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CRM 500-999

809. Elements

The essential elements of misapplication are: (1) the accused must be a covered person, i.e., an officer, director, agent, employee of or connected in any capacity with (2) a particular Federally connected institution, and (3) the accused must willfully misapply monies, funds or credits of or entrusted to such institution (4) with the intent to injure or defraud the institution. United States v. Brock, 833 F.2d 519, 522 (5th Cir. 1987).

The original misapplication statute expressly required proof of "intent to injure or defraud." This language was omitted from the 1948 revision of 18 U.S.C. § 656 because it was thought to be redundant. See United States v. Logsdon, 132 F. Supp. 3 (W.D. Ky. 1955), aff'd., 253 F.2d 12 (6th Cir. 1958). Since then, proof of intent to injure or defraud has been judicially required.

An intent to injure connotes risk of loss, see United States v. Hopkins, 916 F.2d 207, 215 (5th Cir. 1990)(institution funds were used to make illegal campaign contributions), but an intent to defraud can be an intent to merely deceive for the purpose of causing loss to another or gain to oneself or another. See United States v. Chenaur, 552 F.2d 294, 299 (9th Cir. 1977) (18 U.S.C. § 1006 case).

The intent element distinguishes misapplication from maladministration and should be pleaded in the indictment. See United States v. Britton, 107 U.S. 655, 669 (1882)(the honest exercise of official discretion in good faith for the supposed advantage of the institution is not punishable, but if action is taken in bad faith, for personal advantage and with fraudulent intent, it is punishable). See also United States v. Fusaro, 708 F.2d 17 (1st Cir.), cert. denied, 464 U.S. 1007 (1983)(evidence established bank president and attorney acted with sufficient knowledge and intent).

While a knowing participation in a deceptive or fraudulent transaction must be shown, knowledge may be inferred from the defendant's reckless disregard of the interests of the financial institution. United States v. Adamson, 700 F.2d 953, 965 (5th Cir.)(en banc), cert. denied, 474 U.S. 833 (1983). Jury instructions should not equate recklessness with intent to defraud, however. Id.; contra United States v. Crabtree, 979 F.2d 1261, 1269 (7th Cir. 1992)(reckless disregard is sufficient to establish intent to defraud), cert. denied, 114 S.Ct. 216 (1993). For additional discussion of intent, see FIF Manual at 152-55.

[cited in JM 9-40.000]