THOMAS E. WOLF, PETITIONER V. UNITED STATES OF AMERICA No. 87-1018 In the Supreme Court of the United States October Term, 1987 On Petition for a Writ of Certiorari to the United States Court of Appeals for the Ninth Circuit Brief for the United States in Opposition TABLE OF CONTENTS Question presented Opinion below Jurisdiction Statement Argument Conclusion OPINION BELOW The opinion of the court of appeals (Pet. App. A1-A33) is reported at 820 F.2d 1499. JURISDICTION The judgment of the court of appeals was entered on July 6, 1987. A petition for rehearing was denied on October 27, 1987 (Pet. App. B1). The petition for a writ of certiorari was filed on December 9, 1987. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). QUESTION PRESENTED Whether petitioner's convictions for making false entries in bank records and causing the unauthorized issuance of a bank obligation must be reversed because the government introduced evidence of violations of civil banking laws. STATEMENT Following a jury trial in the United States District Court for the District of Oregon, petitioner was convicted on one count of conspiring to defraud the United States (18 U.S.C. 371), 17 counts of misapplying bank funds (18 U.S.C. 656), 21 counts of making false entries in bank records (18 U.S.C. 1005), and one count of issuing an unauthorized obligation of a bank (18 U.S.C. 1005). He was sentenced to concurrent terms of three years' imprisonment on each count. 1. The evidence at trial established that petitioner was a founder of the state-chartered and federally insured Columbia Pacific Bank in Portland, Oregon. /1/ Petitioner was also one of four founders and shareholders of First Northwest Mortgage Company, which made loans to real-estate developers. The Columbia Pacific Bank was the main source of capital for First Northwest; petitioner used his connections at the bank to obtain loans for the mortgage company. The criminal charges against petitioner were based on the following facts. a. By 1980, First Northwest had borrowed more than $400,000 from Columbia Pacific Bank, thereby reaching the maximum legal limit for unsecured loans to one customer under Oregon law. /2/ Because First Northwest still needed capital, petitioner arranged individual lines of credit at Columbia Pacific Bank for his three fellow shareholders of First Northwest -- Brookens, Hardy, and Griffith. Petitioner then had the bank's president approve unsecured loans to those shareholders, who immediately turned over the loan proceeds to First Northwest. Petitioner personally guaranteed the repayment of those loans. The loan documents listed only the shareholders as the borrowers and did not reveal that First Northwest was the beneficial user of the funds. Pet. App. A10-A11. b. In 1982, one of First Northwest's customers, the Village Joint Venture Partnership, could not meet its mortgage payments. Petitioner devised a scheme to reorganize the partnership into a corporation, Central Point Development Company. Petitioner, two of First Northwest's shareholders, and the original joint-venture partners advanced additional money in return for stock in the new corporation. The new company, however, also had financial problems and was unable to make its payments to First Northwest. Petitioner then suggested that Central Point Development Company borrow money from Columbia Pacific Bank. Because Central Point needed more money than Columbia Pacific could lend to one customer under state law, petitioner arranged for the creation of two new entities, Kingsland Manor Partnership and Rogue Valley Corporation. Petitioner then arranged loans from Columbia Pacific Bank to the three entities without revealing his financial interests in the loans. Kingsland Manor and Rogue Valley immediately turned over their loan proceeds to Central Point, which used the money along with its own loan proceeds to pay its debt to First Northwest. Pet. App. A12-A13. c. In the fall of 1980, petitioner negotiated three construction loans from First Northwest to an individual for the development of property in Springfield, Oregon. To fund those loans, petitioner applied for three interim construction loans at Canadian Imperial Bank, which required a commitment from a qualified lender to provide permanent financing once the construction was complete. Without informing or obtaining the approval of the board of directors, petitioner arranged to have Columbia Pacific's president issue to Canadian Imperial Bank a letter committing Columbia Pacific to provide First Northwest permanent loans totalling $1,232,000. Pet. App. A14. d. As a director and officer of Columbia Pacific Bank, petitioner was periodically required to complete forms revealing his major business interests and describing his interests in transactions with the bank. In 1982 and 1983, petitioner failed to disclose his ownership interest in First Northwest and his personal guarantees on the loans to his fellow shareholders when he completed the bank's Annual Directors Audit Confirmation form. During those same years, petitioner also twice failed to disclose his controlling interest in First Northwest when he responded to a bank questionnaire requesting disclosure of directors' business interests. /3/ And in March 1983, petitioner failed to disclose on the bank's Related Party Questionnaire his interests in the various loans made to First Northwest, Central Point Development Company, and its related entities. Pet. App. A11, A15. 