United States of America v. Dan Heine United States of America v. Diana Yates

San Francisco, CA - Criminal defense lawyer represented defendants with conspiracy to commit bank fraud and 12 counts of making a false bank entry charges.

The panel vacated convictions and remanded for further

proceedings in a case in which a jury found Dan Heine and

Diana Yates, who were executives at the Bank of Oswego,

guilty of one count of conspiracy to commit bank fraud

(18 U.S.C. § 1349) and 12 counts of making a false bank

entry (18 U.S.C. § 1005).

The government told the jury that Heine and Yates

conspired to deprive the bank of three property interests:

(1) accurate financial information in the bank's books and

records, (2) the defendants' salaries and bonuses, and (3) the

use of bank funds. Explaining that there is no cognizable

property interest in the ethereal right to accurate information,

the panel held that the accurate-information theory—which

was the cornerstone of the government's case and which the

government conceded on appeal is invalid—is legally

insufficient. Emphasizing the distinction between a scheme

whose object is to obtain a new or higher salary and a scheme

whose object is to deceive an employer while continuing to

* This summary constitutes no part of the opinion of the court. It

has been prepared by court staff for the convenience of the reader.

UNITED STATES V. YATES 3

draw an existing salary, the panel held that the salarymaintenance theory was also legally insufficient. The panel

held that even assuming the bank-funds theory was

presented to the jury and was valid, the government's

reliance on the accurate-information and salary-maintenance

theories was not harmless in this case in which the jury

returned a general verdict. The panel therefore vacated both

defendants' convictions on the conspiracy count.

The panel held that because the conspiracy count is

invalid, the defendants' convictions on the false-entry counts

must be vacated as well, given that the district court

instructed the jury that it could find the defendants guilty of

making false entries as co-conspirators. The panel wrote that

it would be inappropriate to consider harmless error sua

sponte in this case, and that there is no basis for remanding

to give the government an opportunity for a do-over after it

made the strategic choice not to address all of the

defendants' arguments in its appellate brief.

Heine and Yates argued that insufficient evidence

supports their false-entry convictions on counts 7–9, 13, and

15, which charged that Heine and Yates omitted certain

loans from the past-due loan balance on the Bank's quarterly

FDIC call reports after arranging for third parties to make

delinquent payments. The panel considered the sufficiency

of the evidence on those counts because a finding of

insufficient evidence would bar retrial. The panel reviewed

the convictions on counts 7–9 de novo, Yates's convictions

on counts 13 and 15 de novo, and Heine's convictions on

counts 13 and 15 for plain error.

The panel concluded that insufficient evidence supports

the convictions on counts 7–9 because the underlying loan

4 UNITED STATES V. YATES

payments made by another bank customer were not

themselves fictitious, so the entry at issue was not false.

The panel similarly concluded that insufficient evidence

supports a finding of falsity on count 15, where a bank

employee made the required payment using his own money.

The panel held that the error was plain and affected Heine's

substantial rights.

The panel held that the convictions on Count 13, which

involved a loan to Chris Dudley, a former NBA player and

Oregon gubernatorial candidate, are supported by sufficient

evidence. To prevent his loan from being delinquent, Yates

directed that a payment be made from Dudley's political

campaign account without Dudley's knowledge and without

his permission. The panel wrote that the payment was not

what it was represented to be—an irrevocable commitment

by the payor to depart with funds and allow the bank to keep

the money in payment of an outstanding loan. Given that the

transaction was performed on the final business day of the

quarter, and Dudley's testimony that a right of setoff did not

apply to the campaign account, the jury could have found

that the transaction was concocted for the very purpose of

distorting a financial statement, unauthorized, and subject to

being reversed.

Dissenting, Judge Bress would have affirmed the

convictions in full. He wrote that the majority contradicts

governing precedents and improperly vacates convictions

that were premised on a valid legal theory, backed by

overwhelming proof of wrongdoing. He wrote that with no

challenge to any jury instructions and no serious challenge

to the admission of any evidence, this court exceeded its role

by setting aside defendants' lawful conspiracy convictions.

As to the false bank entry convictions, he wrote that in

UNITED STATES V. YATES 5

holding that no rational jury could convict defendants of

making false bank entries where the defendants were using

bank money to cure "past due” loans, thereby masking the

risk associated with the bank's loan practices, the majority

departs from precedent while unduly limiting Congress's

prohibition on false bank entries.

COUNSEL

Elizabeth G. Daily (argued), Assistant Federal Public

Defender; Stephen R. Sady, Chief Deputy Federal Public

Defender; Portland, Oregon; Kendra M. Matthews, Boise

Matthews Ewing LLP, Portland, Oregon; for DefendantAppellant.

David M. Lieberman (argued), Attorney; Brian C. Rabbitt,

Acting Assistant Attorney General; Criminal Division,

Appellate Section, United States Department of Justice,

Washington, D.C.; Clarie M. Fay, Michelle H. Kerin, and

Quinn P. Harrington, Assistant United States Attorneys;

Amy E. Potter, Criminal Appellate Chief; Billy J. Williams,

United States Attorney; United States Attorney's Office,

Portland, Oregon; for Plaintiff-Appellee.

6 UNITED STATES V. YATES

OPINION

MILLER, Circuit Judge:

Dan Heine and Diana Yates were executives at the Bank

of Oswego in Lake Oswego, Oregon. After a 29-day trial, a

jury found Heine and Yates guilty of one count of conspiracy

to commit bank fraud and 12 counts of making a false bank

entry. But as the district court explained at sentencing, unlike

"your typical white-collar fraud case . . . neither defendant

directly tried to line their pockets as a result of their fraud.”

Indeed, the novelty of some of the government's legal

theories led the district court to predict that the case could

result in "a really interesting appellate or Supreme Court

decision.”

We leave that judgment to the reader. On the issues we

do need to decide, we agree with the defendants that two of

the government's three theories of bank fraud were legally

inadequate and that presenting those theories was not

harmless. We therefore set aside the conspiracy conviction.

Without a conspiracy, the false-entry counts cannot stand

because the jury may have based its verdict on those counts

on a theory of co-conspirator liability. We separately

conclude that the evidence was insufficient to support the

jury's guilty verdict on false-entry counts 7–9 and 15. We

therefore vacate all of the convictions and remand for further

proceedings.

I

Heine founded the Bank of Oswego in 2004. Over the

next decade, he served as the bank's president and chief

executive officer and as a member of the board of directors.

Yates also joined the bank at its founding, serving as its

executive vice president and chief financial officer until her

UNITED STATES V. YATES 7

resignation in 2012. Over the years, Yates also served as the

bank's chief operating officer and chief credit officer. Unlike

Heine, Yates was not a member of the board. Both Heine and

Yates served on the bank's internal loan committee, which

met weekly to discuss the bank's outstanding loans and to

decide whether to approve new loans. Particularly large

loans required the approval of the board of directors.

As a new bank, the Bank of Oswego was closely

scrutinized by the Federal Deposit Insurance Corporation.

The FDIC requires banks to submit quarterly "call reports,”

public documents that include a bank's balance sheet, its

income statement, and detailed information about its assets

and liabilities. While the bank's controller was responsible

for preparing the call reports, Yates had to approve the

reports before they were submitted to the FDIC.

In January 2009, the bank hired a vice president of

lending, Geoff Walsh. Walsh was a highly productive

employee. In a 2011 performance review, Heine described

him as a "rock star,” adding that his "personality, contacts

and intelligence” enabled the bank "to attract and serve

many professionals of high net worth and influence in the

Portland-metro area.” At the same time, Heine noted

"growing concern” with Walsh's "apparent breach of

internal controls” and his failure to "follow[] sound lending

policy, procedures and practices.” Heine's concern would

prove to be well-founded—Walsh's conduct set in motion

the chain of events that would eventually lead to the

defendants' convictions.

The bank's troubles began at the end of 2009 when the

FDIC reported disappointing results after an on-site

examination. Concluding that the bank's overall financial

condition was "less than satisfactory,” the FDIC identified

"emerging weaknesses” in the bank's asset quality and loan

8 UNITED STATES V. YATES

portfolio. The agency also criticized the bank's management

structure, expressing particular concern over its

concentration of responsibilities in Yates. The FDIC warned

that "[a] single individual's ability to perform effectively in

all of these roles is questionable” and that "[s]uch a

concentration of responsibilities in one person . . . represents

a weakness in the bank's internal control structure.” In 2010,

the bank entered into a memorandum of understanding with

the FDIC to address the agency's concerns. But when the

FDIC returned to examine the bank early in 2011, it again

found the bank's condition "less than satisfactory,”

downgrading its management score and concluding that

"CFO Diana Yates' split attention is contributing to risks.”

In January 2012, an independent auditor discovered that

Walsh had received personal loans from one of his clients,

Martin Kehoe. Kehoe was a "hard money lender” who made

non-bank loans to individuals at high interest rates. The

auditor immediately forwarded her findings to Heine and

Yates. Yates contacted Kehoe, who denied that Walsh had

ever borrowed money from him. Heine was unconvinced. In

his opinion, this was "a major issue” that had to be reported

to the board. Yates responded that Heine was overreacting.

Kehoe followed up with an email directly to Heine stating

that Walsh had not received any loans through Kehoe's

business and had never been paid a fee for any customer

referrals.

Meanwhile, the FDIC continued to criticize the bank's

performance. When the agency completed its 2012

examination, it informed Heine and Yates that it planned to

downgrade the bank's management score yet again.

According to Chris Shepanek, the chairman of the board of

directors, Yates became "extremely upset about the whole

situation,” was overwhelmed by the bank's problems, and

UNITED STATES V. YATES 9

felt that Heine failed to support her in meetings with the

FDIC. She resigned shortly thereafter.

After Yates's departure, Heine began reviewing Walsh's

emails, forwarding items that concerned him to the board.

Eventually, Heine concluded that Walsh was involved in a

hard-money lending scheme funded by a $1.7 million loan

the bank had issued to Kehoe. Heine fired Walsh four days

later.

In July 2013, Walsh was arrested and charged with

offenses unrelated to his work at the bank; he eventually

pleaded guilty to wire fraud and conspiracy to commit wire

fraud. But he also pleaded guilty to one count of conspiracy

to make a false bank entry in the course of his work at the

bank. Walsh cooperated with the government and provided

extensive testimony at Heine and Yates's trial.

In 2017, a grand jury returned a superseding indictment

charging Heine and Yates with one count of conspiracy to

commit bank fraud, in violation of 18 U.S.C. § 1349, and

18 counts of making a false bank entry, in violation of

18 U.S.C. § 1005. The indictment alleged that Heine and

Yates conspired "to conceal the true financial condition of

the Bank and to create a better financial picture of the Bank

[for] the Board of Directors, shareholders (current and

prospective), regulators and the public” by "report[ing] false

and misleading information about the performance of loans,

conceal[ing] information about the status of foreclosed

properties, ma[king] unauthorized transfers of Bank

proceeds, and fail[ing] to disclose material facts about loans

to Bank insiders to the Board of Directors, shareholders and

regulators.” The false-entry counts charged Heine and Yates

with "conceal[ing] and omitt[ing] from Call Reports and

Board of Directors' Reports material information about

loans.”

10 UNITED STATES V. YATES

At trial, the government argued that the defendants—

facing pressure from the FDIC and economic uncertainty

due to the 2008 financial crisis—had conspired to defraud

the bank. The government argued that Heine and Yates

carried out the conspiracy through three schemes:

(1) recruiting a bank employee named Daniel Williams to

make an undisclosed straw purchase of a property located on

A Avenue using bank funds; (2) arranging for third parties

to make payments on delinquent customer loans to bring

them current and then omitting those loans as delinquent on

the bank's call reports; and (3) incorrectly accounting for

two properties after selling them to a customer named

Ronald Coleman and approving a loan to reconcile the error

without disclosing that purpose to the internal loan

committee.

The jury found the defendants guilty of the conspiracy

count and 12 of the 18 false-entry counts. The district court

sentenced Heine to 24 months of imprisonment and Yates to

18 months of imprisonment.

II

Count 1 of the indictment charged the defendants with

violating 18 U.S.C. § 1349, which makes it a crime to

"conspire[] to commit any offense under this chapter”—

here, bank fraud. Bank fraud entails "knowingly execut[ing]

. . . a scheme or artifice . . . to defraud a financial

institution.” Id. § 1344. A scheme to defraud "must be one

to deceive the bank and deprive it of something of value,”

that is, money or property. Shaw v. United States, 137 S. Ct.

