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United States v. Lee

United States District Court, E.D. Kentucky, Southern Division, Pikeville

January 22, 2018

UNITED STATES OF AMERICA, Plaintiff,
v.
BRENT M. LEE, PAUL D. FANNIN, and CHELSEA STONE Defendants.

          OPINION AND ORDER

          KAREN K. CALDWELL, UNITED STATES DISTRICT COURT CHIEF JUDGE

         This matter is before the Court on several motions to dismiss charges (DE 38, 39, 40) in the indictment filed by the defendants.

         I. Background

         Defendant Brent M. Lee was a loan officer at Bank Branch and Trust Company (BB&T). According to the indictment, BB&T prohibited Lee from making any further loans to defendant Paul D. Fannin. Thus, Lee and Fannin devised a scheme by which Fannin's daughter, defendant Chelsea Stone, would apply for a $100, 000 loan in her name and give the proceeds to Fannin for his own use. Later, the government alleges, the defendants modified the loan so that Stone would receive an additional almost $150, 000 in bank funds that she ultimately gave to Fannin for his personal use. With regard to each of these transactions, the government alleges that Stone pledged security for the loans that she and Lee knew she did not own.

         All of the defendants are charged with conspiring to commit bank fraud. Defendants Lee and Fannin are also charged with two counts of committing bank fraud. Lee is charged with two counts of misapplying bank funds while employed by the bank and four counts of issuing the loan with intent to defraud BB&T. Fannin is charged with one count of money laundering related to the proceeds of the loan. Stone is charged with three counts of making a false statement on a loan application.

         II. Motions to dismiss

         A. Fannin's motion to dismiss on the basis that he relied on Lee's advice and authorization of the allegedly fraudulent transactions (DE 36)

         Fannin has filed a motion to dismiss in which he appears to argue the conspiracy and bank fraud charges against him should be dismissed because he did not have the requisite intent. Fannin has more recently filed a motion for rearraignment in which he states he wishes to plead guilty to the charges. Nevertheless, his motion to dismiss must be resolved because defendant Stone, who is also charged with conspiracy to commit bank fraud, has moved to join the motion (DE 37) and the Court will permit her to join it.

         With regard to the conspiracy charge, Fannin argues that he relied on Lee's advice that Fannin should ask his daughter to apply for the loan with the understanding that the funds would actually be used by Fannin to finish an ongoing construction project. In an affidavit, Fannin states that he did not intend to deceive anyone. Instead, he followed Lee's advice, believing that Lee had superior knowledge about banking.

         With this argument, Fannin appears to be challenging whether there is sufficient evidence to support the charge in the indictment that he acted with intent to defraud. Whether a defendant acted with the requisite intent to commit bank fraud, however, is a factual matter that a jury must decide. United States v. Reaume, 338 F.3d 577, 583 (6th Cir. 2003).

         The court will instruct the jury that the indictment is not evidence and that the prosecution must prove every element of each offense beyond a reasonable doubt. If the prosecution is unable to do so, the defendant is entitled to an acquittal. “However, the prosecution's evidence is tested at trial, not in a preliminary proceeding.” United States v. Short, 671 F.2d 178, 183 (6th Cir.1982).

         “When a body of citizens, properly chosen and constituted as a grand jury, finds probable cause to believe that a crime has been committed within its jurisdiction, that finding is sufficient to require a trial.” Id. “[A] defendant may not challenge an indictment on the ground that it is not supported by sufficient evidence.” United States v. Levin, 973 F.2d 463, 468, n.2 (6th Cir. 1992).

         Fannin also appears to argue that he cannot “as a matter of law” be deemed to have committed fraud against the bank because it was a bank official - Lee - who authorized the transactions at issue. Indeed, Fannin argues, Lee not only approved of the transactions but “instigated and . . . assumed complete control and managed” them. (DE 36-1, Mem. at 3.)

         To the extent that Fannin argues a bank cannot be defrauded as a matter of law where an employee approves of the fraudulent transaction at issue, that is incorrect. The “bank as an entity” is the victim of the fraud. United States v. Abboud, 438 F.3d 554, 593 (6th Cir. 2006), Thus, Lee's approval of the allegedly fraudulent transactions does not relieve Fannin or Stone of criminal liability for them. Id. (citing United States v. Rackley, 986 F.2d 1357, 1361 (10th Cir.1993) (“Defendant confuses the notion of defrauding a federally insured bank with the idea of defrauding its owner or directors. It is the financial institution itself-not its directors or agents-that is the victim of the fraud the statute proscribes.”) See also United States v. Selgjekaj, 678 Fed.Appx. 379, 383 (6th Cir.), cert. denied, 138 S.Ct. 168 (2017) (“The fact that Raguz regularly assisted others in defrauding his employer, the Credit Union, does not mean that Defendant did not also defraud the Credit Union with Raguz's help. It is the Credit Union, not its agent, Raguz, who is the victim of bank fraud.”)

         For all these reasons, Fannin's motion to dismiss (DE 36) on the basis that he relied on Lee's advice and authorization of ...


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