APPEAL FROM the UNITED STATES DISTRICT COURT for the EASTERN DISTRICT of PENNSYLVANIA. D.C.Crim. No. 76-472-2.
Rosenn and Higginbotham, Circuit Judges, and George H. Barlow, District Judge.*fn*
In response to a lack of public trust in banking fostered during the Great Depression, Congress enacted legislation to protect the integrity of federally insured banks. Criminal penalties were included in this legislation to prevent actions of bank officers and other employees contrary to the public interest. The defendant, William F. Schoenhut, Jr., an officer of a federally insured bank, was found guilty by a jury of five counts of an indictment charging him with violations of his duty to the bank and the public. Following the verdict, the district judge granted a judgment of acquittal in favor of defendant on all five counts.*fn1 We vacate that judgment, reinstating the verdict as to three of the counts.
This was a complicated criminal action arising out of intricate banking transactions, generated by avarice, and aided by an executive employee's deception and disloyalty. A brief description of the facts adduced at trial is essential to assess the district court's judgment. Because this is an appeal from a judgment of acquittal, the Government is entitled to have the evidence viewed in the light most favorable to the verdict. See United States v. Anderson, 532 F.2d 1218, 1223 (9th Cir. 1976); United States v. Schmidt, 471 F.2d 385, 385-86 (3d Cir. 1972) (per curiam), citing, United States v. Feldman, 425 F.2d 688, 692 (3d Cir. 1970).
Taking the evidence in the light most favorable to the Government, the jury could have found the following. From sometime in 1972 until August of 1973, the defendant served as an Assistant Vice President in the mortgage department of Central Penn National Bank ("Central Penn") under the immediate supervision of the Vice President, John Jacobsen. In September of 1973, defendant succeeded Mr. Jacobsen as the head of the mortgage department and was charged with responsibility for the day-to-day operations of the department, administration, and the origination of new business. During this period, defendant had substantial dealings with H. Gerard Heimbecker, David Pierce, Ronald Nirenberg, and Philip Inverso, all of whom were officers or employees of Delaware Valley Mortgage and Realty Corporation ("Delaware Valley"), a customer of Central Penn's mortgage department.
Delaware Valley was a mortgage broker which had its principal office in Philadelphia, Pennsylvania, with at least one branch office located in Wilmington, Delaware. It was wholly owned by a parent firm known as Mullin and Lonergan, Associates, but was managed by Heimbecker, Nirenberg, and Inverso who reported to the parent. Delaware Valley was in the business of buying, selling, and servicing of mortgages, and to a lesser extent, the financing of construction projects. Generally, it acted as a middle man, purchasing mortgages through realtors and other agents at a certain interest rate and then reselling them at a lower interest rate to financial institutions, which would act as the permanent lenders.
Delaware Valley purchased mortgages only on an interim basis, between the time of settlement on the real estate and the eventual sale of the mortgage to a permanent lender. In this period it needed extensive amounts of capital to finance its short term purchases. To obtain such financing, Delaware Valley entered into a mortgage warehousing agreement with Central Penn.
Mortgage warehousing is a form of extension of credit whereby institutions such as Delaware Valley obtain financing from banks on a short term basis, using mortgages as collateral. Under this system, Central Penn established a line of credit for Delaware Valley in 1972 - initially $500,000, subsequently raised to $2,000,000 - which allowed Delaware Valley quick access to short term financing. At settlement on the purchase of a parcel of property, Delaware Valley would write out a check on the warehouse account, not to exceed its credit limit, to accomplish closing. This check, along with a demand collateral note in Central Penn's name, the mortgage agreement between Delaware Valley and the mortgagee, other required papers, and a commitment letter from a permanent lender indicating permanent financing for the project, would then be sent to the bank. Whenever the permanent lender purchased the mortgage from Delaware Valley, the Central Penn loan would be repaid, the mortgage transferred to the permanent lender, and the appropriate amount reinstated to the credit line. Testimony indicated that the Central Penn mortgage department handled the Delaware Valley warehouse line and that the defendant had supervisory responsibility to insure the proper operation of the department.*fn2
Sometime in the spring of 1973, David Pierce, the manager of the Delaware branch of Delaware Valley, advised Heimbecker, Inverso, and Nirenberg that there was a parcel of land in Smyrna, Delaware, owned by the Karlee Corporation ("Karlee"), which would be suitable for development by Delaware Valley. On past occasions, Delaware Valley had purchased such undeveloped land with the intention of finding builders to construct homes on the sites. On this occasion, however, Heimbecker, Inverso, Nirenberg, and Pierce, all of whom were either officers or employees of Delaware Valley at the time, decided that they would attempt to develop the land themselves for their personal profit. They thought they could obtain financing for this project, both for the purchase of the new land and the construction of the homes, directly from Central Penn.
