Court Opinion

ID: 69765
Source: CourtListenerOpinion
Date Created: 2010-04-26 06:50:37+00
Date Added: 2024-06-11T09:39:58.170042
License: Public Domain

REVISED DECEMBER 22, 2009
        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT   United States Court of Appeals
                                                                    Fifth Circuit

                                                                  FILED
                                                                December 1, 2009
                                 No. 08-41277
                                                             Charles R. Fulbruge III
                                                                     Clerk

UNITED STATES OF AMERICA

                                           Plaintiff-Appellee
v.

JAMES W SANDLIN

                                           Defendant-Appellant

                Appeal from the United States District Court
                      for the Eastern District of Texas
                           USDC No. 4:07-CR-242

Before BARKSDALE, SOUTHWICK, and HAYNES, Circuit Judges.
Leslie H. Southwick, Circuit Judge:
      James Sandlin was convicted by a jury for making false statements on two
loan applications in violation of 18 U.S.C. § 1014. Sandlin argues on appeal that
the evidence was insufficient to sustain his convictions, that his sentence was
procedurally and substantively improper, and that his conviction should be
overturned on the basis of outrageous government conduct. We find no error in
the conviction, and no basis to conclude that outrageous conduct occurred. We
therefore AFFIRM the conviction. However, we find an absence of evidence that
the omissions on his applications caused the loans to be made. We therefore
VACATE and REMAND for resentencing.
                                  No. 08-41277

                  I. FACTS AND PROCEDURAL HISTORY
      James Sandlin was a real estate developer from Arizona who moved to
Sherman, Texas. In Sherman, Sandlin met Jim and Mary Louise Ricketts, from
whom he borrowed $996,000 (“the Ricketts Loan”). The loan was made in
September of 2005. There is some suggestion that Sandlin agreed to pay an
unusually high rate of interest, but he has met his repayment obligations. The
loan was secured by property Sandlin owned in Cochise County, Arizona.
Though not directly involved in the case before us, criminal investigators in
Arizona who were focusing on a United States Congressman became interested
in the loan. Sandlin’s prosecution arose out of the Arizona investigation.
      After the Ricketts Loan was obtained, Sandlin decided to develop a parcel
of land in Mohave County, Arizona. In order to secure a performance bond on
the project, Sandlin applied in April 2006 for a $950,000 letter of credit from the
Independent Bank of Sherman. Among the assets used as collateral for the
letter of credit was a certificate of deposit which was partially funded by the
Ricketts Loan proceeds. The letter of credit was to be paid only upon Sandlin’s
failure to perform, and no call on that letter was ever made.
      In the process of obtaining the letter of credit, Sandlin completed and
signed a personal financial statement for Independent Bank. All financial
liabilities and promissory notes were to be listed, but Sandlin did not reveal the
Ricketts Loan in the required documents. Sandlin listed the Cochise County
property as an asset, but did not state that it was encumbered.
      Sandlin received two other extensions of credit based on the same
incomplete financial information. In May 2006, Sandlin sought a separate
$700,000 line of credit. Independent Bank agreed. It took a first lien on the
Mohave property and cross-applied the certificates of deposit pledged to secure
the original letter of credit.   In November 2006, Sandlin also renewed a

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                                    No. 08-41277

previously issued $1,000,000 letter of credit, referencing his earlier and faulty
financial documents. Sandlin provided no further security on the renewal.
      In late December 2006, Sandlin submitted a second personal financial
statement, which again omitted the Ricketts Loan. Independent Bank extended
two further lines of credit based on the second application form. First, Sandlin
received $800,000 for the purchase of new property. Second, he renewed the
$700,000 line of credit issued in May 2006. On both financial statements,
Sandlin checked “yes” to the question, “Do any of your assets secure any debts
which have not been reported in the previous schedules?” However, Sandlin did
not reveal on either document the character or amounts of those debts.
      Sandlin was indicted on two counts of violating 18 U.S.C. § 1014 – one
count for each financial statement omitting the Ricketts Loan. During the trial,
both of the Ricketts and representatives from Independent Bank testified on
Sandlin’s behalf. The bank asserted that all of Sandlin’s loans were fully
collateralized, and that the bank had not lost any money in its transactions with
Sandlin. Testimony from bank representatives revealed that the false loan
documents were not required and were probably never reviewed. Nevertheless,
Sandlin was convicted by a jury on both charges.
      The Probation Office prepared a Pre-sentence Investigation Report (“PSR”)
recommending a guideline term of imprisonment between fifty-one and sixty-
three months. The two counts were calculated together for the purpose of
sentencing. See U.S.S.G. § 3D1.2(d). Sandlin’s offense level was calculated by
starting with a baseline offense level of seven under Section 2B1.1 and applying
a single enhancement up to level twenty-four based on the conclusion that
Sandlin had “derived more than $1,000,000 in gross receipts from one or more
financial institutions as a result of the offense.” U.S.S.G. § 2B1.1(b)(14)(A).1

