I recently had a criminal case in federal court where the Assistant US Attorney was arguing that the bouncing of checks by the defendant constituted federal bank fraud.
The Law:
18 U.S.C. § 1344 states that a person commits bank fraud when she knowingly executes, or attempts to execute, a scheme or artifice:
1. To defraud a financial institution; or
2. To obtain any of the moneys, funds, credits, assets, securities or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises.
Federal Case Law:
To obtain a conviction for bank fraud, the government must prove the following elements:
1. Defendant knowingly executed or attempted to execute a scheme or artifice to defraud a financial institution,
2. Defendant had the intent to defraud a financial institution, and
3. The bank involved was federally insured.
In U.S. v. Orr, the Court of Appeals for the Fourth Circuit held that the federal bank fraud statute is not intended to create a federal “bad check” law. A routine bad check case does not fall under § 1344, but under the relevant state law. Mr. Orr, the defendant, opened a checking account under a false name and negotiated bad checks to merchants in exchange for merchandise. The bank subsequently dishonored the checks for insufficient funds. The court emphasized the fact that the bank was not defrauded when Mr. Orr wrote the bad checks because the bank did not suffer a loss, but that the losers were the payees. Additionally, the prosecution failed to show that Mr. Orr opened the bank account under a false name with the intent to defraud the bank.
However, courts have construed the rule in Orr narrowly. Orr establishes only that a “routine bad check” case is not within the scope of § 1344 when the defendant passes a check to a merchant from an account where the defendant is an authorized signatory and the bank dishonors the check for lack of sufficient funds. Orr has been distinguished in cases where the defendant artificially inflated his account balance through check kiting, and where the defendant negotiated stolen checks to merchants in exchange for merchandise. In U.S. v. Brandon, the defendant, Ms. Brandon, stole checks from legitimate account holders and negotiated the checks with forged endorsements. The court found that, in this instance, the bank was exposed to a risk of loss, which was sufficient to meet the elements of bank fraud.
The end result is the prosecution lost the argument. For more information on federal criminal matters and bank fraud, please contact us for a complimentary consultation.