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You Can Only Be Convicted Of Defrauding A Financial Institution If The Thing You Defraud Is A Financial Institution

Hurricane Georges was bad for Puerto Rico. It destroyed the way of life for a number of Puerto Rican farms. The federal government offered low-interest loans to farmers who were hurt by the hurricane.

The federal government loaned this money through the Farm Services Agency. The Farm Services Agency – as the name suggests – is an agency that provides services to farms. And farmers.

1070316_orange_twister.jpgThe Farm Services Agency hired folks on the ground in Puerto Rico to process loan applications. One such person was Juan Colon-Rodriguez – his friends, including the First Circuit, just call him Mr. Colon.

Mr. Colon was trained as an agronomist. He earned about $45,000 in commissions helping farmers put together loan applications to the Farm Services Agency.

Beware the loan officer who works on commission.

During an audit, the Farm Services Agency found problems with some of Mr. Colon’s loan applications. An investigation followed. Mr. Colon was indicted in the United States District Court for the District of Puerto Rico with defrauding a financial institution in violation of 18 U.S.C. § 1344, and making a number of false statements in violation of 18 U.S.C. § 1014.

He was convicted at trial.

On appeal, Mr. Colon challenged his conviction for defrauding a financial institution and the First Circuit, in United States v. Colon, agreed that he shouldn’t have been convicted of that charge.

According to the First Circuit, the elements of defrauding a financial institution are:

(1) the defendant must engage in a scheme or artifice to defraud, or must make false statements or misrepresentations to obtain money from (2) a financial institution and (3) must do so knowingly.

The trouble is, not everything that involves financing is a financial institution. Indeed, here,

the government . . . conceded [that] it offered no evidence that the FSA qualified as a “financial institution” at the time of the offense conduct in this case

Mr. Colon’s conviction for defrauding a financial institution, therefore, was vacated.

Interestingly, after Hurricane Georges (and not relevant to it),

Congress amended the definition of “financial institution” in 18 U.S.C. § 20 to include a “mortgage lending business.” See Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, § 2(a)(3); see also United States v. Bennett, 621 F.3d 1131, 1138 (9th Cir. 2010). A mortgage lending business is “an organization which finances or refinances any debt secured by an interest in real estate, including private mortgage companies and any subsidiaries of such organizations, and whose activities affect interstate or foreign commerce.” 18 U.S.C. § 27. This case does not require us to decide whether the FSA is included within the expanded definition of “financial institution.”

Mr. Colon won on one count of conviction. Sadly, however, it appears there was substantial evidence that supported Mr. Colon’s other convictions.

As to the other counts,

To establish a violation of § 1014, the government must prove that (1) the defendant made a false statement; (2) the defendant acted knowingly; and (3) the false statement was made for the purpose of influencing action on the loan.

The government, according to the court of appeals, met these elements in the section 1014 counts.

For example, Mr. Colon helped a poultry farmer who claimed damage to his four poultry barns. Sadly, at the time of Hurricane Georges, the farmer only owned two barns.

He did later purchase two more, though that was with the money obtained from the loan by the Farm Services Agency.

Mr. Colon’s case was not remanded, because the one conviction that was vacated didn’t affect his sentence.

On reflection, of course, this is surely wrong. At least the case should have been remanded to refund Mr. Colon his $100 special assessment.

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