462, 469 (2016); see id. at 466; see also Kelly v. United

States, 140 S. Ct. 1565, 1571–72 (2020); Neder v. United

States, 527 U.S. 1, 20–21 (1999) (construing "scheme or

artifice to defraud” identically for the mail, wire, and bank

fraud statutes). And that property deprivation "must play

UNITED STATES V. YATES 11

more than some bit part in a scheme”—the loss to the victim

"must be an 'object of the fraud,'” not a mere

"implementation cost[]” or "incidental byproduct of the

scheme.” Kelly, 140 S. Ct. at 1573–74 (quoting

Pasquantino v. United States, 544 U.S. 349, 355 (2005)).

The government told the jury that Heine and Yates

conspired to deprive the bank of three property interests:

(1) "accurate financial information in the bank's books and

records,” (2) "the defendants' salaries [and] bonuses,” and

(3) "the use of bank funds.” Heine and Yates assert that the

government also presented a fourth theory: that they sought

to increase the value of their stock in the bank. They

correctly point out that an increase in the value of stock that

they owned could not be the object of bank fraud because it

would not deprive the bank of any property interest. The

government does not attempt to defend the stock-value

theory but denies having presented one. Although the

government said in closing argument that Heine and Yates

"desired that their stock go up,” that passing comment was

offered merely as an explanation of the motive for some of

the defendants' conduct, not as an independent theory of the

object of the scheme. We therefore confine our analysis to

the three theories that the government argued to the jury.

Reviewing de novo the district court's denial of Heine's

and Yates's motions for judgment of acquittal, United

States v. Carey, 929 F.3d 1092, 1096 (9th Cir. 2019), we

hold that the government's accurate-information and salarymaintenance theories are legally insufficient, see United

States v. Barona, 56 F.3d 1087, 1097–98 (9th Cir. 1995), and

that presenting those theories to the jury was not harmless,

see Skilling v. United States, 561 U.S. 358, 414 & n.46

(2010). We therefore vacate both defendants' convictions on

count 1.

12 UNITED STATES V. YATES

A

The accurate-information theory was the cornerstone of

the government's case. The indictment alleged that "[o]ne of

the purposes of the conspiracy”—and it specified only one—

"was to conceal the true financial condition of the Bank and

to create a better financial picture of the Bank” for the board

and regulators. In pretrial proceedings, the government

reiterated that "the primary purpose of the conspiracy . . .

was to conceal the information.”

That theory was also the first one the government

advanced in closing argument. In discussing the "something

of value” requirement, the government told the jury that the

defendants "sought to deprive” the bank and the board of

directors of "accurate financial information in the bank's

books and records.” Without that information, the

government argued, the board could not properly "analyze

the risks posed by the various borrowers who are late.” To

drive home the point, the government displayed a

PowerPoint slide entitled "Something of Value,” which

asserted that the defendants "sought to deprive [the] Bank

and [the board of directors] of accurate financial information

. . . to make the Bank's books and records look better.” The

slide underscored that the information was valuable because

the board "relies on the accuracy of financial records to

perform its duties.”

After the government's closing argument, Heine

requested a curative instruction to the effect that "something

of value cannot be the accuracy of the information that was

the subject of the representation.” The government opposed

the instruction, saying, "We have always been clear that

[accurate information] is something that we think is

something of value.” The district court declined to give the

requested instruction or otherwise to instruct the jury on the

UNITED STATES V. YATES 13

meaning of "something of value.” In posttrial proceedings,

the government continued to defend its position that

"depriving the bank of information” is "something of value.”

The accurate-information theory is legally insufficient.

There is no cognizable property interest in "the ethereal right

to accurate information.” United States v. Sadler, 750 F.3d

585, 591 (6th Cir. 2014). Although a property right in trade

secrets or confidential business information can constitute

"something of value,” Carpenter v. United States, 484 U.S.

19, 26 (1987), "the right to make an informed business

decision” and the "intangible right to make an informed

lending decision” cannot, United States v. Lewis, 67 F.3d

225, 233 (9th Cir. 1995).

Recognizing accurate information as property would

transform all deception into fraud. By definition, deception

entails depriving the victim of accurate information about

the subject of the deception. But "[i]ntent to deceive and

intent to defraud are not synonymous.” United States v.

Yermian, 468 U.S. 63, 73 n.12 (1984) (quoting United

States v. Godwin, 566 F.2d 975, 976 (5th Cir. 1978) (per

curiam)). Rather, "the scheme must be one to deceive the

bank and deprive it of something of value.” Shaw, 137 S. Ct.

at 469.

The government conceded at oral argument that it was

no longer "defend[ing] that accurate information standing

alone is a cognizable interest.” Despite its repeated and

direct statements before the district court that accurate

information in itself constitutes "something of value,” the

government now argues that what it really meant was that

the defendants' deception deprived the bank of its property

rights in restructuring delinquent loans and pursuing debt

collection. That was not the theory argued below, and we

cannot uphold the verdict on appeal "on a different theory

14 UNITED STATES V. YATES

than was ever presented to the jury.” McCormick v. United

States, 500 U.S. 257, 270 n.8 (1991).

For that reason, the government's reliance on United

States v. Ely, 142 F.3d 1113 (9th Cir. 1997), is misplaced.

There, we held that the right to collect a debt can constitute

a cognizable property interest. See id. at 1119; see also

Pasquantino, 544 U.S. at 356. But here, the government

argued that Heine and Yates deprived the bank of its right to

accurate information, not its right to collect borrowers'

debts. The deprivation of that intangible right cannot support

the convictions.

B

The government also argued that Heine and Yates sought

to deprive the bank of their salaries and bonuses. Although

the indictment did not reference the theory, the government

raised it early in pretrial proceedings, arguing "that the

continuation of the benefits of employment . . . was a

purpose of the conspiracy.”

The government led with the theory in its opening

statement at trial, inviting the jury to ask, "Why would Dan

Heine and Diana Yates misrepresent the condition of the

bank?” The government's answer: to receive their salaries

and other financial compensation. The government

reiterated the theory at closing argument, emphasizing that

Heine and Yates "sought to ensure” their salaries and other

financial compensation in light of their personal financial

difficulties.

When Heine requested a curative instruction on the

accurate-information theory after the government's closing

argument, the government told the court that the defendants

"desired for the financial condition of the bank to look better

UNITED STATES V. YATES 15

than it was so that they could get their own salaries and

compensation” because "they were in a dire cash situation.”

And in posttrial proceedings, the government again

explained that "[w]ith respect to something of value,” its

"theory is the salary piece.”

Of course, salaries and "other financial employment

benefits” are both forms of "money.” United States v.

Ratcliff, 488 F.3d 639, 644 (5th Cir. 2007); accord United

States v. Del Valle, 674 F.3d 696, 704 (7th Cir. 2012). If

obtaining a new job or a higher salary is the object of a

defendant's fraudulent scheme, then the deprivation of that

salary can in some circumstances support a fraud conviction.

See, e.g., United States v. Granberry, 908 F.2d 278, 280 (8th

Cir. 1990) (new job and salary from fraudulent job

application); United States v. Doherty, 867 F.2d 47, 55–56

(1st Cir. 1989) (Breyer, J.) (higher salary from a promotion

obtained under false pretenses).

But there is a difference between a scheme whose object

is to obtain a new or higher salary and a scheme whose object

is to deceive an employer while continuing to draw an

existing salary—essentially, avoiding being fired. The

history of the Supreme Court's treatment of fraud in the

employment context demonstrates why that distinction

matters.

Before McNally v. United States, 483 U.S. 350 (1987),

federal courts had treated the breach of a duty owed to one's

employer as a form of fraud, reasoning that it operated to

defraud the employer of the intangible right to the

employee's honest services. See, e.g., United States v.

Bohonus, 628 F.2d 1167, 1172 (9th Cir. 1980); United

States v. Procter & Gamble Co., 47 F. Supp. 676, 678

(D. Mass. 1942). But in McNally, the Court "stopped the

development of the intangible-rights doctrine in its tracks,”

16 UNITED STATES V. YATES

construing the federal fraud statutes "as limited in scope to

the protection of property rights.” Skilling, 561 U.S. at 401–

02 (quoting McNally, 483 U.S. at 360). Dissenting alone on

this point, Justice Stevens argued that the Court's distinction

made no sense because every time a person is "paid a salary

for his loyal services, any breach of that loyalty would

appear to carry with it some loss of money to the employer—

who is not getting what he paid for.” McNally, 483 U.S.

at 377 n.10 (Stevens, J., dissenting).

The year after McNally, Congress enacted 18 U.S.C.

§ 1346, which criminalizes any "scheme or artifice to

deprive another of the intangible right of honest services.”

Read broadly, that statute would be too vague to satisfy the

Due Process Clause. See Skilling, 561 U.S. at 408–09. So to

avoid declaring the statute unconstitutional, the Court has

construed it to proscribe only the "core” of the pre-McNally

intangible-rights doctrine: "fraudulent schemes to deprive

another of honest services through bribes or kickbacks

supplied by a third party who had not been deceived.”

Skilling, 561 U.S. at 404. The Court has expressly rejected

the suggestion that section 1346 covers "undisclosed selfdealing by a public official or private employee—i.e., the

taking of official action by the employee that furthers his

own undisclosed financial interests while purporting to act

in the interests of those to whom he owes a fiduciary duty.”

Id. at 409–10.

In Skilling, for example, the government's theory was

that Skilling had "conspir[ed] to defraud Enron's

shareholders by misrepresenting the company's fiscal

health, thereby artificially inflating its stock price,” and that

he had "profited from the fraudulent scheme . . . through the

receipt of salary and bonuses, . . . and through the sale of

approximately $200 million in Enron stock.” 561 U.S. at 413

UNITED STATES V. YATES 17

(ellipses in original). But because there was no allegation

"that Skilling solicited or accepted side payments from a

third party in exchange for making these

misrepresentations,” the Court thought it "clear” that he had

not committed honest-services fraud. Id.

Skilling's rejection of the salary-maintenance theory is

persuasive here. To be sure, the government charged Heine

and Yates with conspiring to commit property fraud, not

honest-services fraud. But we do not believe the Court

intended "to let in through the back door the very

prosecution theory that [it] tossed out the front.” United

States v. Ochs, 842 F.2d 515, 527 (1st Cir. 1988). Permitting

the government to recharacterize schemes to defraud an

employer of one's honest services—thereby profiting

"through the receipt of salary and bonuses,” Skilling,

561 U.S. at 413—as schemes to deprive the employer of a

property interest in the employee's continued receipt of a

salary would work an impermissible "end-run” around the

Court's holding in Skilling. Kelly, 140 S. Ct. at 1574.

It also would criminalize a wide range of commonplace

conduct. See McDonnell v. United States, 136 S. Ct. 2355,

2373 (2016) (noting a due-process concern with the prospect

of "prosecution, without fair notice, for the most prosaic

interactions”). Consider an employee who wastes time on

the Internet but then, to avoid being fired, falsely claims to

have been working productively. Presented with that

scenario at oral argument, the government declined to say

whether the employee would be guilty of federal fraud on a

salary-maintenance theory. The government's hesitation is

understandable. Extending the fraud statutes in that way

would raise serious concerns about whether the offense is

defined "with sufficient definiteness that ordinary people

can understand what conduct is prohibited and . . . in a

18 UNITED STATES V. YATES

manner that does not encourage arbitrary and discriminatory

enforcement.” Skilling, 561 U.S. at 402–03 (quoting

Kolender v. Lawson, 461 U.S. 352, 357 (1983)).

We are not convinced that what Heine and Yates did is

meaningfully different—at least as it relates to their salaries

and bonuses—from the behavior of the Internet-surfing

employee. The government insists that the "defendants'

scheme went beyond an intent to maintain their salaries”

because "[t]he board of directors used a performance-based

system” of compensation; by making the bank's

performance appear better than it actually was, Heine and

Yates obtained increased compensation. We agree that if an

employer offers a raise or a bonus tied to some specific

performance metric, an employee who lies about having

achieved that metric has deprived the employer of something

of value. But the evidence at trial showed that the defendants

were interested in receiving standard annual raises and endof-year bonuses that were based on the bank's overall

financial condition, not on any specific metric they falsified

to obtain additional compensation. In practice, that seems

little different from deceiving an employer about working

productively. In any event, the government's argument to the

jury did not distinguish between the maintenance of the

defendants' existing salaries and the receipt of an increased

salary or bonus. As the government presented the case, it was

effectively an honest-services case dressed in the garb of

salary deprivation.

C

The government's remaining theory was that—as the

government put it in its closing argument—Heine and Yates

"misled the bank and the board of directors for the use of

bank funds to continue their conspiracy.” The jury could

have understood that statement to refer to the accurate-

UNITED STATES V. YATES 19

information theory we have held not to be viable. And the

government said little more about the theory at trial.

Although it presented extensive evidence of the defendants'

misuse of bank funds, the phrase we have just quoted was its

only plausible reference to the possibility that depriving the

bank of funds might have been the object of the conspiracy.