2. The court of appeals affirmed petitioner's convictions on seven counts (Counts 1, 30, 37-41), but reversed his convictions on the remaining 33 counts (Counts 2-29, 31-35) and remanded those counts for retrial (Pet. App. A1-A33). The court first addressed petitioner's challenge to the sufficiency of the evidence on the counts relating to the nominee loans to Brookens, Hardy, and Griffith, and to Kingsland Manor, Rogue Valley, and Central Point (Counts 2-29, 31-35). The court held that the evidence was sufficient to support petitioner's convictions on both the misapplication and false statement counts that were based on these loans. There was "(o)verwhelming evidence," the court held, supporting the government's theory that petitioner arranged the nominee loans "in order to deceive bank officials and examiners as to the identity of the true borrower and to conceal his own interest in the loan" (Pet. App. A21). The court likewise found ample evidence that petitioner caused false entries to be made in the bank's records regarding the true identity of the borrowers and the actual purpose of the loans (id. at A23-A24). The court of appeals then rejected petitioner's contention that the government impermissibly suggested to the jury that petitioner was guilty of misapplying bank funds and making false entries if he violated Oregon's lending-limit statute. The court of appeals observed that it "was clear throughout the trial that (petitioner) was not being tried for violating the lending limits," and that "(t)he government charged and proved that (petitioner) concealed the identity of the true borrower of the bank's funds, and in doing so committed both misapplication and false entry" (Pet. App. A28). The court of appeals also held that the district court properly instructed the jury that the evidence relating to the state lending limits was simply background information bearing on petitioner's motive and intent (id. at A28-A29). The court of appeals, however, agreed with petitioner's contention that convictions on the counts relating to the nominee loans were improperly tainted by expert testimony that Federal Reserve Board Regulation O (12 C.F.R. 215) imposed a duty on petitioner to inform the bank directors about his interests in the loans (Pet. App. A29-A32). The court stated that that evidence and the prosecutor's argument suggested to the jury that petitioner was guilty of the ciminal offense of misapplying bank funds and making false entries if he failed to comply with Regulation O, a civil regulation. The court held that there was "a serious risk that the jury (found petitioner) guilty of criminal misapplication and false entry because he failed to comply with Regulation O" (id. at A32). The court therefore reversed petitioner's convictions on Counts 2-29 and 31-35. The court of appeals affirmed petitioner's remaining seven convictions because, it concluded, "(t)he taint from the improper use of Regulation O does not extend to the conspiracy count or the counts concerning the director's audits and the commitment letter on the Canadian Imperial loan" (Pet. App. A32). The court observed that "Regulation O had nothing to do with the audits or letter, and there is no reason to believe the jury considered it in deliberating these counts" (ibid. (footnote omitted)). ARGUMENT The court of appeals correctly found no error in the government's reference to Oregon's lending-limit law. Petitioner's argument to the contrary is premised entirely on the Fifth Circuit's decision in United States v. Christo, 614 F.2d 486 (1980). In Christo, the defendant bank president was charged with misapplication of bank funds. The government's theory of criminal liability, as evidenced in the jury instructions, was that the defendant misapplied bank funds because he received loans in excess of $5,000 from his bank, in violation of a civil banking statute (id. at 489). The court reversed the defendant's convictions because the government's argument and the court's instructions did not focus the jury's attention on the elements of willful misapplication of bank funds. Rather, the argument and instructions essentially informed the jury that they could find the defendant guilty of willful misapplication of funds if he violated the civil statute prohibiting large loans to bank officers (id. at 486). Christo does not stand for the astonishing proposition that a defendant may not be convicted under the criminal banking laws if his conduct also violated a civil law. The court noted in Christo that "as long as the essential