      1
        The PSR, which was prepared in July of 2008, properly designated the applicable
sentencing guideline as U.S.S.G. § 2B1.1(b)(13). The Guideline was amended effective

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                                       No. 08-41277

Sandlin objected to the “gross receipts” enhancement, noting that in its absence,
his base offense level would have been seven, resulting in a term of zero to six
months’ imprisonment. The district court overruled Sandlin’s objection, and
instead applied a downward departure reducing his offense level to twenty on
the rationale that the bank had not suffered any financial loss as a result of his
false statements.2
                                     II. DISCUSSION
       We first review the questions raised about conviction. Sandlin claims that
the proof was inadequate as to his state of mind and his specific intent in
making the false statements to the bank.
A. Sufficiency of the Evidence for Conviction
       When the issue has been properly preserved, as it was here, we review a
claim that the evidence was insufficient by determining whether any rational
trier of fact could have found the evidence to establish the elements of the
offense beyond a reasonable doubt. United States v. Villarreal, 324 F.3d 319,
322 (5th Cir. 2003) (citing Jackson v. Virginia, 443 U.S. 307, 319 (1979)).
       The elements of guilt under Section 1014 are these: (1) the defendant
knowingly and willfully made a false statement to the bank, (2) the defendant
knew that the statement was false when he made it, (3) the defendant made the
false statement for the purpose of influencing the bank to extend credit, and (4)
the bank to which the false statement was made was federally insured. See 18
U.S.C. § 1014; see also United States v. Devoll, 39 F.3d 575, 578 (5th Cir. 1994).

November 1, 2008. The subsections of the statute were renumbered without changing the
relevant language. See U.S.S.G. § 2B1.1(b)(13)(2007), amended by Amendment 719 (Supp. to
Appx. C 2008). The language to which we refer in this opinion is presently designated as
U.S.S.G. § 2B1.1(b)(14) (2008).
       2
        The district court applied U.S.S.G. § 5K2.0(a)(1)(A) & (B) authorizing downward
departures where the court finds a “mitigating circumstance . . . of a kind, or to a degree, not
adequately taken into consideration” in the Guidelines.

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                                  No. 08-41277

Sandlin alleges that the Government failed to establish the second and third
elements beyond a reasonable doubt.
      First, Sandlin challenges the Government’s proof concerning whether the
false statements were “knowing and willful.” We agree that the burden is not
met with a showing that he “forgot” to list the Ricketts Loan.
      At trial, the Government emphasized that Sandlin made regular monthly
payments on the Ricketts Loan, even during the period when he filed the
defective financial statements. The Government also highlighted the size of the
loan – nearly one million dollars – a fact that could have led the jury to conclude
that the Ricketts Loan was simply too large of an expense to forget. There was
no suggestion from Sandlin’s counsel other than that the loan may have been
forgotten to explain its omission.
      While the evidence lends itself to different interpretations, the jury has
wide discretion to choose among them. See United States v. Clark, 577 F.3d 273,
284 (5th Cir. 2009). To support a jury verdict, the evidence need not “exclude
every reasonable hypothesis of innocence or be wholly inconsistent with every
conclusion except that of guilt . . . ” Id. (citations and quotations omitted).
      Sandlin further contends that the Government’s evidence of intent weighs
equally in favor of innocence and guilt, thus requiring his conviction to be
overturned. There are statements in some of our opinions that where the
evidence gives nearly equal circumstantial support to a theory of guilt or
innocence, the defendant is entitled to reversal. E.g., United States v. Mackay,
33 F.3d 489, 493 (5th Cir. 1994). However, there is no such equality here. Most
of the circumstantial evidence presented at trial supports the jury’s inference of
guilt. Sandlin speculated that the Ricketts Loan might have been forgotten, but
there was little to support his theory. Sandlin merely suggested that a person
with significant wealth might forget a single loan among his many liabilities.
The Government, on the other hand, demonstrated Sandlin’s business savvy and

