Whoever 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;

shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

18 U.S.C. §1344[1]

[OK, here we go again, our final discussion (for this year) of a Supreme Court decision. This one is unusual, says Larry, because: (i) it’s short, (ii) all the judges agree, and (iii) it’s hot off the presses. It was decided just this month. Normally Larry is 6 months to a year behind the news. Anyway, Larry wants to talk about it and Management wants to put out another blog this year, so here it is.]

Unanimity

Really, Phil, you don’t need to trivialize this. It’s a brand new decision, as you say, and fits neatly into our meme on white collar crime. The case is Shaw v. United States[2], and involves the law, quoted above, which makes it a crime “knowingly [to] execut[e] a scheme . . . to defraud a financial institution.”[3] Shaw was convicted of doing that, appealed, and argued that the law did “not apply to him because he intended to cheat only a bank depositor, not a bank.”[4]

But before we get to the substance, I want to chart the decision, just to depict who’s on what side. It’s a boring chart, because they all agree. I’ll use the same format as last time, for comparison purposes.

OPINION Alito, Roberts, Thomas, Kennedy    Ginsburg, Breyer, Kagan, Sotomayor NA
Part I agree agree NA
Part II agree agree NA
Part III agree agree NA

As you can see, there was one opinion only; that of the Court; there were no concurring opinions, dissents, or disagreements of any kind. I realize you [Phil] already said that, but it bears repeating. And while the chart is not really necessary this time around – if everyone is in total agreement, I don’t really need a visual aide to map that – I’m toying with the idea of charting all decisions we talk about from now on, so why not start with this one, when it’s easy?

Just the Facts, Please[5]

Shaw hacked somebody [or many somebodies], and eventually got the passwords, identifying numbers, etc. to a Bank of America account belonging to one Stanley Hsu. Shaw used those numbers [and other related information] “to transfer funds from Hsu’s account to other accounts at other institutions from which Shaw could obtain (and eventually did obtain) Hsu’s funds.”[6]  For that he was convicted of “defraud[ing] a financial institution,”[7] and the conviction was upheld on appeal.

Five Defenses

Shaw went to the Supreme Court on the theory that he didn’t defraud a financial institution; he simply defrauded Hsu, a bank customer. The money he took belonged to Hsu, not Bank of America; so he couldn’t have violated a statute that was there solely to protect banks. His defenses were a bit more elaborate than that, so let’s look at each of them

  1. Shaw argued that the statute makes it a crime “knowingly [to] execut[e] a scheme . . to defraud a financial institution.” The bank had no property interest in Hsu’s funds. They belonged solely to Hsu. So nothing that belonged to the bank was stolen. So the bank was not defrauded of anything.

But the Court said that wasn’t true as a matter of law. The bank did have a property interest in Hsu’s accounts, even though Mr. Hsu could have withdrawn them at any time. “When a customer deposits funds, the bank ordinarily becomes the owner of the funds and consequently has the right to use the funds as a source of loans that help the bank earn profits (though the customer retains the right, for example, to withdraw funds).”[8] Banks have other property interests in accounts as well, for instance, those of a bailee.[9]

  1. Fine, said Shaw, but he didn’t intend to harm the bank. His efforts were aimed only at Hsu. So he – Shaw – lacked the criminal intent necessary to defraud Bank of America.

The Court didn’t agree with that, either. The statute prohibits engaging in a “scheme to defraud“ a bank, there’s no requirement that the scheme be successful. The statute, said the Court, “while insisting upon ‘a scheme to defraud,’ demands neither a showing of ultimate financial loss nor a showing of intent to cause financial loss”[10] to the bank. Just plotting to mess with the bank made Shaw liable.

  1. OK, said Shaw, but whatever the true state of property law, he didn’t know that the bank had a property interest in Hsu’s account; hence he couldn’t have “intended to cheat the bank of its property.”

The Court didn’t buy that, either. “Shaw did know, however, that the bank possessed Hsu’s account. He did make false statements to the bank.  He did correctly believe that those false statements would lead the bank to release from that account funds that ultimately and wrongfully ended up in Shaw’s pocket.”[11] That’s all that’s required to establish intent under the law.