elements of (the crime) are pled and proven regarding the defendant's acts, it simply does not matter that the same acts might violate the regulatory prohibitions" of civil law (614 F.2d at 492). The narrow holding of the court in Christo was that the elements of the federal banking crime must be alleged and proved; violation of a civil law may not automatically replace an essential element of the crime. In this case, the court of appeals correctly noted that "violation of lending limits was not directly or indirectly an element of any of the charges" (Pet. App. A28). The lending limit law simply provided admissible background evidence relating to petitioner's motive and intent. See United States v. Stefan, 784 F.2d 1093 (11th Cir. 1986), cert. denied, No. 86-363 (Oct. 6, 1986) (government properly introduced evidence of federal lending limits to show defendant's motive in arranging sham loans). The court of appeals was also correct in finding that the references at trial to Regulation O played no significant role in the seven convictions that the court affirmed -- i.e., those that were based on the audits and the Canadian Imperial Bank commitment letter (Pet. App. A14). The government relied on Regulation O to show that the regulation imposed a duty on petitioner to disclose his personal interests in the nominee loans. As the court of appeals noted (id. at A31 n.1), the government did not need to rely on Regulation O because petitioner violated the criminal banking laws by concealing the identity of the true borrowers. The court of appeals nevertheless reversed petitioner's convictions relating to the nominee loans on the ground that the jury might have found petitioner guilty on those charges simply because petitioner failed to comply with Regulation O. In affirming petitioner's remaining seven convictions, the court of appeals rightly held that the convictions did not depend on petitioner's breach of a duty imposed by Regulation O. The court affirmed petitioner's conviction for causing Columbia Pacific Bank's president to issue an unauthorized commitment letter to Canadian Imperial Bank. /4/ The evidence at trial established that petitioner caused the letter to be issued and that petitioner knew the commitment letter was unauthorized (Pet. App. A14). Thus the government proved the essential elements of that crime quite apart from any violation of Regulation O. Similarly, petitioner's five convictions for providing false information on audit forms did not depend on petitioner's breach of a duty imposed by Regulation O. As the court of appeals observed, the "forms themselves described in detail under what circumstances disclosure (of petitioner's interests) was required" (Pet. App. A32 n.2). /5/ Petitioner provided false answers to the questions on those bank forms when he failed to reveal his controlling interest in First Northwest and his interests in the various nominee loans. Accordingly, the government proved that petitioner's false answers violated the false-entries statute (18 U.S.C. 1005), and not merely Regulation O. /6/ CONCLUSION The petition for a writ of certiorari should be denied. Respectfully submitted. CHARLES FRIED Solicitor General WILLIAM F. WELD Assistant Attorney General JOSEPH C. WYDERKO Attorney FEBRUARY 1988 /1/ The Columbia Pacific Bank failed in 1983 (Pet. App. A14). /2/ Oregon law limited the amount that Columbia Pacific Bank could lend to a single borrower to $421,825 on unsecured loans and $703,125 on loans secured by real estate. In determining whether a borrower meets those limits, the law specifies that "(o)bligations negotiated in another name for the benefit of any person shall be included in the obligations of the person benefited." Or. Rev. Stat. Section 708.305 (1987). Columbia Pacific's board of directors authorized the bank president to make loans up to $400,000 without prior board approval, but bank policy required him to report his loans to the board within a month. /3/ In July 1980, petitioner arranged a sham sale of most of his shares in First Northwest to his law partner to hide his interest in First Northwest. Petitioner, however, continued to exercise the same degree of control over First Northwest after the transaction as before it. Pet. App. A21-A22. /4/ With regard to that transaction, the government referred to Oregon's lending-limit law to show petitioner's motive for not seeking authorization for the loan commitment from the bank's board of directors. /5/ Petitioner notes (Pet. 10 n.2) that these forms were distributed by Columbia Pacific Bank to comply with Regulation O. That observation is legally irrelevant. Petitioner answered the questions falsely; there is no rule of law that makes those answers immune under the false-entries statute simply because the bank sought to gather information for bank examiners. /6/ Petitioner does not separately challenge the court of appeals' ruling (Pet. App. A32) that his conspiracy conviction was not improperly based on the references to Regulation O.