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                                   No. 08-41277

his desire to obtain the extensions of credit in question, as well as the size of the
Ricketts Loan and Sandlin’s continued monthly payments. In fact, the evidence
showed that Sandlin paid nearly $100,000 in interest alone on the Ricketts Loan
during the 2006 calendar year. He also omitted the loan – which was costing
him thousands of dollars in principal and interest – twice in the space of ten
months. Upon reviewing the evidence, “the sole inquiry is not whether the jury’s
verdict was ultimately correct, but whether the jury made a reasonable decision
based upon the evidence introduced at trial.” United States v. Pando Franco,
503 F.3d 389, 394 (5th Cir. 2007) (citation omitted). As is its prerogative, the
jury in this case found that Sandlin’s actions evinced a knowing and willful state
of mind. We will not disturb that finding.
       Second, Sandlin contends that the Government did not present adequate
evidence that he intended to induce the bank to make the loan through his
failure to list the loan. This issue focused on Sandlin’s subjective state of mind.
A false statement need not be material nor relied upon by the bank to violate
Section 1014. See United States v. Wells, 519 U.S. 482, 489-91 (1997). Sandlin
principally complains that the Government’s evidence was circumstantial,
proving nothing more than the Ricketts Loan was omitted from the statement.
Noting the bankers’ testimony that Sandlin likely would have received credit
even if he had listed the Ricketts Loan, he alleges that the Government did not
carry its burden to prove subjective intent.
      There are numerous flaws in Sandlin’s argument. We have held that if a
person makes a false statement that has the capacity to influence the bank,
“then the specific intent necessary to violate [Section] 1014 may be inferred and
the offense is complete.” United States v. Johnson, 585 F.2d 119, 124 (5th Cir.
1978). Absent a confession, intent will almost always have to be established by
circumstantial evidence.

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                                  No. 08-41277

      At trial, the Government offered significant evidence of Sandlin’s intent
to induce the bank to make the loan. Each of the forms he signed contained
language noting that the statements were “submitted for the purpose of
obtaining credit from” the bank. While this boilerplate language would not be
alone sufficient to prove intent, it is certainly evidence of it. Additionally, the
jury could infer that because Sandlin checked “yes” in the box asking whether
he had further liabilities not listed on the forms, that he did remember the
Ricketts Loan and deliberately chose not to include it.
      Moreover, because the relevant inquiry concerns Sandlin’s intent, not the
bank’s, it does not matter that the bank might have made the loans even without
considering what was on the application. Id. at 124. The Government was
required to present such circumstantial evidence as jurors would be entitled to
accept, that Sandlin believed he was influencing the bank to make the loan.
Fact-finders at trial are permitted to “use their common sense and evaluate the
facts in light of their common knowledge of the natural tendencies and
inclinations as human beings.” See United States v. Ayala, 887 F.2d 62, 67 (5th
Cir. 1989) (citations and quotations omitted).
      The jury reasonably could believe that Sandlin’s actions demonstrated his
intent to influence the bank through his incomplete applications. We find that
the evidence was sufficient to sustain the needed inferences.
B. Validity of the Sentence
      Sandlin asserts four distinct sentencing errors: (1) the district court did
not properly consider the Section 3553(a) factors, (2) the sentence was
substantively unreasonable, (3) the “gross receipts” sentencing enhancement was
improperly applied, and (4) the Government failed to prove that the money was
obtained as a direct result of his false statements to the bank.
      We vacate Sandlin’s sentence due to the fourth claim of error. That
decision makes it unnecessary to consider some of the other arguments. The