Assuming it was such a reference and not merely a repeat

of the accurate-information theory, we agree with the

government that a bank has a property interest in its funds

and that it "has the right to use [its] funds as a source of loans

that help the bank earn profits.” Shaw, 137 S. Ct. at 466. In

addition, a bank's right to its funds extends to the "right to

decide how to use” those funds. Carpenter, 484 U.S. at 26.

So the fraudulent diversion of a bank's funds for

unauthorized purposes certainly could be the basis for a

conviction under section 1344.

Although the bank fraud statute "demands neither a

showing of ultimate financial loss nor a showing of intent to

cause financial loss,” Shaw, 137 S. Ct. at 467, it does demand

that the use of bank funds be an object of the scheme, Kelly,

140 S. Ct. at 1573–74. Heine and Yates emphasize that the

government argued below that the object of the fraud was

"to give the false appearance that The Bank of Oswego was

performing better than it was,” so that Heine and Yates could

maintain their salaries and bonuses at a time when they faced

personal financial difficulties. Relying on the Supreme

Court's decision in Kelly, they insist that any effect on bank

funds was merely an "incidental byproduct” of their scheme.

Id. at 1573. And because the trial took place before Kelly was

decided, the jury instructions did not reflect Kelly's

elaboration of the requirement that money or property be the

object of the scheme.

20 UNITED STATES V. YATES

We need not consider whether or how Kelly might affect

this case. Instead, even assuming that the bank-funds theory

was presented to the jury and was valid, we still must

overturn the conspiracy conviction because the

government's reliance on the accurate-information and

salary-maintenance theories was not harmless. As we have

explained—and as the government concedes with respect to

the accurate-information theory—both theories were legally

invalid. The Supreme Court has held that "constitutional

error occurs” when a jury "returns a general verdict that may

rest on a legally invalid theory.” Skilling, 561 U.S. at 414;

see Yates v. United States, 354 U.S. 298 (1957); United

States v. Garrido, 713 F.3d 985, 994 (9th Cir. 2013);

Barona, 56 F.3d at 1097–98. To determine that a

constitutional error was harmless, we "'must be able to

declare a belief that it was harmless beyond a reasonable

doubt,' in that it 'did not contribute to the verdict obtained.'”

United States v. Holiday, 998 F.3d 888, 894 (9th Cir. 2021)

(quoting Chapman v. California, 386 U.S. 18, 24 (1967)).

That standard is not satisfied here. As we have already

recounted at length, the accurate-information and salarymaintenance theories did not make up just a few stray lines

on a PowerPoint slide at closing argument; they were the

focus of the entire prosecution from beginning to end. The

indictment charged the object of the conspiracy only as

"conceal[ing] the true financial condition of the Bank.”

Although the defendants were alleged to have made

"unauthorized transfers of Bank proceeds,” they did so,

according to the indictment, "[t]o achieve” their goal of

depriving the bank of accurate information regarding its

financial condition. The government repeatedly defended

the accurate-information and salary-maintenance theories

before the district court. In its closing argument, the

government's explanation of "the reason why the

UNITED STATES V. YATES 21

defendant[s] sought to deceive the bank” devoted all but half

of a sentence to those theories. By contrast, the government

referenced the bank-funds theory only once, commenting

that "throughout the course of the conspiracy,” Heine and

Yates "misled the bank and the board of directors for the use

of bank funds to continue their conspiracy”—itself a

statement that could be interpreted, consistent with the

indictment, as arguing that the defendants used bank funds

only to further their accurate-information and salarymaintenance objectives. And the jury instructions, although

correct so far as they went, did nothing to define "something

of value” to preclude conviction under the government's

invalid theories, despite the defendants' request for an

instruction on that issue. In sum, the entire district court

proceedings "were permeated with the prohibited . . .

theor[ies].” Garrido, 713 F.3d at 998; see also id. at 996–98

(evaluating the harmlessness of an invalid legal theory by

examining the indictment, jury instructions, and closing

arguments).

And the evidence of guilt was hardly so overwhelming

as to ensure that the jury could not have found in favor of the

defendants in the absence of the errors. See United States v.

Perez, 962 F.3d 420, 442 (9th Cir. 2020). To the contrary,

the evidence would have permitted the jury to find that Heine

and Yates's scheme aimed to deprive the bank not of its

funds, but instead—just as the government argued

throughout the case—of their salaries and of accurate

information about the bank's financial condition.

Significantly, the jury returned a split verdict and deliberated

for four days—facts that weigh against a finding of harmless

error. United States v. Obagi, 965 F.3d 993, 998 (9th Cir.

2020); United States v. Velarde-Gomez, 269 F.3d 1023,

1036 (9th Cir. 2001) (en banc). Thus, we are unable to say

22 UNITED STATES V. YATES

beyond a reasonable doubt that the invalid legal theories did

not contribute to the jury's verdict.

Bank executives considering engaging in fraud should

take no comfort from this result. Our decision in no way

limits the scope of sections 1344 and 1349 or the

government's ability to bring prosecutions under those

statutes. We hold only that when the government devotes the

bulk of its presentation to two legally invalid theories of

guilt—the most prominent of which, it bears repeating, the

government now admits was invalid—we will not affirm a

general verdict simply because, had we been on the jury, we

might have found the defendants guilty on a third theory.

III

Heine and Yates argue that because the conspiracy count

is invalid, their convictions on the false-entry counts must be

vacated as well. We agree.

The district court instructed the jury that it could find the

defendants guilty of making false entries as principals, as

aiders and abettors, or as co-conspirators. Specifically, the

court instructed that "[e]ach member of a conspiracy is

responsible for the actions of the other conspirators

performed during the course and in furtherance of the

conspiracy,” as long as those actions "fell within the scope

of the unlawful conspiracy or agreement and could

reasonably have been foreseen.” Under Pinkerton v. United

States, 328 U.S. 640 (1946), that instruction correctly stated

the law. But Pinkerton liability depends on the existence of

a cognizable conspiracy; without a valid conspiracy count,

the Pinkerton theory cannot be a basis for the other

convictions. Emphasizing that point, Heine and Yates

argued in the body of their opening brief that the invalidity

of the conspiracy conviction "requires reversal of the false

UNITED STATES V. YATES 23

bank entry counts because . . . the convictions may have

been based on the jury's conclusion that each count was a

reasonably foreseeable consequence of the (invalid)

conspiracy count,” rather than on a conclusion that Heine

and Yates had any personal involvement in the false-entry

offenses.

If the evidence at trial made it clear "beyond a reasonable

doubt that the jury in this case would have convicted . . .

based on principal or aider-and-abettor liability,” then the

Pinkerton instruction would have been harmless. United

States v. Manarite, 44 F.3d 1407, 1414 n.9 (9th Cir. 1995);

see United States v. Castaneda, 16 F.3d 1504, 1511–12 (9th

Cir. 1994). But despite the defendants' express challenge to

the Pinkerton instruction as applied in the absence of a valid

conspiracy conviction, the government did not argue in its

brief before us that the instruction so applied was harmless.

The government did not overlook the point because the

defendants' argument was somehow hidden; the defendants

stated that they were appealing their convictions "for one

count of conspiracy to commit bank fraud . . . and 12 counts

of making false bank entries,” and they presented their

argument in a section of their brief entitled, "[t]he district

court's error in permitting the government to pursue invalid

theories of guilt requires reversal on all counts.” (emphasis

added; capitalization omitted).

As a general rule, we decide only the issues presented to

us by the parties. See United States v. Sineneng-Smith, 140 S.

Ct. 1575, 1579 (2020). That rule reflects our limited role as

neutral arbiters of legal contentions presented to us, and it

avoids the potential for prejudice to parties who might

otherwise find themselves losing a case on the basis of an

argument to which they had no chance to respond. See id.

Harmless error is no exception to that general rule. See

24 UNITED STATES V. YATES

United States v. Rodriguez, 880 F.3d 1151, 1163 (9th Cir.

2018). Accordingly, we have held that a claim of harmless

error is subject to forfeiture, and that we will not consider it

when, as in this case, the government does not "advance a

developed theory about how the errors were harmless.” Id.

(quoting United States v. Murguia-Rodriguez, 815 F.3d 566,

572–73 (9th Cir. 2016)).

Although we have discretion to consider harmless error

sua sponte, it would be inappropriate to do so here. In

deciding whether to consider a forfeited argument of

harmless error, we consider "the length and complexity of

the record,” "whether the harmlessness of an error is certain

or debatable,” and "the futility and costliness of reversal and

further litigation.” Rodriguez, 880 F.3d at 1164 (quoting

United States v. Brooks, 772 F.3d 1161, 1171 (9th Cir.

2014)). Here, the record is long and complex, the product of

a trial that featured 43 witnesses and 584 exhibits. Perhaps a

review of the record would reveal that the Pinkerton

instruction was indeed harmless with respect to some of the

counts even though the conspiracy conviction cannot stand,

but the answer is hardly certain: While Heine and Yates were

personally involved in making the reports charged as false

entries, they disputed the extent to which they understood

the true facts, were duped by Walsh, or actually made any

misstatement in response to the specific questions asked. It

would be unfair to Heine and Yates to resolve those disputes

on the basis of a theory that was not advanced by the

government and that they have not had an opportunity to

address. Nor is there any basis for remanding to give the

government an opportunity for a do-over after it made the

strategic choice not to address all of the defendants'

arguments in its appellate brief.

UNITED STATES V. YATES 25

IV

Heine and Yates argue that insufficient evidence

supports their false-entry convictions on counts 7–9, 13, and

15. Although we have already vacated all of the convictions,

we still must consider the sufficiency of the evidence on

these counts. A finding of insufficient evidence, unlike a

determination that the Pinkerton instruction could have been

erroneously applied in light of the invalidity of the

conspiracy conviction, would bar retrial. See United States

v. Gergen, 172 F.3d 719, 724–25 (9th Cir. 1999); United

States v. Bibbero, 749 F.2d 581, 585–86 (9th Cir. 1984).

Both defendants preserved their challenges to counts 7–

9, so we review those convictions de novo. The government

argues that our review on counts 13 and 15 is for plain error

only. It is correct as to Heine. Although Heine moved for a

judgment of acquittal at the conclusion of the government's

case on the ground that insufficient evidence supported his

false-entry charges, he "failed to renew [his] motion[] for

judgment of acquittal at the close of all the evidence” on this

point. United States v. Winslow, 962 F.2d 845, 850 (9th Cir.

1992). Yates, however, renewed her challenge to the

sufficiency of the evidence on all counts in her motion for

judgment of acquittal after the close of evidence.

Accordingly, our review of Yates's convictions on counts 13

and 15 is de novo. See United States v. Boykin, 785 F.3d

1352, 1359 (9th Cir. 2015).

We may reverse a conviction for insufficient evidence

only if, viewing the evidence in the light most favorable to

the government, no rational trier of fact could "find the

essential elements of the crime beyond a reasonable doubt.”

United States v. Stoddard, 150 F.3d 1140, 1144 (9th Cir.

1998). As relevant here, the elements of the offense under

section 1005 are (1) making a false entry in bank records or

26 UNITED STATES V. YATES

causing a false entry to be made, (2) knowing the entry was

false at the time it was made, and (3) intending that the entry

injure or deceive a bank or public official. United States v.

Wolf, 820 F.2d 1499, 1504 (9th Cir. 1987). The only

challenge here is to the first element.

A

An entry is false if it "represent[s] what is not true or

does not exist.” United States v. Darby, 289 U.S. 224, 226

(1933) (quoting Agnew v. United States, 165 U.S. 36, 52

(1897)). Conversely, the offense of false entry "is not

committed where the transaction entered actually took place,

and is entered exactly as it occurred.” Coffin v. United

States, 156 U.S. 432, 463 (1895). That is so "even though it

is a part of a fraudulent or otherwise illegal scheme.” United

States v. Erickson, 601 F.2d 296, 302 (7th Cir. 1979); accord

United States v. Hardin, 841 F.2d 694, 699–700 (6th Cir.

1988); United States v. Manderson, 511 F.2d 179, 181 (5th

Cir. 1975).

Coffin's rule is subject to two important qualifications.

First, an entry is false, for purposes of section 1005, if it

omits material information or "vital fact[s]” requested by a

bank or regulator, even if the entry, on its face, is literally

true. Ely, 142 F.3d at 1119. For example, a loan application

that "d[oes] not reflect either the true borrower or the actual

purpose” of a loan omits material information and is

therefore false for purposes of section 1005. Wolf, 820 F.2d

at 1504. Thus, we held that the indictment in Ely stated an

offense because it alleged that the defendants gave only a

partial answer that omitted key facts when asked for the

purpose of the loan they sought; they said that they sought a

loan to obtain an "injection of capital to enable expansion of

business enterprises,” while their real reason was to be able

UNITED STATES V. YATES 27

to make payments on their existing debts. Ely, 142 F.3d

at 1119.