  1. Shaw argued the Government had to prove more than he would likely harm the bank by attacking Hsu’s account. The Government must prove that was his purpose, not just a possible side-effect.

The Court said “no” to that as well. Shaw was adding a new requirement to the statute, and he wasn’t a legislator. The statute requires the Government to demonstrate a “knowin[g] execut[ion of] a scheme … to defraud,” [12] nothing more. The Government does not have to demonstrate that Shaw understood the details and side effects of the scheme. There’s no indication Congress intended to add that requirement to the law.[13]

  1. Reading the whole statute, Shaw argued, it’s obvious the Government prosecuted him for violating the wrong subsection. Subsection (1) makes it a crime to scheme to defraud a financial institution; subsection (2) makes it criminal to obtain money under the “custody and control” of a bank by using “false or fraudulent” pretenses. Shaw was convicted of violating subsection (1). He should have been prosecuted under subsection (2). The prosecutors just didn’t know how to read their statute.

That’s an interesting argument, but the Supreme Court didn’t agree. While there’s overlap between the two subsections, it said, that’s “not uncommon in criminal statutes”.[14] Prosecution under subsection (1) was proper.

Conclusion

So is Shaw important? Well, in the great scheme of things, probably not, unless you make your living hacking banks. If you’re one of those, now you know 5 statutory defenses that probably won’t work if you’re caught.

Shaw also reminds us that not every case the Supreme Court hears is partisan, or political. In law some arguments are clearly wrong, or right to a good judge, regardless of his or her ideology. That’s when you get agreement across the divide. Will our politicians learn the same lesson any time soon? Wait and see, I guess.

Happy New Year!

[1] The title of this section is Bank Fraud. It’s in Ch. 63 of Title 18, dealing with Mail Fraud and Other Fraud Offenses. You can get the official [2015] version of Ch. 63 from the “Government Publishing [formerly, ‘Printing’] Office,” at https://www.gpo.gov/fdsys/pkg/USCODE-2015-title18/pdf/USCODE-2015-title18-partI-chap63.pdf

[2] 580 U.S.  ___ (2016). The official printed, bound version of an opinion is the best evidence of its contents. “Only the printed bound volumes of the United States Reports contain the final, official opinions of the Supreme Court of the United States. In case of discrepancies between a bound volume and the materials included here–or any other version of the same materials, whether print or electronic, official or unofficial–the printed bound volume controls.” So says the Supreme Court, at https://www.supremecourt.gov/opinions/boundvolumes.aspx . Unfortunately the bound version doesn’t exist yet, so today you and I must rely on the “slip opinion,” the Court released when it announced its decision. That’s available at https://www.supremecourt.gov/opinions/16pdf/15-5991_8m59.pdf . We’ll cite it as Shaw, slip op. at Breyer, p.  __.

[3] Shaw, slip op. at Breyer, p. 1.

[4] Shaw, slip op. at Breyer, p. 1.

[5] For those of our readers who aren’t living antiques, that’s a reference to Dragnet, a radio show from the 1950’s.

[6] Shaw, slip op. at Breyer, p. 2.

[7] Id.

[8] Id.

[9] I won’t get into the law of bailments, you don’t hear much about it these days; but I do remember my first year of law school, when the Dean went into it at great length in his introductory course. When you park your car in a lot, think “bailment. You’ve just “bailed” your car to the lot owner.

[10] Shaw, slip op. at Breyer, p. 3. “Many years ago Judge Learned Hand pointed out that ‘[a] man is none the less cheated out of his property, when he is induced to part with it by fraud,’ even if ‘he gets a quid pro quo of equal value.”

[11] Shaw, slip op. at Breyer, p. 4.

[12] Shaw, slip op. at Breyer, p. 5.

[13] See Shaw, slip op. at Breyer, p. 5. This is my interpretation of what the Court actually said. The original is: “To hold that something more than knowledge [i.e., knowledge of the scheme] is required would assume that Congress intended to distinguish, in respect to states of mind, between (1) the fraudulent scheme, and (2) its fraudulent elements.  Why would Congress want to do that?”

[14] Shaw, slip op. at Breyer, p. 7.

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