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United States v. Moraites

decided: February 9, 1972.


Kalodner, Staley and Adams, Circuit Judges.

Author: Staley


STALEY, Circuit Judge.

Appellant, John Pensec, was convicted following a jury trial of conspiracy to misapply bank funds in violation of 18 U.S.C. § 371. In addition, appellant was convicted of three substantive charges of misapplication of bank funds in violation of 18 U.S.C. §§ 656 and 2 and was acquitted of two counts charging him with accepting fees for procuring bank loans.

Appellant had been indicted with several other individuals and a number of corporations in a 61-count indictment. The Government then elected to sever its case against the corporations and three of the individuals and proceed to trial against appellant and one Peter Moraites. Moraites later pleaded guilty to two counts charging violation of 18 U.S.C. § 215 and was also severed. Appellant Pensec was then tried on a restructured indictment, all but six counts having been dismissed.

At all times relevant to the indictment, appellant had been chief operating officer of Midland Bank, Paramus, New Jersey ("Midland"). The Government alleged that appellant Pensec, together with Moraites, a member of Midland's board of directors, involved Midland Bank for the first time in a specialized type of lending, that of loans to the ocean shipping industry. The Government admits that these ship loans had the initial approval of Midland's board of directors, with certain specified limitations regarding types of collateral and dollar amounts. The Government's theory is that these loans began to fail and because of insufficient collateral, Midland faced large losses. The Government contends that Pensec and Moraites, in an effort to avoid these losses, poured more and more of Midland's cash funds into unsecured and uncollateralized loans. This cash was used to keep the various ships in operation until the loans could be repaid.


The following is a capsulized version of the evidence. The Government is, by virtue of the jury's verdict, entitled to have this evidence viewed in the light most favorable to the prosecution. United States v. De Cavalcante, 440 F.2d 1264 (C.A.3, 1971).

Appellant became chief operating officer of the Midland Bank in late 1964. From 1964 until 1968, he was a member of Midland's board of directors as well as a member of the board's executive committee. Commencing in 1965, Director Moraites presented to Midland's board of directors a program for ship loans which he urged Midland to undertake.*fn1 At the outset, each loan was presented either to the board or to the executive committee for approval. Beginning in early 1966, the board established dollar limitations for the total amount of ship loans that it would permit to be outstanding. The board delegated its authority with regard to ship loans to Moraites and Pensec, but the loans were to be kept within the monetary limitations and collateral requirements set by the board. Moraites, a maritime attorney practicing in New York, was relied upon by the board to provide the necessary expertise and documentation for Midland's portfolio of ship loans. Pensec was given sole authority to accept ship loans for Midland and was the sole bank officer with responsibility for supervision of the ship loans. Due to the specialized nature of this type of lending, Moraites, by virtue of his expertise and Pensec, by virtue of his delegated authority, had virtually absolute control*fn2 of Midland's ship loan portfolio.

By mid-1966 the ship loans of one George T. Bacalakis were in difficulty. These loans had been procured by Moraites who had an interest in the borrowing ships. In October of 1966, Moraites began urging one John T. W. McTaggert to take over the operation of the Bacalakis vessels, McTaggert, together with one John P. Katsoulakos, owned a ship brokerage firm, K&M Shipbrokers, Ltd. ("K&M"). This company was in the business of operating and managing vessels on behalf of ship owners, although some of the ships were owned by Katsoulakos.

McTaggert testified that as the result of Moraites' continued entreaties, he and Katsoulakos went to New York to consider Moraites' proposal. As Moraites presented it, he had a personal interest in the ships that had been financed for Bacalakis and was asking K&M to take them over and run them for the benefit of the owners and financiers. Moraites said that the Israel Discount Bank was about to foreclose its mortgages on these vessels and that Midland's outstanding debt, which was unsecured and without any collateral, amounted to $375,000. McTaggert testified that K&M agreed to attempt to salvage the operation of the vessels. K&M agreed to give second mortgages to secure the previously unsecured $375,000.

K&M determined that they would require $150,000 in working capital to undertake the project. Moraites told McTaggert that "he had taken care to see that the $150,000 was forthcoming and he would make arrangements with Mr. Pensec." The $150,000 was generated by a letter of credit in that amount from Midland Bank. No collateral was deposited with Midland to secure the letter of credit.

K&M then took over the operation of the Bacalakis vessels. It soon became apparent that the initial $150,000 advancement of working capital was insufficient. When McTaggert informed Moraites of this fact, Moraites replied that he, Moraites, had arranged with Pensec that Midland Bank would provide K&M with whatever funds were necessary to keep the Bacalakis ships operating.*fn3

McTaggert described the manner in which additional monies over and above the initial $150,000 were provided to K&M. He testified that as funds were forwarded, K&M would execute blank promissory notes. The blanks were to be filled in by Moraites and Pensec as to the amount of the loan and the name of the company against which the loan would be booked. These advances to K&M were originally booked as loans against K&M's own corporations because the Bacalakis companies already had outstanding balances which were too high. Moraites had assured McTaggert, however, that K&M would have no obligation to repay these monies. The entire K&M expenditure in connection with the operation to salvage the Bacalakis vessels amounted ...

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