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                                  No. 08-41277

procedures and substance of the past sentence are now moot. We only identify
the issues to demonstrate their mootness.
      1. Proper sentencing procedures under 18 U.S.C. § 3553(a)
      Sandlin alleges that the district court failed to consider adequately the
statutory sentencing factors. See 18 U.S.C. § 3553(a). A district court’s failure
to consider these factors is procedural error. Gall v. United States, 128 S. Ct.
586, 597 (2007).
      Section 3553(a) requires the sentencing judge to “state in open court the
reasons for its imposition of the particular sentence.” See Rita v. United States,
551 U.S. 338, 356 (2007) (citing former 18 U.S.C. § 3553(c)). Whether the
district court complied with this obligation in the sentence that we are vacating
is irrelevant.
      2. Substantive reasonableness of the sentence
      Sandlin further contends that his sentence was substantively
unreasonable. Specifically, he argues that thirty-six months’ imprisonment is
unduly harsh and longer than necessary to accomplish the Section 3553(a) goals.
Because there is no sentence now in effect, we abstain from dicta about the
reasonableness of the former one.
      3. “Gross receipts” enhancement
      The district court used an enhancement that applies when a “defendant
derived more than $1,000,000 in gross receipts from one or more financial
institutions as a result of the offense.” U.S.S.G. § 2B1.1(b)(14)(A). Fact findings
underlying that decision are reviewed here for clear error and its interpretation
of the Guidelines reconsidered de novo. Smith, 440 F.3d at 706.
      The crux of Sandlin’s argument is that the $1,000,000 in gross receipts
ought to be offset by his collateral. In other words, Sandlin notes that he did not
actually “receive” more than $1,000,000 from the false loan documents. First,
he contends that most of his credit was never drawn upon. Second, even where

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                                   No. 08-41277

the accounts were used, Sandlin’s collateral at all times exceeded the face value
of the loans. In essence, Sandlin alleges that he was borrowing his own money
through the bank. Thus, he contends that the bank was never in danger of
losing any money, much less $1,000,000.
      Although the parties continue to dispute on appeal whether the bank was
in fact fully secured, the district court found that the amount disbursed by the
bank was not less than $2,000,000.
      For our purposes, the risk of loss to the bank is irrelevant. See United
States v. Gharbi, 510 F.3d 550, 554-57 (5th Cir. 2007). In Gharbi, the defendant
unlawfully obtained real estate mortgages in excess of $1,000,000. Id. at 552.
Relying on the plain text of the Guidelines, we held that the appropriate
measure of “gross receipts” was the full face value of the loans. Id. at 555-56.
Specifically, because the defendant used the full amounts for his own purposes,
we did not consider whether he was entitled to “credit” for the security provided
to the bank by the mortgaged property. Id. The defendant was not permitted
to use the existence of collateral as a discount for his sentence. See id. We
therefore concluded that “gross receipts consist of the entire amount of th[e]
loan, less nothing.” Id. at 555.
      Sandlin suggests a distinction because there is no evidence that Gharbi
was a “no-loss” case. However, requiring the district court to make artificial
calculations concerning the value of collateral to be deducted from the amounts
disbursed contradicts the plain language of the statute. Sandlin may not now
substitute the words “net receipts” for “gross receipts” in the Guidelines. Id. We
have held that “gross receipts” refers to the amount loaned, not the amount at
risk, and our prior holding to that effect controls.
      4. Gross receipts obtained “as a result” of the offense
      Sandlin asserts a second reason why use of the “gross receipts”
enhancement was improper. This reason has merit. He contends that he did not