Second, an entry is false if it records a transaction that is

itself "false and fictitious, concocted for the very purpose of

distorting [a] financial statement”—as opposed to a

transaction that is merely a part of some broader fraudulent

or illegal scheme. United States v. Gleason, 616 F.2d 2, 29

(2d Cir. 1979); accord Erickson, 601 F.2d at 302. In Darby,

for example, the Supreme Court held that a bank entry that

recorded a promissory note bearing a signature known to be

forged was false because "[n]o note with such a signature

had been discounted by the bank.” 289 U.S. at 226. As

Justice Cardozo colorfully put it, "Verity was not imparted

to the entry by the simulacrum of a signature known to be

spurious.” Id. The entry was just as false as if "dollars known

to be counterfeit . . . ha[d] been entered in the books as cash,”

and it meant that "upon an inspection of [the] bank, public

officers and others would [not] discover in its books of

account a picture of its true condition.” Id.

Applying that reasoning, we held in Hargreaves v.

United States, 75 F.2d 68 (9th Cir. 1935), that a bank

executive caused a false entry to be made when he directed

an uncompensated strawman to obtain a loan from the bank

without disclosing that the loan was for the executive's

private benefit. See id. at 70, 72. The entry was false because

the transaction it memorialized—involving a strawman who

likely would not have qualified for the loan, never intended

to repay it, and immediately gave the proceeds to the

defendant—was itself fictitious. See id.; see also United

States v. Krepps, 605 F.2d 101, 109 (3d Cir. 1979).

28 UNITED STATES V. YATES

B

Counts 7–9, 13, and 15 charge that Heine and Yates

omitted certain loans from the bank's past-due loan balance

on its quarterly call reports after arranging for third parties

to make the delinquent payments. Heine and Yates argue that

they were correct not to report the loans as past due—and

thus that the call reports were not false—because the bank

had received real payments on the loans. In their view, it is

irrelevant whether a third party or the borrower made the

payment.

The pertinent schedule to the FDIC's call reports asks for

three pieces of information: a bank's aggregate total of loans

past due for 30–89 days, the aggregate total of loans past due

for 90 days or more, and the aggregate total of nonaccruing—that is, delinquent—loans. In other words, it asks

for three numbers. The form does not call for a narrative

response, allow for comment, request a breakdown of the

particular loans that are past due, or ask for the source of a

payment on any of the underlying loans. The FDIC's

detailed instructions for completing the schedule require a

loan "to be reported as past due when the borrower is in

arrears two or more monthly payments.”

The government's FDIC witness, Assistant Regional

Director Paul Worthing, confirmed at trial that the FDIC's

instructions do not require a bank to disclose the source of a

payment on a loan or state that a loan remains past due if it

is paid by someone other than the borrower. Worthing also

conceded that there is no rule or regulation that would

prevent a third party—including a bank employee—from

making a loan payment on a customer account as a gift. He

testified only that the FDIC would find such transactions

"problematic” or "improper.”

UNITED STATES V. YATES 29

1

Counts 7–9 relate to loans to three bank customers:

Howard Abrams, Edward Duffy, and Robert Goodman. The

loans would have been delinquent, but Kehoe, another bank

customer, made the required payments. We conclude that

insufficient evidence supports the convictions on those

counts.

The government emphasizes that Kehoe made the

payments using the proceeds of a loan that he himself had

obtained from the bank. But unlike the loans in Hargreaves

and Krepps, the loan to Kehoe was a real loan that was

approved by the board of directors, not a fictitious loan

disbursed for the defendants' pecuniary gain. The loan

application disclosed that some of the proceeds would be

used for "hard money loans for non-consumer needs.” And

the board was aware that Kehoe loaned money to bank

customers, including Abrams, before it approved the loan.

Once the loan was issued to Kehoe, the money was

Kehoe's to use as he wished. He could invest it, spend it on

himself, or use it to make payments on other bank

customers' loans. It is irrelevant that the customers were

unaware of the payments (or, in the case of Duffy, apparently

opposed to them)—the bank was entitled to payment, and

the customers had no right to refuse to make timely

payments on valid loans. When Kehoe made the payments,

the bank received real money, and the loans were no longer

delinquent. It was not false to report them as current. Nor is

there evidence that the loan Kehoe used to make the

payments was in arrears. So reporting the loans on which he

made payments as up to date did not conceal a net arrearage

in the funds lent by the bank.

30 UNITED STATES V. YATES

The government insists that "a 'past due' loan means a

loan where the borrower had stopped making payment,”

suggesting that a loan might still be past due if someone else

made the payment. That view is contradicted by Worthing's

testimony, which confirms that if a loan is current, no rule

requires it to be reported as past due simply because the

payment came from a third party. Indeed, the government

conceded at oral argument that, had the payment come from

a borrower's grandmother, the entry would not have been

false. Kehoe may not have been anyone's grandmother, but

the schedule did not ask whether the payment had been made

by the borrower, by the borrower's grandmother, or by a

hard-money lender; it asked only whether the payment had

been made. It had. It may be that the FDIC would benefit

from knowing whether a borrower was personally

responsible for making a loan payment so that it can better

evaluate the soundness of a bank's lending practices. If so,

the agency can revise its call report instructions to ask for

that information. The agency could also ask, although the

schedule at issue here did not, whether the payment was

made from the proceeds of another loan made by the bank—

but even on the current schedule, any arrearage in that loan

would have had to be included in the report.

In this and in many of the other transactions at issue,

Heine and Yates displayed an economy with the truth that is

not much to their credit. But in the absence of any

requirement to disclose the omitted information, what is true

of perjury is true here as well: "[W]hen a statement is

literally true, it is, by definition, not false and cannot be

treated as such . . . , no matter what the defendant's

subjective state of mind might have been.” United States v.

Aquino, 794 F.3d 1033, 1036 (9th Cir. 2015) (first alteration

in original) (quoting United States v. Castro, 704 F.3d 125,

139 (3d Cir. 2013)). Even if a transaction "is a part of a

UNITED STATES V. YATES 31

fraudulent or otherwise illegal scheme,” it is not false to

report it as it occurred. Erickson, 601 F.2d at 302.

Perhaps the government could have charged that

Kehoe's loan application was false for omitting material

information about how he intended to use the money once

he received it. See Ely, 142 F.3d at 1119. But that is not what

it charged. It charged only that the aggregate total of past due

loans on the call report was false for omitting the Abrams,

Duffy, and Goodman loans from the total. Because the

underlying loan payments made by Kehoe were not

themselves fictitious, that entry was not false.

2

Similarly, insufficient evidence supports a finding of

falsity on count 15, which involved a loan to another bank

customer, Chris Guettler, for which Walsh made a payment

using his own money. As Worthing testified, no FDIC rule

or regulation prohibited Walsh's conduct. That Yates

instructed the bank's controller to change the transaction's

description to say "[s]omething more generic” is evidence of

her intent to deceive concerning the nature of the transaction,

but it has no bearing on whether the call report itself,

requiring only a report of the aggregate amount of past due

loans, was false. Because the required payment had been

made, the call report correctly omitted Guettler's loan

balance from the bank's aggregate total of past due loans,

and it was not false. We also conclude that, in light of the

instructions for completing the call report and Worthing's

testimony, the insufficiency on count 15 is plain, and the

error affected Heine's substantial rights. See United States v.

Olano, 507 U.S. 725, 732 (1993).

32 UNITED STATES V. YATES

3

Count 13 is different. That count involved a loan to Chris

Dudley, a former NBA player and Oregon gubernatorial

candidate. To prevent his loan from being delinquent, Yates

directed that a payment be made without Dudley's

knowledge from his political campaign account, called the

"Friends of Chris Dudley” account. Dudley did not give

permission for the bank to take funds out of his campaign

account to make the payment.

We agree with the Seventh Circuit that "entries recording

unauthorized transactions involving the [bank] accounts of

customers without the knowledge or consent of the customer

or the institution” are false because the underlying

transactions are fictitious. United States v. Marquardt,

786 F.2d 771, 779 (7th Cir. 1986). Yates did not just make a

payment on Dudley's loan without his knowledge or

approval, as Kehoe did for Abrams, Duffy, and Goodman.

That would not have been sufficient to show falsity. Instead,

Yates caused money to be taken out of the Friends of Chris

Dudley account without Dudley's knowledge or approval to

be used for an unauthorized purpose. The transaction was a

sham; once Dudley found out about it, he could have

demanded that it be reversed and that the money be returned

to him. So reporting that money as a payment on Dudley's

loan when the money should have remained in Dudley's

account and could have been recovered from the loan

account was not truthful. The payment was not what it was

necessarily represented to be—an irrevocable commitment

by the payor to depart with funds and allow the bank to keep

the money in payment of an outstanding loan. And given that

the transaction was performed on the final business day of

the quarter, the jury could have found that it was "concocted

UNITED STATES V. YATES 33

for the very purpose of distorting [a] financial statement”—

that quarter's call report. Gleason, 616 F.2d at 29.

At trial, Heine and Yates emphasized that the promissory

note for Dudley's loan included a right of setoff "[t]o the

extent permitted by applicable law” in all of Dudley's

accounts with the bank, meaning that the bank had

authorization to take funds from those accounts to pay his

loan balances. But Dudley testified that the right of setoff

applied only to his personal accounts and did not extend to

the "Friends of Chris Dudley” account. As no bank records

showed otherwise, the jury could have believed Dudley's

testimony and concluded that the transaction was indeed

unauthorized and therefore subject to being reversed.

* * *

Heine and Yates challenge various evidentiary rulings

and assert that the district court erred in calculating the

bank's losses for sentencing purposes. Having vacated all of

the convictions, we do not consider those arguments.

VACATED and REMANDED.

BRESS, Circuit Judge, dissenting:

The defendants in this case, two bank executives,

fraudulently transferred money from their bank and then

surreptitiously re-routed it back in to disguise the bank's

faltering finances. In doing so, they failed to disclose to the

bank's Board and the FDIC the nature of their transactions.

The defendants' conduct was not merely unsavory—it was

plainly unlawful.

34 UNITED STATES V. YATES

Yet despite a nearly month-long jury trial involving

dozens of witnesses, the majority vacates defendants'

convictions for conspiracy to commit bank fraud, 18 U.S.C.

§ 1349, and making false bank entries, 18 U.S.C. § 1005. In

my view, the majority errs. A proper understanding of the

facts of this case and the mechanics of defendants' scheme

confirms the verdict of the jurors who heard the evidence of

defendants' misdeeds firsthand. Instead, the majority

contradicts governing precedents and improperly vacates

convictions that were premised on a valid legal theory,

backed by overwhelming proof of wrongdoing. With no

challenge to any of the jury instructions and no serious

challenge to the admission of any evidence, we have

exceeded our role by setting aside defendants' lawful

conspiracy convictions.

The majority's decision to vacate defendants' false bank

entry convictions is perhaps of even greater concern to me.

The defendants did not include in FDIC reports as "past due”

certain loans in which payments were made on behalf of the

borrowers. The problem was that the money used to pay

most of these loans had come from the bank itself—money

defendants fraudulently loaned out to a trusted "hard money

lender” who then paid the delinquent loans of the otherwise

"past due” borrowers, without these borrowers even

knowing. The defendants were using bank money to cure

"past due” loans, thereby masking the risk associated with

the bank's loan practices. In holding that no rational jury

could convict defendants of making false bank entries under

these circumstances, the majority opinion again departs from

precedent while unduly limiting Congress's prohibition on

false bank entries.

Much of our nation's powerful economy owes itself to

the integrity of its banks. Banking executives have positions

UNITED STATES V. YATES 35

of unique trust and responsibility, particularly in their local

communities, as the defendants here did. The majority

opinion will, I fear, destabilize the public confidence on

which our country's banking system depends and hobble the

principal federal laws designed to protect it. I respectfully

dissent.

I

Dan Heine and Diana Yates had serious problems. The

Bank of Oswego—where Heine was CEO and a member of

the Board of Directors and Yates served as Executive Vice

President and Chief Financial Officer—was under close

scrutiny from the Federal Deposit Insurance Corporation

(FDIC). A 2009 FDIC examination concluded that the

"overall condition of the bank,” laden with underperforming

loans, was "less than satisfactory.” "Asset quality ha[d]

deteriorated,” "[e]arnings performance [was] weak,” and

there was "[i]nsufficient segregation of job responsibilities

at the senior management level,” which contributed to "the

increased risk profile of the institution.” In July 2010, the

FDIC required defendants to sign a memorandum of

understanding ("MOU”) on behalf of the bank, in which they

promised to reduce problematic assets, improve oversight of

lending and reporting practices, and increase reserve capital.

In the meantime, Heine and Yates were dealing with

personal financial troubles of their own. Just before signing

the MOU, Heine was experiencing a "[s]erious cash flow

problem” and was borrowing heavily on his personal line of

credit at the bank. The following year, Heine was still

experiencing "cash flow pressure,” but, he told Yates, "[i]f

the bank does not fail, I should be fine in the end.”

