appellants' handling of the Cerrovista loan constituted misapplication. The original loan offering, which was prepared according to Sánchez-Arán's instructions, designated $1,412,177 for land costs and $855,323 for partial assumption of other loans. 22 This document did not disclose the purpose for which the funds were actually used. Of the $1,412,177 designated for land, only $480,000 was used to purchase land for the project. The remaining $932,177 was disbursed to the Gutiérrez-owned Quintas de Humacao company and immediately applied to other Gutiérrez projects: principal and interest on the Quintas de Fajardo loan, interest on the Las Gaviotas loan, and interest on a Modules commercial loan. 72 The documents associated with the Cerrovista loan demonstrate appellants' intent to defraud Caguas by redirecting these funds. Although the settlement statement 23 for the Cerrovista loan, dated September 29, 1986, lists a disbursement of $932,177 for repayment of other loan and lists the payee as Quintas de Humacao Inc. & Caguas Federal Savings, these disclosures appear in a markedly different type, as does the total loan amount. Kareh testified that this different type indicates that the entry was made later or at another place, allowing an inference that the document was amended to make it appear that the Board had approved the use of loan proceeds to make payments on other loans. This inference is bolstered by the fact that the loan settlement statement was not prepared until after the Board had approved a loan. Kareh also testified that, although the $855,323 amount designated for partial assumption of other loans was listed on the loan offering and disbursed on the date of closing, the $855,323 amount was omitted from the settlement statement at Sánchez-Arán's instruction. 24 This omission concealed the fact that two separate disbursements, in the amounts of $932,177 and $855,323, were used to pay down other loans. 73 Each appellant was sufficiently involved in concealing the use of funds to allow an inference of intent to defraud. Sánchez-Arán drafted the original loan offering, which did not disclose that the $932,177 difference between the amount allocated for land purchase and the amount spent on land would be used to pay principal and interest on other loans. Moreover, according to Kareh, Sánchez-Arán explicitly instructed him to omit the $855,323 amount from the loan settlement document. A jury could infer that Muñoz-Franco helped to conceal this wrongful use of funds, thereby intentionally defrauding Caguas, based on his supervisory role on the Gutiérrez loans and his regular responsibility of conveying information to the Board. Gutiérrez and Umpierre-Hernández were also involved in the wrongful use of funds: they endorsed the checks, accepted the funds, and immediately applied these funds to pay down their other loans with the bank. Although appellants assert that the loan settlement documents demonstrate that the transaction was disclosed to the Board, the record indicates that the loan settlement statement was prepared after the loan had already been approved. 74 Appellants attempt to counter the charge by segregating the activities relating to the Cerrovista loan into two separate transactions: the disbursement of the $932,177 land purchase differential to Quintas de Humacao, and the use of those funds to pay down other Gutiérrez loans. They argue that, at the time the funds were disbursed to the Gutiérrez-owned Quintas de Humacao, they ceased to be bank funds under 18 U.S.C. § 657 and thus cannot support a misapplication violation. 75 We do not find this technicality pertinent. The disbursement of funds from the Cerrovista loan to Gutiérrez-owned companies, and the subsequent use of these loans to pay down other Gutiérrez loans, was a single unified transaction. The district court explained: 76 The funds did not cease to be controlled by the express purpose for which they were disbursed. The fact the $932,177 check was endorsed does not change the express purpose for which said funds were to be used. The second transfer, the Gutiérrez's endorsement back to Caguas Central for the repayment of four separate loans, is still the use of bank funds and subject to misapplication. 77 By expressly designating these funds for repayment of other loan[s], Muñoz-Franco and Sánchez-Arán retained control over the funds even if the funds nominally changed hands. Moreover, Muñoz-Franco and Sánchez-Arán supervised the entire transaction, as demonstrated by four entries in Caguas' ledgers showing the transfer of funds to the Gutiérrez accounts. 78 Critically, appellants also ignore the separate concealment of the $855,323, which, although it was listed on the original loan application, was left off of the loan settlement statement of September 29, 1986 at Sánchez-Arán's explicit instruction. Although the disbursement of the $855,323 was disclosed to the Board, the fact that this disbursement was left off the loan settlement statement indicates the bank officials' efforts to conceal the fact that two separate disbursements, in the amounts of $855,323 and $932,177, were used to pay down other loans. In short, there was more than sufficient evidence for a reasonable jury to conclude that appellants engaged in wrongful use of bank funds with the intent to defraud the bank. 79