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                                  No. 08-41277

derive more than $1,000,000 “as a result of the offense.”              U.S.S.G. §
2B1.1(b)(13)(A). In adopting the PSR recommending a sentence under this
provision, the district court implicitly found that the money Sandlin obtained
was as a result of the offense. See United States v. Rodriguez-Rodriguez, 388
F.3d 466, 468 n.8 (5th Cir. 2004). A district court is entitled to accept the facts
contained in a PSR when they constitute an adequate evidentiary basis and
there is no rebuttal evidence from the defendant. United States v. Stalnaker,
571 F.3d 428, 441 (5th Cir. 2009). Sandlin failed to present evidence on this
issue and did not assert it as a defense until this appeal. Accordingly, we review
for plain error. See United States v. Peltier, 505 F.3d 389, 392 (5th Cir. 2007).
      We have not previously interpreted the “as a result of” language from
Section 2B1.1(b)(14)(A). Its simple language requires that the money be derived
as a result of the violation of the statute. In contrast with our analysis under
Sandlin’s sufficiency of the evidence claim, this inquiry focuses on the actions of
the bank. Specifically, we consider whether the bank extended credit because
of Sandlin’s false statements.
      The record is largely devoid of evidence relevant to this issue. The lack of
evidence may stem from a pre-trial order granting a motion in limine in favor of
the Government. That order excluded all evidence relating to whether Sandlin’s
false statements were material to the bank’s decision, or whether the bank
actually relied upon them in making the loans.
      Every indication is that the bank was not interested in checking behind
Sandlin’s application. Witnesses from the bank asserted that Sandlin’s loans
would have been permitted even if the Ricketts Loan had been listed. It is true
that the bank’s regional president also testified that it would “concern him” if it
became apparent that the collateral for a loan included the proceeds of illegal
activity. There is nothing to support, though, that Sandlin’s identifying the
Ricketts Loan would have made it apparent that illegal activity occurred.

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                                  No. 08-41277

      Our issue is whether the facts underlying the PSR on this point had such
an inadequate evidentiary basis as to sink to the level of plain error. During oral
argument, the Government suggested that the identification on the loan
applications of this potentially illegal loan might have created suspicions that
could have led to refusing the loan, not because of a lack of collateral but because
of concerns created about Sandlin from the suspicious prior transaction. We find
nothing beyond speculation to support this theory. To the contrary, the evidence
was that Sandlin had been and remained a valued customer at Independent
Bank. Had the motion in limine not been granted, there might have been more
evidence on this. But the fact remains that the potentially toxic nature of the
Ricketts Loan, whose fumes might even have caused a bank as customer-friendly
as this one to feel faint, is pure speculation on this record.
      The onus is on Sandlin on plain error review to demonstrate the lack of an
adequate evidentiary basis. United States v. Fernandez, 559 F.3d 303, 318 (5th
Cir. 2009) (finding that defendant bears the burden of persuasion on plain error
review). We have examined the evidence available, looking for any to indicate
a cause and effect relation between the omission of the information and the
bank’s decision to authorize the loan. There is none.
      As we have noted, plain error review requires satisfaction of three
elements. First, there must be error and it must be plain. Peltier, 505 F.3d at
392. It is plain that an “adequate evidentiary basis” requires at least some
evidence supporting the conclusions reached in the PSR. None exists on this
record. The little evidence that does exist suggests that the funds were not
obtained “as a result of” Sandlin’s offense. There was error, and it is plain.
      Additionally, plain error must also affect a substantial right. Id. Sandlin’s
sentence was enhanced seventeen levels and increased from a potential zero to
six month term to thirty-six months’ imprisonment.            An increase of this
magnitude impacts Sandlin’s substantial rights. See United States v. Gracia-

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                                  No. 08-41277

Cantu, 302 F.3d 308, 313 (5th Cir. 2002) (finding that a sixteen level
enhancement affected defendant’s substantial rights). Our final, overarching
concern on plain error is whether the error “seriously affects the fairness,
integrity or public reputation of judicial proceedings.” Peltier, 505 F.3d at 392.
We conclude that the dramatic increase in sentence satisfies the fourth prong by
affecting the fairness of this proceeding. We therefore exercise our discretion to
correct the unobjected-to error. Gracia-Cantu, 302 F.3d at 313.
      We therefore reverse and remand for resentencing. At a new sentencing
hearing, the Government may offer evidence not presented previously to justify
the sentence, and Sandlin may offer rebuttal. United States v. Kinder, 980 F.2d
961, 963 (5th Cir. 1992). We have held that when a defendant succeeds in
having a sentence vacated, on remand “all new matter relevant to the issue
appealed, reversed, and remanded, may be taken into consideration by the
resentencing court.” United States v. Marmolejo, 139 F.3d 528, 530 (5th Cir.
1998). A district court should gather “the relevant facts and evidence on the
specific and particular issues heard by the appeals court and remanded for
resentencing.” Id.
C. Outrageous Government Conduct
      For the first time on appeal, Sandlin suggests that the Government
engaged in conduct so outrageous that it deprived him of due process under the
Fifth Amendment. He alleges that the Government’s behavior requires reversal
of his conviction and dismissal of the indictment. Typically, we review de novo
whether outrageous conduct requires dismissal of an indictment. United States
v. Mauskar, 557 F.3d 219, 231 (5th Cir.), cert. den., 129 S. Ct. 2756 (2009). Here,
though, Sandlin raises this issue for the first time on appeal. Our sister circuits
have applied plain error review for claims of outrageous government conduct not
preserved in the district court. See United States v. Duncan, 896 F.2d 271, 274-