Yates was in a similarly perilous situation. The

government's evidence showed she had substantial credit

36 UNITED STATES V. YATES

card debt, her checking account was routinely overdrawn,

and she was also borrowing from the bank to pay other bills.

Heine and Yates needed their bank to stay afloat, so that they

could stay afloat themselves.

The confluence of the bank's tenuous position before

federal regulators and Heine and Yates's own precarious

finances set the stage for defendants' elaborate efforts to

camouflage the bank's financial picture. One of the most

striking features of the majority opinion, however, is what it

leaves out. The majority's recitation of the government's

case is at best a high-level summary that omits nearly all the

evidence of bank fraud presented in defendants' month-long

trial, which featured dozens of witnesses and hundreds of

exhibits. In reviewing the jury's verdict, "we are obliged to

construe the evidence in the light most favorable to the

prosecution.” United States v. Nevils, 598 F.3d 1158, 1161

(9th Cir. 2010) (quotations omitted). From the majority

opinion, one would have little idea what this evidence even

is.

The government's case centered on three interrelated

schemes. In each, defendants' modus operandi was roughly

the same. Collaborating with Geoff Walsh—the bank's Vice

President of Lending who later pleaded guilty and was a star

government witness—defendants would divert bank funds,

either by withdrawing the funds themselves or by

fraudulently sponsoring loans to third parties. Defendants

would then direct those funds through third parties and back

to the bank, using the returned money to wipe away

troubling features of the bank's portfolio. In so doing,

defendants made the bank's financial picture appear better

than it really was.

I now lay out the key facts here in some detail because it

is important to understand defendants' scheme to appreciate

UNITED STATES V. YATES 37

why I believe the majority errs in vacating defendants'

convictions.

A

The first scheme was a series of sham transactions

related to a Lake Oswego property called "A Avenue,” on

which the bank held a second mortgage. When the borrower

defaulted, the priority creditor foreclosed and sold A Avenue

to Fannie Mae in October 2010. As a non-priority creditor,

the bank had no recourse and no ownership interest in A

Avenue—meaning it would have to take a total loss on the

loan which would need to be disclosed to the FDIC.

Defendants were "very concerned” about this, so they

developed a highly unorthodox plan.

Heine, Yates, and Walsh approached Danny Williams, a

junior credit analyst at the bank with a $30,000 annual

salary, and asked Williams if he would purchase A Avenue

from Fannie Mae "on behalf of the bank.” Fannie Mae

required that any prospective purchaser intend to live in the

home, which meant that the bank could not simply purchase

the property outright. To get around this, defendants

prevailed on Williams to serve as a straw purchaser.

Williams testified that the three executives explained to him

that the bank would fund Williams's purchase of A Avenue.

If Fannie Mae discovered that Williams was a straw buyer,

the bank would cover any penalties. Williams agreed to

participate to "be the team player they wanted me to be.”

Yates signed a letter in which she falsely attested to

Fannie Mae that Williams had sufficient funds to purchase

the home. Yates also drew from bank funds a cashier's

check for $26,500, which Williams used to make a down

payment on A Avenue. A few days later, Yates drew a

second cashier's check in the amount of $241,227—again,

38 UNITED STATES V. YATES

using bank funds—for Williams to complete the purchase.

The jury saw both checks, bearing Yates's signature.

Williams signed the contract for A Avenue, and, on February

8, 2011, he obtained sole ownership of the property.

After Williams had completed the purchase, Heine,

Yates, and Walsh went out to lunch and celebrated

(apparently Williams, who took one for the team, was not

invited). Heine emailed Yates that they "may have dodged

some bullets” by pulling off the A Avenue plan because they

would now likely "have [it] off the books by the end of

May.” Heine also conveyed to the Board, falsely, that the

bank had gained title to the property. Bank board member

Chris Shepanek testified that the Board was not informed

about Williams's role in the transaction. Shepanek further

testified that a loan to a bank employee to buy a foreclosed

property "would be suspicious to me” and would have

required Board approval.

The bank was required to submit quarterly "call reports”

to the FDIC disclosing certain financial information. Heine

and Yates were responsible for signing off on the bank's call

reports every quarter. One item on the call reports was the

bank's "Other Real Estate Owned” or OREO, which is

comprised of properties a bank acquires from borrowers

after foreclosure. Because OREO properties are acquired

after a borrower defaults on a loan, the loans on these

properties did not generate revenue. But having an OREO

property was better than having no property at all because at

least then the bank owned something.

Once Williams used bank funds to buy A Avenue,

defendants on the next call report falsely listed A Avenue as

an OREO property that belonged to the bank, even though it

belonged to Williams. Williams never intended to live at A

Avenue; although he had certified to Fannie Mae that he

UNITED STATES V. YATES 39

would reside there, he told the jury this was a "false

statement.” In May 2011, at the direction of Walsh,

Williams transferred A Avenue to the bank for no money via

quitclaim deed, and the bank quickly sold the property.

B

Defendants were also required to include on FDIC call

reports loans that were past due by more than 30 days. FDIC

Regional Administrator Paul Worthing, who was involved

in the bank's quarterly examinations, testified that the past

due loan balance is an "extremely important” metric on the

call report because whether "borrowers are not paying timely

or not paying” is "one of the biggest functional risk areas

that an institution manages.”

The Bank of Oswego's past due loan balance was a

source of great consternation for defendants and a frequent

topic of discussion within the bank's Internal Loan

Committee ("ILC”), which defendants oversaw. The MOU

with the FDIC had placed specific emphasis on the bank's

high-risk loans. Defendants therefore pushed hard to get

past-due loans "cleaned up” to avoid reporting them on the

call reports.

Heine instructed loan officers to "[d]o whatever it takes

to get these things handled.” Defendants zealously followed

that approach. They deployed a highly irregular plan to use

bank and other funds to make loan payments on behalf of

delinquent borrowers, evidently without the borrowers even

knowing their debts were being covered. Defendants would

then treat these loans as "paid” and not include them as past

due on the FDIC call reports.

At the center of this scheme was Martin Kehoe, who was

also a friend and longtime associate of Walsh. Kehoe was a

40 UNITED STATES V. YATES

"hard money lender” who gave out unsecured loans at high

interest rates on a handshake basis to people who could not

qualify for loans from traditional institutions. The bank's

Board later discovered that Walsh was also borrowing

money from Kehoe and taking money from Kehoe's line of

credit at the bank for Walsh's own personal use. Ultimately,

in May 2012, the bank fired Walsh for his dealings with

Kehoe.

In September 2010, Yates circulated to the bank's Board

for approval a loan application for Kehoe in the amount of

$1.7 million. During ILC discussions, and with defendants

present, "it was made known” that upon receiving the loan,

some of the proceeds would then be used to pay the

delinquent loans of other bank customers, specifically

Howard Abrams and Edward Duffy. Walsh's notes from

ILC meetings recorded "whose payments I'm going to make

out of Marty's loan when it closes.” The closing documents

that Kehoe ultimately signed included an acknowledgment

"that it was okay [for the bank] to take the payment from his

credit line” to pay down the delinquent loan of another bank

customer.

But the presentation Yates gave to the Board seeking

approval of the $1.7 million loan concealed this purpose.

The Board—which already had independent concerns about

the size of the loan and had a "robust discussion” on that

issue—was not told that the Kehoe loan would be used to

pay the delinquent loans of other customers. Yates's

presentation to the Board did not mention that point.

There was something else defendants were concealing

about Kehoe too. Yates had previously approved a $675,000

wire transfer to Kehoe back in July 2010, months before

presenting the $1.7 million loan application to the Board.

Walsh and Yates had sent Kehoe the $675,000 just one

UNITED STATES V. YATES 41

month after signing the MOU, even though Kehoe's existing

line of credit lacked sufficient funds to cover that draw. This

had caused the bank's books to go out of balance for months.

The Board first learned of the $675,00 wire transfer

during the internal investigation after Walsh was fired.

Defendants had not consulted the Board, conducted a proper

credit investigation, or required Kehoe to sign appropriate

loan paperwork before sending him the $675,000. An FBI

detective who interviewed Yates testified that Yates

confirmed she authorized the wire transfer. But Yates could

not give investigators an explanation for why this money

was sent to Kehoe. As soon as the $1.7 million loan closed,

Kehoe redirected $675,000 back to the bank to balance its

books—another purpose of the $1.7 million loan that was

not disclosed to the Board.

On the same day that the $1.7 million loan closed, Walsh

began using the remainder of the Kehoe loan proceeds to

make payments directly from Kehoe's account on behalf of

other delinquent bank customers, as defendants had

previously agreed. Walsh started with the loan of Howard

Abrams, a bank customer who consistently "struggle[d]” to

make his payments and who had been discussed at ILC

meetings as a good use of the Kehoe loan proceeds. On

September 30, 2010, the day that Kehoe's line of credit

closed—and the last business day of the third quarter of

2010—Walsh "arrange[d] for Mr. Kehoe to make a

payment” for Abrams. Walsh testified that he later "ma[d]e

another payment with Mr. Kehoe's money on behalf of

Mr. Abrams” as well. The bank's 2010 third quarter call

report failed to include Abrams's loan as past due. If it had

been included, the bank would have had to add over

$197,000 (the full amount of the loan) to its delinquent-loan

balance for that quarter.

42 UNITED STATES V. YATES

Walsh also used the Kehoe loan proceeds to make loan

payments for Edward Duffy, who was "chronically late” and

a significant source of concern for defendants. On

September 30, 2010, the same day as the payment on behalf

of Abrams and the last business day of the third quarter,

Walsh arranged a payment on behalf of Duffy using money

from Kehoe's loan.

Duffy, for his part, testified that he had deliberately

stopped making loan payments to force the bank to

restructure the loan. He never requested or authorized the

payment made on his behalf. Walsh later told Duffy that

Walsh made the payment "to keep the loan current” because

of the "federal examiners.” The bank's 2010 third quarter

call report failed to include Duffy's loan as past due. If it

had been included, the bank would have had to add over

$199,974 to its delinquent-loan balance for that quarter.

Finally, Walsh used money from Kehoe's $1.7 million

loan to make a loan payment on behalf of Robert Goodman,

a bank customer who was "always late” on his payments

following his divorce. Walsh directed a transfer of $22,784

from Kehoe's loan proceeds "to get [Goodman] off . . . the

past due report” for 2010. Goodman's payment was also

made on the last day of the third quarter. Yet, the bank's

2010 third quarter call report failed to include Goodman's

loan as past due. If it had been included, the bank would

have had to add over $995,227 to its delinquent-loan balance

for that quarter.

The jury heard evidence that using funds from a loan to

Kehoe to pay off the loans of other unsuspecting delinquent

customers was not consistent with the FDIC's call report

requirements. The Kehoe arrangement, the FDIC's Paul

Worthing explained to the jury, "mask[s] the true

performance issues” in the delinquent loans and "exposes the

UNITED STATES V. YATES 43

bank to even greater levels of risk.” "Essentially, they are

using bank funds . . . to bring past due loans current.” Those

loans, Worthing testified, "should be reported as past due.”

Defendants' efforts to reduce the bank's exposure on the

call reports was not limited to the Kehoe arrangement. At

the end of the quarter, Yates personally cleared the past-due

loan of bank customer and former NBA basketball player

Chris Dudley to keep his delinquent loan off the call report.

Dudley held two personal accounts and a separate political

campaign account at the bank. At one point, Dudley missed

a payment on a personal loan, but neither of his personal

accounts had sufficient funds to cover the $23,326.66 due.

A bank teller testified that Yates directed her to transfer

the amount owed out of Dudley's political campaign account

to cover the past-due payment. The teller refused and Yates

walked away upset. A loan specialist testified that Yates

gave her the same direction. The loan specialist did as she

was told, annotating the transaction "per Diana.” Yates did

not report Dudley's delinquent loan on the next call report,

which would have required adding $975,847.83 to the

delinquent balance. Dudley told the jury that he "absolutely”

did not approve "any transfer from a political campaign”

account to "something personal,” and that the bank later told

him it was just a mistake.

Finally, with defendants' knowledge Walsh resolved one

of the bank's delinquent loans on his own. Chris Guettler's

loan was one of the "most problem[atic]” on the bank's

books. Walsh testified that defendants "handed” him the

Guettler loan to "fix,” and that Guettler's ongoing

delinquency was discussed at ILC meetings. There was

"tremendous pressure” from both Heine and Yates to get

Guettler's payment in.

44 UNITED STATES V. YATES

So Walsh decided to make the payment himself, on the

last business day of the fourth quarter of 2011. When he

informed the defendants he had done this, Heine gave Walsh

a "high-five knuckles,” and Yates smiled and joked she was

"not supposed to hear that.” Then the group "all bought

beers and cheered each other and had a couple of drinks and

celebrated the year.”

