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806

Nominee Loans

A third-party or "nominee" loan is a loan in the name of one party that is intended for use by another. A misapplication occurs when a financial institution insider uses his position to secure a nominee loan, either for himself or for another person, and the insider conceals his own interest in the loan from the financial institution. United States v. Krepps, 605 F.2d 101 (3d Cir. 1979). The Krepps court found such loans to be inherently fraudulent without regard to the financial status of the borrower. A contrary result, however, was reached in United States v. Gens, 493 F.2d 216 (1st Cir. 1974). Because the nominee borrower in Gens was financially capable, the United States Court of Appeals for the First Circuit found that the element of intent to injure or defraud the bank was lacking. To date, eight United States Courts of Appeals have followed Krepps, while only two have followed Gens. For further discussion and case citations to those opinions, see FIF Manual at 143-48.

PRACTICE TIP: In those United States Courts of Appeals in which the Gens decision precludes charging misapplication against bank insiders who benefit from nominee loans, consider charging other statutes such as 18 U.S.C. § 215, which prohibits bank bribery and unlawful gratuities, and 18 U.S.C. § 1006, which prohibits unlawful participation in a loan. If the purpose of the loan is falsified on the loan application, a false statements charge may lie under 18 U.S.C. § 1014. Finally, if bank regulators are misled by what appears on the bank's books and records, a charge of conspiracy to defraud the United States may be viable. See United States v. Saks, 964 F.2d 1514, 1523 (5th Cir. 1992).

[cited in USAM 9-40.000]