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                                    No. 08-41277

75 (7th Cir. 1990) (citing United States v. Nunez-Rios, 622 F.2d 1093, 1098 (2d
Cir. 1980)).
      We have applied plain error review for constitutional violations not raised
at trial. See, e.g., United States v. Vargas, 580 F.3d 274, 278 (5th Cir. 2009);
United States v. Knowles, 29 F.3d 947, 951 (5th Cir. 1994). Accordingly, we
review Sandlin’s allegations that implicate his due process rights under the Fifth
Amendment for plain error.
      In support of his outrageous conduct claim, Sandlin cites to several
statements made by the prosecutor at sentencing. When asked by the judge why
Sandlin would omit the Ricketts Loan when he clearly had adequate assets to
fully collateralize his various lines of credit, the prosecutor acknowledged that
Sandlin may have had other motives for concealing the Ricketts Loan beyond
inducing the bank to extend credit. Specifically, the prosecutor suggested that
Sandlin concealed the Ricketts Loan because those funds may have been used
in illegal dealings with an Arizona congressman. The Justice Department’s
Public Integrity Unit prosecuted this case after discovering Sandlin’s actions
during its investigation in Arizona.
      Ultimately, Sandlin alleges that in this “no-loss” case, the Justice
Department was attempting to leverage its advantage in the cases pending in
Arizona against Sandlin and the congressman. If the prosecution tried the case
knowing that Sandlin’s intent was to conceal illegal activity, and not to influence
the bank to make the loan, he contends, the Government engaged in conduct
sufficient to offend due process.
      The standard for proving outrageous governmental conduct is extremely
demanding. “Government misconduct does not mandate dismissal of an
indictment unless it is so outrageous that it violates the principle of fundamental
fairness under the due process clause of the Fifth Amendment.” Mauskar, 557
F.3d at 231-32 (citations and quotations admitted). Such conduct will only be

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                                   No. 08-41277

found in the “rarest” of circumstances. Id. Given the plain error review used
here, this standard becomes even more difficult to meet. We have declined to
find outrageous conduct where the Government failed to disclose that the
defendant’s signature on a particular document was forged, id. at 232-33;
engaged in entrapment, Stokes v. Gann, 498 F.3d 483, 485 (5th Cir. 2007); or
abducted the defendant from his home country to circumvent extradition
proceedings, United States v. Chapa-Garza, 62 F.3d 118, 121 (5th Cir. 1995).
      Sandlin’s claim that the prosecution knew he did not have the requisite
intent to influence the bank pales against the threshold for outrageous conduct.
Even if true, this conduct does not so “shock[] the universal sense of justice” that
it could constitute outrageous government conduct under plain error review.
Mauskar, 557 F.3d at 232. Moreover, we do not accept that Section 1014
requires the Government to prove that Sandlin’s only intent in omitting the
Ricketts Loan was to influence the bank. Even if Sandlin was attempting to
conceal illegal activities in Arizona, it does not follow that his omission could not
also have been intended to prevent the bank from discovering that his collateral
was tainted with unlawfully obtained funds, which might have prevented an
extension of credit. There was no government conduct offensive to due process.
      We AFFIRM Sandlin’s conviction and VACATE and REMAND for
resentencing consistent with our opinion.

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