Walsh testified that he made the payment for Guettler "to

clean up the reports.” He felt "like it was the right thing to

do for everybody, just to clean the report and make it go

away.” The jury also saw an email exchange in which the

bank's controller expressed concern about Walsh's payment.

Yates responded that, "[i]t looks worse than it is,” and Walsh

"should have . . . done [it] in cash.” Yates instructed the

controller to edit the transaction to "[s]omething more

generic.” Yates omitted Guettler's loan from the bank's past

due loan balance on the next call report. Adding it would

have required including another $69,704 to the delinquent

loan balance.

The FDIC's Worthing also testified about Walsh's

payment for Guettler. Worthing explained that under FDIC

rules, if a bank employee made payments on behalf of

customers to get loans "off of a report,” as Walsh did for

Guettler, the bank should reverse the transactions and deem

the loans "not current.” As Worthing explained, "the loans

were not brought current in a manner that the borrower is

performing on those loans. So there is additional risk in

those loans and we want those to be reported accordingly on

the call report . . . because they are not performing. A bank

employee using their own money to disguise that

performance is, in my mind, improper.”

UNITED STATES V. YATES 45

C

The third scheme involved defendants' efforts to reduce

the size of the bank's OREO portfolio by selling off two

OREO properties, known as "Mesick” and "Bishop.” Both

properties were problems for the bank. Mesick was "really

a mess,” littered with trash, "[t]he back was overgrown,” and

it was infested with rodents. Bishop had a "bunch of illegal

or code infractions.” It was also the "last piece of foreclosed

property” in the bank's OREO portfolio at the time it was

sold.

Walsh, Heine, and Yates met with a property developer,

Randall Coleman, who bought and flipped rental properties.

In late March 2010, after the poor 2009 FDIC examination

and just before the MOU, Coleman agreed to buy the Mesick

property, which defendants could then remove from OREO.

But to make the sale happen, defendants again engaged in a

scheme improperly to divert bank funds, route them through

a middleman (here Coleman), have those funds come back

into the bank as if it were new money, and then use the cash

to clear up the undesirable information on the call reports.

FDIC regulations require that any debt-financed

purchase of an OREO property include a cash downpayment by the buyer. The purpose of this rule is to mitigate

the bank's risk by ensuring that the borrower has "skin in the

game.” In fact, the bank's auditor specifically informed

Yates that Coleman would need to put 20% down for the

properties to be moved out of OREO.

Defendants initially ignored this requirement and

extended a $375,000 loan to Coleman that would allow him

to completely finance the Mesick purchase, without any

down payment. Yates appreciated the significance of this

arrangement. As she wrote to Walsh in an email: "So they

46 UNITED STATES V. YATES

have no down payment whatsoever? This is not going to be

pretty.” Nevertheless, in an email to Heine and several other

bank employees with a "smiley face” emoticon, Yates wrote:

"Approve to move property out of ORE.” This would

represent to the Board and FDIC that the sale was

conforming.

Bishop then became the last foreclosed property in the

bank's OREO portfolio. In July 2010 (soon after signing the

MOU), Yates approved financing for Coleman to purchase

the Bishop property with another bank loan of $325,000.

She again did not require Coleman to make a down payment.

Bishop's OREO designation was then removed.

The Board was not aware that either of Coleman's loans

were made without down payments. Defendants also were

not forthcoming about this with the FDIC. On January 26,

2011, Yates emailed Heine, Walsh, and others with the

subject line: "Mum's the word for now.” In the email, she

explained her concern that the FDIC examiners would

realize the loans were "not conforming,” but that she was

"not going to mention it” because otherwise the properties

"will all have to go back to OREO.” A few weeks after

that email, defendants sent a letter to the bank's external

auditor, falsely representing that the bank had "received all

cash down payments” for Mesick and Bishop, which are

"satisfactory for the full-accrual sales treatment of these

transactions.”

Despite the defendants' efforts, the FDIC noticed the

deficiency and objected that Coleman had not put enough of

his own money down to allow the bank to remove the two

properties from OREO. Yates wrote a memo to the FDIC

promising to remedy the situation. And defendants then

went back to the drawing board to formulate a new plan to

try to "cure the Colemans.”

UNITED STATES V. YATES 47

But their new plan once again involved giving Coleman

more of the bank's money as part of resolving weaknesses

on the bank's call reports. As Yates wrote in an email to

Heine and others, "We are going to have to figure out a way

to give Mr. Coleman a loan. I am afraid the examiners are

going to pull all of this in September to ensure all is cleared.”

After the bank's controller sent a series of emails to Yates

asking for updates on the Coleman down payments and

noting that the bank's books had been out of balance for

months, Yates signed a credit approval presentation for a

$100,000 loan to Coleman.

The presentation falsely represented that the loan would

be used for "improvements to investment properties.” The

bank's Chief Credit Officer Kelly Francis testified that, in

fact, the $100,000 "would be to clear up the balance position

on the bank's books.” Francis testified that she raised

concerns about Coleman's liquidity on numerous occasions,

but Yates responded, "Just get it done.” Otherwise, Yates

wrote, the bank would have to write off the amount: "It is

either do it or charge off 100K today.” Heine approved the

$100,000 loan: "Amen. Approve.” Once the loan went

through, $90,000 of it was directed back to the bank as

Coleman's "down payments.” But on the next call report,

Mesick and Bishop were again not disclosed as OREO

properties.

Around this time, Yates emphasized to the Board the

bank's "very healthy” net income for 2011, noting that she

and Heine were "very proud of our full 2011 results.”

Defendants received $50,000 performance bonuses in early

2012.

48 UNITED STATES V. YATES

D

All of this would eventually catch up with defendants

when the FDIC undertook a further investigation, this time

with the FBI. Walsh was arrested and pleaded guilty to wire

fraud charges and conspiracy to make a false bank entry. He

agreed to provide information to aid the government's

investigation of Heine and Yates. Walsh was sentenced to

30 months in prison.

Once defendants' schemes came to light, the bank ceased

operating. Its remaining assets were sold, its employees lost

their jobs, and shareholders lost most of their investments.

The government indicted Heine and Yates for conspiracy

to commit bank fraud, 18 U.S.C. § 1349, and numerous

counts of making false bank entries, 18 U.S.C. § 1005. The

indictment alleged that the purpose of the conspiracy was "to

conceal the true financial condition of the Bank and to create

a better financial picture of the Bank to the Board of

Directors, shareholders (current and prospective), regulators

and the public.” "To achieve this,” the indictment alleged,

defendants "reported false and misleading information about

the performance of loans, concealed information about the

status of foreclosed properties, made unauthorized transfers

of Bank proceeds, and failed to disclose material facts about

loans to Bank insiders to the Board of Directors,

shareholders, and regulators.” Heine and Yates's principal

defense at trial was that Walsh was to blame and that

defendants did not appreciate what he was doing.

The jury didn't buy it. It convicted defendants on one

count of conspiracy to commit bank fraud. It also convicted

them of twelve counts of making false bank entries. The

UNITED STATES V. YATES 49

court today vacates all these convictions. The court's

reasoning, as I will explain, is based on legal error.1

II

The majority's first move is to vacate defendants'

convictions for conspiracy to commit bank fraud. But to get

there, the majority must ignore the overwhelming evidence

of defendants' guilt, which the government presented to the

jury through a valid bank fraud theory—so valid, in fact, that

the majority does not even question it. The majority then

finds fault with a single PowerPoint slide that the

government used at closing argument. Between that slide

and the district court not giving a responsive curative

instruction, the majority holds that defendants' conspiracy

convictions must fall.

The court's decision presents nowhere near the basis

required to undo the result of defendants' month-long trial.

In holding otherwise, the majority wrests from jurors a

decision that was rightfully theirs to make, while failing to

show the proper deference to the district court's real-time

judgment calls. In the process, the majority gives

defendants—for now—a free pass for committing serious

misconduct that Congress understandably decided was

detrimental to our nation's banks.

1 Defendants raised a variety of other issues on appeal that the

majority does not reach. I address only the grounds on which the

majority vacates defendants' convictions. But I note that defendants'

other arguments are insubstantial. I would have rejected them in

affirming defendants' convictions in full.

50 UNITED STATES V. YATES

A

Although the majority obscures the point, it is important

to understand that defendants' conspiracy convictions were

based on an entirely sound theory of bank fraud, and one that

the majority opinion does not counter.

Under 18 U.S.C. § 1349, it is a crime to conspire to

commit bank fraud. The bank fraud statute, in turn, punishes

anyone who "knowingly executes, or attempts to execute, a

scheme or artifice” to "defraud a financial institution.” Id.

§ 1344(1). To qualify as a "scheme to defraud,” "the scheme

must be one to deceive the bank and deprive it of something

of value,” meaning money or property. Shaw v. United

States, 137 S. Ct. 462, 469 (2016); see also Neder v. United

States, 527 U.S. 1, 20–21 (1999) (explaining that "scheme

or artifice to defraud” is interpreted analogously in the wire,

mail, and bank fraud statutes). The deprivation of property

"must play more than some bit part in a scheme: It must be

an 'object of the fraud.'” Kelly v. United States, 140 S. Ct.

1565, 1573 (2020) (quoting Pasquantino v. United States,

544 U.S. 349, 355 (2005)). The government's proof easily

met these elements.

As an initial matter, and quite obviously, the jury could

conclude that defendants engaged in a scheme to deceive the

bank. The majority opinion does not suggest otherwise.

Defendants repeatedly misled the bank's Board and bank

employees about A Avenue and the loans to Martin Kehoe

and Randall Coleman. Defendants improperly used bank

funds to complete an unlawful straw purchase of A Avenue;

made an unauthorized $675,000 wire transfer to Kehoe;

misled the Board about the purpose of the $1.7 million

Kehoe loan; misleadingly used the Kehoe loan to pay off

delinquent loans of other customers without their

knowledge; took money out of Dudley's political account

UNITED STATES V. YATES 51

and improperly used it to pay off his personal loan without

telling him; failed to obtain required down payments from

Coleman; and misled the Board about the purpose of

Coleman's later $100,000 bank loan.

This was deception upon deception. Each of defendants'

wrongs was independently deceptive and subject to the bank

fraud statute. See, e.g., United States v. Vinson, 852 F.3d

333, 342–43, 344 n.13, 352 (4th Cir. 2017) (upholding bank

fraud conviction when, among other conduct, defendant

conspired with bank president to obtain approval of sales

without conforming down payments, made unauthorized

loans, and concealed the true purpose of loans he obtained);

United States v. Peterson, 823 F.3d 1113, 1118, 1120–21

(7th Cir. 2016) (upholding bank fraud conviction when

defendants falsely claimed that their loans would be used for

business purposes); United States v. Gallant, 537 F.3d 1202,

1211, 1225 (10th Cir. 2008) (upholding bank fraud

conviction when bank officials conspired with others to

"conceal delinquencies” by "making [accounts] appear

current without any payments by the cardholders”);

Feingold v. United States, 49 F.3d 437, 440 (8th Cir. 1995)

(upholding bank fraud conviction when bank president

ensured "that the bank loan committee and its directors did

not know the true purpose of the loan or the nature of the risk

involved”).

These individual wrongs were bad enough. But as pieces

of a collective effort to deceive the bank and regulators about

the financial health of the institution, they were deceptive

beyond that. This is quite plainly a permissible theory of

deception under the bank fraud statute. See, e.g., United

States v. Molinaro, 11 F.3d 853, 857–58 (9th Cir. 1993)

(upholding conviction under § 1344 when bank owner

concealed facts that would have made regulators "frown”

52 UNITED STATES V. YATES

and that "would excite the Board's interest and invite closer

scrutiny of [the bank's] solvency”); United States v.

Severson, 569 F.3d 683, 685–86 (7th Cir. 2009) (upholding

bank fraud conviction when the defendant participated with

bank's president in scheme to "mask the bank's dilapidating

condition and to present the illusion of a financially sound

bank”); United States v. Fields, 614 F. App'x 101, 102 (4th

Cir. 2015) (affirming convictions of bank executives when

"[t]he indictment alleged that the objectives of the

conspiracy were to hide the true financial condition of the

Bank and to benefit the conspirators at the Bank's expense”).

Defendants also deprived the bank of money or property

as part of this deceptive scheme. See Shaw, 137 S. Ct.

at 469. How? Because they literally took from the bank

millions of dollars and repurposed it. Defendants diverted

from bank funds: $267,727 to Danny Williams to do a straw

purchase of A Avenue; $675,000 for Kehoe's initial

unauthorized wire transfer; another $1.7 million to Kehoe to

cover up the initial $675,000 outlay and surreptitiously pay

off other people's loans; $23,326.66 out of Dudley's

political account; and $100,000 to Coleman to pay back the

down payments defendants falsely represented Coleman had

already made, to say nothing of the initial amounts loaned to

Coleman to finance the Bishop and Mesick purchases and

get them out of OREO. All of this was money defendants

took from bank funds as part of their fraudulent scheme.

Under Supreme Court precedent, it is irrelevant whether

the bank suffered an "ultimate financial loss” or whether

defendants had an "intent to cause financial loss.” Shaw,

137 S. Ct. at 467. The bank had "the right to use [its] funds.”

Id. at 466. Defendants misappropriated those funds. It is

hard to imagine a clearer deprivation of money or property

than actually diverting millions of dollars from the bank. See

UNITED STATES V. YATES 53

id. at 467 (explaining that it is "'sufficient' that the victim

(here, the bank) be 'deprived of its right to use of the

property, even if it ultimately did not suffer unreimbursed

loss”) (quoting Carpenter v. United States, 484 U.S. 19, 26–

27 (1987)).

The defendants respond that, in fact, taking money from

the bank was not an "object” of their scheme because it was

merely an "incidental byproduct” of their broader

"objective” of lying to the bank's Board and government

regulators about the bank's financial health. The basis for

this argument is the Supreme Court's "Bridgegate” decision

in Kelly v. United States, 140 S. Ct. 1565 (2020). Quite

fortunately, the majority does not go with defendants on this

point, instead assuming that the government's "bank-funds

theory” was permissible. But it should be clear that

defendants' reliance on Kelly is wholly without merit.

In Kelly, the defendant public officials closed two lanes

of the George Washington Bridge to punish the Fort Lee,

New Jersey mayor for refusing to support the Governor's

reelection. Id. at 1568–69. To ensure that traffic in the

remaining lane would not be further delayed during the toll

collector's breaks, the defendants arranged for a second toll

collector to be on duty. Id. at 1570. The government argued

that the added cost of this toll collector constituted a property

deprivation sufficient to sustain a conviction for wire fraud

(which has the same analytical structure as the bank fraud

statute we consider here). Id. at 1572.

The Supreme Court rejected the government's theory.

The Court explained that "the Government had to show not

only that [defendants] engaged in deception, but that an

object of their fraud was property.” Id. at 1571 (quotations

and alterations omitted). While "a scheme to usurp a public

employee's paid time is one to take the government's

54 UNITED STATES V. YATES

property,” in Kelly the defendants' "use of Port Authority

employees was incidental to—the mere cost of

implementing—the sought-after regulation of the Bridge's

toll lanes.” Id. at 1572. This was insufficient to support

defendants' convictions because the "property must play

more than some bit part in a scheme.” Id. at 1573. A

"property fraud conviction cannot stand,” Kelly held, "when

the loss to the victim is only an incidental byproduct of the

scheme.” Id.

Properly considered, this case bears no meaningful

resemblance to Kelly. Defendants' fraudulent diversion of

millions of dollars in bank funds was not somehow a mere

"bit part,” "implementation cost,” or "incidental byproduct”

of their fraudulent scheme. Even if defendants misguidedly

believed that all the bank's books would eventually balance

out, using bank funds was central to their fraud.

Kelly was concerned with federal prosecutors misusing

the wire fraud statute to turn "every corrupt act by state or

local officials . . . [into] a federal crime.” Id. at 1574.

Defendants' misconduct at their bank, in sharp contrast, lies

at the foundation of the bank fraud statute. Defendants took

the bank's money, diverted it to trusted third parties

(Williams, Kehoe, Coleman), and then used these third

parties to re-route the money back to the bank to wipe away

troublesome bank records that would otherwise attract the

scrutiny of the bank's Board and regulators. Diverting the

bank's funds was necessary, central, and critical to the entire

scheme. Under any reasonable sense of the phrase—both

linguistically and conceptually—depriving the bank of this

money was "an object” of defendants' fraud. Id. at 1571

(emphasis added) (quotations omitted).

The Second Circuit in United States v. Gatto, 986 F.3d

104 (2d Cir. 2021), rejected the same argument under Kelly

UNITED STATES V. YATES 55

that defendants raise here. In Gatto, the defendants were

employees at a sports apparel company that had sponsorship

agreements with university sports programs. Id. at 111. The

defendants illicitly paid money to basketball recruits'

families to entice the recruits to join these programs, which

would have made the students ineligible under NCAA rules.

Id. Defendants were prosecuted for wire fraud, and the

Second Circuit upheld the convictions on the government's

theory that defendants had deprived the universities of

money used for financial aid given to the student athletes.

Id. at 116.

In so holding, the Second Circuit rejected the

defendants' reliance on Kelly. The Second Circuit explained

that "[d]efendants may have had multiple objectives, but

property need only be 'an object' of their scheme, not the

sole or primary goal.” Id. (quoting Kelly, 140 S. Ct. at 1572)

(citation omitted). Depriving the universities of funds was

not merely an "implementation cost[]” or "incidental

byproduct” of defendants' scheme but was rather "at the

heart” of the scheme, because "the scheme depended on the

Universities awarding ineligible student-athletes athleticbased aid.” Id. That was so even though depriving the

universities of financial aid monies was part of defendants'

broader scheme to pay recruits' families to ensure that

recruits went to schools where defendants' apparel company

had lucrative sponsorship relationships. See id. at 109.

As in Gatto, diverting money from the bank may not

have been Heine and Yates's "sole or primary goal.” Id. But

it was "at the center of the plan,” id., because the larger

scheme to conceal the bank's poor financial standing

integrally depended on using the bank's own funds for that

purpose. This case involves a scheme broader than simply

depriving the bank of money outright, just as in Gatto the

56 UNITED STATES V. YATES

scheme was broader than just depriving the universities of

money. But that made no difference to the Second Circuit,

and it should make no difference here. Defendants in this

case did not somehow remove millions of dollars from the

bank "incidentally.”

The central role of the monetary deprivation here in

relation to the fraud is thus fundamentally different from

what occurred in Kelly, where the deprivation of toll

collectors' wages was merely a bit byproduct of the political

payback scheme. That Heine and Yates taking money from

the bank was part of their broader effort to mislead the bank

and the FDIC should not somehow take their misconduct

outside the bank fraud statute. That would create nothing

less than a license to misuse bank funds.

B

The majority does not disagree with anything I have just

said about the theory of bank fraud set forth above. It is

clear, in my view, that this theory was a legally valid one.

And a massive amount of evidence supported it, too. So

what could provide the basis for reversing defendants'

conspiracy convictions?

The majority offers only this: during closing argument,

the government used a PowerPoint slide that featured some

misplaced theories of "something of value.” But a few

misstated bullet points in a PowerPoint deck cannot be a

thread that somehow unravels defendants' entire multi-week

trial. The misplaced PowerPoint slides were clearly

harmless to the overall result. See Skilling v. United States,

561 U.S. 358, 414 & n.46 (2010).

At closing, the government used a 157-slide PowerPoint

presentation. One slide, entitled "Something of Value,”

UNITED STATES V. YATES 57

stated that defendants "Sought to deprive Bank and [the

Board] of” (1) "Accurate financial information in Bank's

books and records”; (2) "The defendants' salaries, bonuses,

and use of Bank's lending services”; and (3) "Use of Bank

funds.” Later, outside the presence of the jury, Heine

objected that "something of value cannot be the accuracy of

the information that was the subject of the representation,”

and sought a curative instruction. The district court declined

to give one.

The majority concludes that depriving the bank of

accurate information, a more abstract deprivation, could not

be a deprivation of money or property under the bank fraud

statute. I agree with that. The majority also concludes that

depriving the bank of defendants' salaries and bonuses was

not the deprivation of property either. I suspect the majority

is not correct when it comes to performance-based

compensation. See United States v. Ratcliff, 488 F.3d 639,

644 (5th Cir. 2007) ("We do not dispute the Government's

contention that a salary and other financial employment

benefits can constitute 'money or property' under the

statute.”). But it is easy enough for me to assume for

purposes of analysis that both these theories on the

government's PowerPoint slide are impermissible. Even so,

this certainly does not justify reversing defendants'

conspiracy convictions.

When it came to the actual jury instructions, the jury was

correctly charged using language that directly tracked the

bank fraud statute: "The phrase 'scheme to defraud a bank'

means any deliberate plan of action or course of conduct by

which someone intends to (a) deceive or cheat (b) a bank out

of something of value.” The instructions did not ascribe any

definition or legal theory to "something of value,” as

58 UNITED STATES V. YATES

defendants concede. Indeed, the district court pointed that

out when denying Heine's request for a curative instruction.

Although the majority purports to rely on the fact that the

jury instructions did not further define "something of value,”

defendants do not assert they requested any jury instruction

on "something of value.” In fact, they do not challenge on

appeal any of the jury instructions that the district court gave.

The jury was also correctly instructed that "arguments by the

lawyers are not evidence.” To say that the jury during the

trial was given three different theories of "something of

value,” as the majority does, is thus not correct. At best, the

jury was given three different theories on a single closing

argument PowerPoint slide.

The majority acknowledges, of course, that one of these

three theories of "something of value” was the defendants'

"Use of Bank funds”—the perfectly legitimate theory I

detailed above. But the majority somehow claims that the

government "said little more about that theory at trial.” That

assertion blinks reality. The entire focus of the

government's case during defendants' lengthy trial was to

show—through witness after witness and document after

document—how defendants diverted money from the bank,

"cleaned” it through valued third parties like Kehoe, and

then arranged for the money to come back into the bank

where it was re-deployed to problem areas in the bank's

portfolio that were likely to invite inquiry. Again, there is

no challenge to the jury instructions here. And the

government was not required to argue to the jury through

special terminology—as opposed to demonstrate with

evidentiary proof—that defendants had as an object the

diversion of bank funds.

The majority is thus simply wrong in claiming that from

the perspective of whether the defendants deprived the bank

UNITED STATES V. YATES 59

of something of value, the "accurate-information” and

"salary-maintenance” theories "were the focus of the entire

prosecution.” That defendants lied to the bank, and that they

did so to preserve their own financial well-being, were

certainly themes in the government's case. But these were

part of the government's entirely lawful theory of deception.

Critically, there is no serious challenge to the

admissibility of any evidence here. And the evidence

relating to defendants misleading the bank and regulators

about the financial health of the bank, as well as defendants'

salaries and bonuses, was independently relevant to other

aspects of the government's proof and its overall theories of

fraud and motive. Defendants do not challenge the

admissibility of this evidence, nor could they. The majority

is thus clearly mistaken in claiming that "the entire district

court proceedings were permeated with . . . prohibited . . .

theories.” (quotations and brackets omitted). The district

court proceedings were permeated with admissible

evidence—all of which was damning for the defendants on

the various elements the government was required to prove.

The issue thus comes back to whether the government's

use of a partially inaccurate "Something of Value” closing

argument slide warrants reversal. It clearly does not. "Even

when a contemporaneous objection is made, improprieties in

counsel's arguments to the jury do not constitute reversible

error unless they are so gross as probably to prejudice the

defendant, and the prejudice has not been neutralized by the

trial judge.” United States v. Mendoza, 244 F.3d 1037,

1044–45 (9th Cir. 2001) (quotations omitted); see also

United States v. Barragan, 871 F.3d 689, 708 n.20 (9th Cir.

2017).

Some of the factors we consider in making that

determination are the strength of the prosecution's case

60 UNITED STATES V. YATES

notwithstanding the error, Barragan, 871 F.3d at 708, the

emphasis placed on the error in the "context of the entire

trial,” United States v. Senchenko, 133 F.3d 1153, 1156 (9th

Cir. 1998), and whether the jury was properly instructed,

United States v. Medina Casteneda, 511 F.3d 1246, 1250

(9th Cir. 2008). We have also held that "[w]hen counsel

misstates the law, the misstatement is harmless error if the

court properly instructs the jury on that point of law or

instructs that the attorneys' statements and arguments are not

evidence.” Mendoza, 244 F.3d at 1045 (quoting Lingar v.

Bowersox, 176 F.3d 453, 460 (8th Cir. 1999)).

All these factors support the government. The closing

argument slides were the only time the parties identify the

jury hearing anything about the meaning of "something of

value.” While the district court declined to give a curative

instruction after closing argument, this is a real-time

decision for which we give the district court "substantial

latitude.” United States v. Rodriguez, 971 F.3d 1005, 1016

(9th Cir. 2020); see also United States v. Reyes, 660 F.3d

454, 461 (9th Cir. 2011). When the jury instructions were

themselves legally correct, and when the trial judge had

already instructed the jury that counsel's arguments were not

evidence, I certainly cannot fault the district court decision

on Heine's request for a curative instruction. See Mendoza,

244 F.3d at 1045.

At the very least, reversal of the convictions would not

be warranted given the overwhelming evidence of guilt,

including the extensive testimony showing that defendants

deprived the bank of something of value—millions of dollars

in diverted bank funds. We should have affirmed

defendants' convictions for conspiracy to commit bank

fraud. In assuming the position of both juror and district

court judge, the majority forgets our role and undermines

UNITED STATES V. YATES 61

Congress's objective to punish blatant white-collar

misconduct of the type we have here, which threatens the

stability of our banking system.

III

Equally mistaken is the majority's decision to vacate

defendants' convictions for making false bank entries. See

18 U.S.C. § 1005. The jury convicted defendants on twelve

counts of making false bank entries: three for the A Avenue

transaction (counts 12, 18–19); four for the Coleman

transactions (counts 3, 11, 16–17); and five for the thirdparty loan payments on behalf of Abrams, Duffy, Goodman,

Dudley, and Guettler (counts 7–9, 13, 15).

Defendants did not clearly challenge on appeal their false

bank entry convictions as to the A Avenue and Coleman

transactions. The government pointed that out in its

answering brief, and defendants did not even address it in

their reply brief. So the government will understandably be

surprised to learn that the majority has vacated all of the false

bank entry convictions because of their connection to the

now-invalid conspiracy charge, based on what appears to be

a single line of argument in defendants' opening brief—a

line that does not even appear in the argument section

devoted to the false bank entry convictions.

Because I believe we should have affirmed defendants'

conspiracy convictions outright, premising the false bank

entry charges on the conspiracy convictions poses no issue

for me. But the majority, which must confront the question,

concludes it is unclear whether the jury would have

convicted the defendants for making false bank entries in the

absence of a conspiracy. I highly doubt that conclusion is

correct, even on the terms of the majority opinion. The

majority itself acknowledges that "Heine and Yates were

62 UNITED STATES V. YATES

personally involved in making the reports charged as false

entries.” Even if the conspiracy convictions fail, the

majority has not shown why this alone requires vacatur of

the false bank entry convictions.

But at the very least, given the almost total lack of

briefing on this question, the majority would have done well

to at least ask the parties to weigh in further on this issue

before vacating convictions that the government understood

defendants not to even be appealing. Or we could have left

this issue to the district court on remand. Instead, in one fell

swoop, all of defendants' convictions get tossed, including

ones that I am not even sure defendants properly appealed.

But the majority goes further. The false bank entry

convictions that defendants did clearly appeal (counts 7–9,

13, 15) arise from defendants' failure to include as past-due

loans on the FDIC call reports those delinquent loans that

defendants paid out of third-party funds, namely, the

$1.7 million loan to Kehoe (counts 7–9), Dudley's political

account (count 13), and Walsh's payment on behalf of

Guettler (count 15). As to counts 7–9 and 15, the majority

also holds that insufficient evidence supported these

convictions, even under plain error review (for count 15).

This aspect of the majority's holding now bars retrial on

counts 7–9 and 15. Once again, the majority's setting aside

of the jury's verdict is deeply troubling and lacks a proper

basis in law.

The false bank entry statute criminalizes making "any

false entry in any book, report, or statement of [a federallyinsured] bank, . . . with intent to injure or defraud” the bank

or the FDIC. 18 U.S.C. § 1005. Under this statute, a

statement on a banking entry is "false” if it is "intentionally

made to represent what is not true or does not exist, with the

intent either to deceive its officers or to defraud the

UNITED STATES V. YATES 63

association.” United States v. Darby, 289 U.S. 224, 226

(1933) (quotation omitted). The purpose of this statute is "to

give assurance that upon an inspection of a bank, public

officers and others would discover in its books of account a

picture of its true condition.” Id.

Consistent with that purpose, falsity may take many

forms. An entry is false if it records a transaction that is itself

"false and fictitious, concocted for the very purpose of

distorting [a] financial statement.” United States v. Gleason,

616 F.2d 2, 29 (2d Cir. 1979). "[M]aterial omissions” are

also false statements. United States v. Ely, 142 F.3d 1113,

1119 (9th Cir. 1997) (noting that "[e]very circuit” agrees).

Statements "capable of misleading the officers of the bank”

can be false as well. United States v. Sheehy, 541 F.2d 123,

129 (1st Cir. 1976). And so too statements and omissions

that are intended to conceal the "true picture of the bank's

condition.” United States v. Luke, 701 F.2d 1104, 1108 n.7

(4th Cir. 1983); see also United States v. Austin, 585 F.2d

1271, 1274 (5th Cir. 1978) (a bank entry was false when it

"prevented the FDIC examiners from discerning” an

overdrawn account).

In this case, to avoid further internal and regulatory

scrutiny, defendants sought to reduce the amount of past-due

loans on their FDIC call reports. But there were some bank

customers that were delinquent. Defendants' primary

solution was to loan $1.7 million to the hard money lender

Kehoe, not disclose to the bank's Board the purpose of the

Kehoe loan, and then use the Kehoe loan proceeds to pay off

the delinquent accounts of other customers without their

knowledge. Defendants would arrange for these payments

at the very end of the fiscal quarter, just before call reports

were due.

64 UNITED STATES V. YATES

"When reviewing the sufficiency of the evidence, we ask

whether, after viewing the evidence in the light most

favorable to the prosecution, any rational trier of fact could

have found the essential elements of the crime beyond a

reasonable doubt.” United States v. Koziol, 993 F.3d 1160,

1176 (9th Cir. 2021) (emphasis added) (quotations omitted).

In the majority's view, there was no "falsity” here as a

matter of law because the call reports simply asked whether

the loans had been paid, and here they were. The majority's

cramped approach to the false bank entry statute is wrong.

And its refusal to accept the jury's verdict shows insufficient

regard for the factfinders who heard the evidence.

The FDIC call reports required loans to be included if

they were "past due.” The question put before the jury was

what this meant. In evidence the majority nowhere

acknowledges, the jury heard extensive testimony that the

bank, defendants, and the FDIC all understood that a "past

due” loan was a loan for which "the borrowers are not

paying timely or not paying.” Indeed, the government's

evidence showed that the Bank of Oswego's own loan

committee had a "past due list” that identified the account

number, the name of the borrower, the monthly payment,

and the number of days the borrower's payment was past

due.

Not only did the jury hear about a common

understanding of "past due,” it learned why it mattered to the

FDIC that a "past due” loan was one for which the borrower

had not paid. The reason: delinquent loans present a

significant functional risk for the bank, which is why the

FDIC requires them to be reported. The FDIC's Paul

Worthing explained to the jury that defendants' rerouting of

the Kehoe loan proceeds "mask[s] the true performance

issues” in the delinquent loans and exposes the bank to even

UNITED STATES V. YATES 65

greater levels of risk. "Essentially,” Worthing testified,

defendants were "using bank funds . . . to bring past due

loans current.” The FDIC through the call reports is

attempting to assess how good a job the bank is doing when

it loans money. If a bank is effectively using its own money

to repay delinquent loans, the bank is conveying the

misimpression that its loan practices are better than they

actually are.

Based on the evidence presented at trial, it is not correct

to say, as the majority does, that no rational jury could find

defendants guilty of making false bank entries. To the

contrary, the jury could have easily concluded that

defendants' failure to include loans for which they had

manufactured payments was either "misleading,” Sheehy,

541 F.2d at 129, or omitted "vital fact[s],” Ely, 142 F.3d at

1119, or was intended to conceal the "true picture of the

bank's condition,” Luke, 701 F.2d at 1108 n.7, or was

concocted for the "very purpose of distorting [a] financial

statement,” Gleason, 616 F.2d at 29. Or all the above. All

of these would satisfy the "falsity” standard under § 1005.

The majority therefore errs in believing it relevant that

the FDIC's call report form "does not call for a narrative

response” or "ask for the source of a payment on any of the

underlying loans.” The point here is not that defendants

were required to make some additional notation in a template

that did not allow for it, but that defendants categorically

treated as not "past due” loans that were "past due.” Or at

least the jury could so conclude based on the evidence

presented.

But of course, the jury had much more to go on than just

the shared meaning of "past due.” The majority asserts that

"the loan to Kehoe was a real loan that was approved by the

board of directors.” That assertion is difficult to comprehend

66 UNITED STATES V. YATES

because it ignores the plainly fraudulent features of the

Kehoe loan. The jury heard evidence that Heine and Yates

failed to disclose that the loan to Kehoe would be used to

pay off the loans of other unsuspecting delinquent customers

(much less Kehoe's own unauthorized wire transfer of

$675,000).

In United States v. Ely, 142 F.3d 1113 (9th Cir. 1997),

bank executives similarly arranged for the bank to issue new

loans under the false pretense of "enabl[ing] expansion of

business enterprises,” when, in fact, "the real reason” for the

new loans was to pay off the interest payments on existing

loans. Id. at 1118–19. The only difference between this case

and Ely is that there, the executives were funding personal

stock purchases. Id. at 1116. Here, defendants were using

the loan to hide their own mismanagement. The difference

is irrelevant. The Board may have "approved” Kehoe's loan,

but the jury could conclude that it did so under false

assumptions. And while the majority proclaims that

Kehoe's loan was used to return "real money” back to the

bank, this was really just the bank's money that had been

given to Kehoe after Heine and Yates defrauded their own

Board as to the purpose of his $1.7 million loan.

There were, in addition, various other irregular features

of the third-party loan payments that the jury could conclude

raised obvious questions about their legitimacy, and thus

whether the loans should have been included as "past due.”

This included that the delinquent account holders were not

even told the payments were made on their behalf. The

majority asserts that "the customers had no right to refuse to

make timely payments on valid loans,” apparently implying

that these customers were required to accept Kehoe's

payments on their behalf (even though the bank never told

them about the payments). But nothing would require a bank

UNITED STATES V. YATES 67

customer to accept a favor from a hard money lender, with

whatever adverse consequences might follow from that.

From the perspective of Duffy, Goodman, and Abrams, their

loans were very much "past due.”

But there is more. All of the third-party loan payments

were arranged at the end of the quarter and just before call

reports were due. And in the case of Walsh paying

Guettler's overdue balance himself, there is extensive

evidence showing that defendants knew Walsh's conduct

was improper. Why else would Yates have told Walsh she

was "not supposed to hear” about this? And why else would

Yates have instructed the bank's controller to edit the

transaction to "[s]omething more generic”? The jury could

consider these highly suspicious circumstances in

determining whether defendants made false bank entries.

The majority itself recognizes that Yates taking money

out of Dudley's political account was unlawful under the

false bank entry statute. But it is impossible to understand

why the majority draws the line there and refuses to allow

the jury to credit the government's evidence as to the Kehoe

transactions and Walsh's personal payment on behalf of

Guettler. The majority finds significant that "once Dudley

found out about it, he could have demanded that [the

payment from his political account] be reversed.” But

couldn't Abrams, Duffy, and Goodman have demanded that

the Kehoe payments—that they never authorized—be

reversed as well? The same is true for Guettler. At the very

least, the Dudley maneuver is just further evidence of

defendants' wrongful intent to rig the call reports. It is itself

supportive of the jury's verdict on the other false entry

counts.

Under the majority opinion, however, defendants' only

unlawful conduct in all of this was taking money from

68 UNITED STATES V. YATES

Dudley's political account. If only Kehoe had also covered

that loan or defendants had paid it themselves, everything

would have been fine. So long as the payment is made, the

loan is technically not past due, and there is no false bank

entry—as a matter of law. The majority opinion is

effectively allowing banks to set up their own Ponzi

schemes. The FDIC can be forgiven for asking how it is

supposed to evaluate the soundness of a bank's overall loan

practices when bank executives are now given wide latitude

to engage in such misleading financial maneuvering.

The highly dubious nature of defendants' conduct thus

takes this case far outside the majority's hypothetical of a

grandmother paying her grandchild's loan. Suffice it to say,

hard money lender Martin Kehoe was nobody's

grandmother. When a grandmother pays a loan, the FDIC's

concern about a bank's functional risk is not present because

the loan payment is being satisfied independent of the bank.

Here, defendants were effectively having the bank pay back

its own loans through Kehoe after lying to the Board about

the purpose of the Kehoe loan, which itself exposed the bank

to greater risk. See Darby, 289 U.S. at 226.

Perhaps defendants could have argued to the jury that

what they did was no different than the beneficent

grandmother. But the jury was certainly not required to

accept that sanitized view of the facts. And the issue is,

unfortunately, not a fact-bound one limited to the particulars

of this case. Under today's decision, banks can misrepresent

their past due loans on FDIC reports so long as they take

money from the bank, route it outside the bank, and then

have a loan payment made on behalf of an unsuspecting

delinquent customer. And they may do so even if they have

not been forthcoming to their boards about what they are

doing.

Heine and Yates challenge various evidentiary rulings

and assert that the district court erred in calculating the

bank’s losses for sentencing purposes. Having vacated all of

the convictions, we do not consider those arguments.



VACATED and REMANDED