The defendant was brought into this venture sometime in the spring of 1973. He made inspections of the building site and had discussions with Heimbecker and the others about methods of financing the project. He made it clear that Central Penn could not grant a loan on the project directly to Heimbecker and his associates. The exact reason for this is not certain. Defendant suggested that the loan could not be made because the land was too far from Central Penn for adequate inspections, but it appears more likely that the actual reason the bank would not make the loan was because the officers had contributed only minimal capital to the project and the property constituted mere raw land. Instead, defendant agreed with and supported Heimbecker's proposal that they manipulate the Delaware Valley mortgage warehouse line to finance the purchase and development of the land.
Later that spring, Heimbecker, Pierce, Inverso, and Nirenberg formed the Greenmeadow Holding Company ("Greenmeadow"), a corporation whose sole purpose was to purchase the capital stock of Karlee and thereby acquire control of its land. Shares in Greenmeadow were allotted to each of these individuals and to the defendant. The exact allocation at the time of formation was disputed, but taking the evidence in the light most favorable to the Government, it appears that the defendant initially received a 10 percent share of the stock while the others each received 22.5 percent. Eventually, defendant's share was put in parity with the other shareholders.*fn3
On July 19, 1973, settlement was held in Philadelphia at which Greenmeadow purchased all of the Karlee stock. As security for this sale, the Greenmeadow principals, including the defendant, pledged the Karlee stock to its former owners.*fn4 That same afternoon, Delaware Valley granted a construction loan to Karlee in the amount of $1,495,400, holding a mortgage on the Greenmeadow/Karlee property as security. All of the documents evidencing this transaction were signed falsely by persons purporting to be the Greenmeadow principals. These forgeries were made to prevent Mullin and Lonergan Associates from discovering that Delaware Valley officers had a financial interest in Greenmeadow and that they were involved in the construction loan from Delaware Valley. Defendant had no knowledge of these forgeries, although he certainly understood that the principals of Greenmeadow were in fact the officers of Delaware Valley.
In connection with this settlement, Delaware Valley drew a check on its warehouse account for $150,750 to be used by Greenmeadow to purchase the Karlee stock. This check was secured by the mortgage between Delaware Valley and Greenmeadow/Karlee. All of the documents between Greenmeadow/Karlee and Delaware Valley, including the fraudulent loan papers, were forwarded to Central Penn as part of the warehouse line transaction. On July 20, 1973, Central Penn's mortgage department credited Delaware Valley's warehouse account with $150,750 as an advance on stage one of the Greenmeadow/Karlee construction loan.
On August 15, 1973, Nirenberg initiated a request to Central Penn for another advance of $90,450, purportedly for use in construction of water and sewer lines in the Karlee development. Central Penn wired funds directly to a Karlee account at another bank, even though the request was made through the Delaware Valley warehouse account. Apparently, Nirenberg, Heimbecker, and Inverso diverted the use of those funds for their own personal purposes and did not fully expend the sums on the development. The evidence established with certainty that between July 1973 and August 1974 Central Penn actually paid out approximately $620,000 on account of the loan through the warehouse line.
In late September 1973, a routine audit of the mortgage department at Central Penn disclosed that certain of the commitment letters submitted to the bank by Delaware Valley as security for various transactions financed through the warehouse line had expired. The defendant, upon being notified of this problem, promised to rectify the situation. A follow-up audit revealed that sometime after September defendant post-dated several Delaware Valley collateral notes so that they fell due five days before the expiration of the commitment letters.
After the initial audit, defendant met with Heimbecker to discuss the auditor's discovery of the expired commitment letters. Defendant agreed to talk to the bank to see if he could arrange that extra time be given to Delaware Valley to enable it to work out its problems.*fn5 He told his superiors that there was a problem with the Delaware Valley warehouse line, that certain mortgages were supported with improper commitment letters. Defendant misinformed the bank that the problem was not with Delaware Valley. Based on this assurance, the bank gave an extension of time to Delaware Valley to correct the problem. Subsequently, a further extension was given.
On October 4, 1973, defendant wrote a memorandum to his bank superiors that indicated the Delaware Valley problem had been caused by "an overzealous employee" of one of the permanent lending institutions. Truthfully, as was discovered later, it was Delaware Valley's officers that had committed extensive irregularities involving false commitment letters, and who had submitted fraudulent requests on construction loans as well, including false claims for the Karlee site.
Only three sample homes were ever completed at the Karlee development. No inspections were ever made by Central Penn after the funds were forwarded to Delaware Valley on the warehouse line.*fn6 In order to obtain loan advances, Karlee and Delaware Valley were required to submit sales agreements on homes built and sold on the site. Nirenberg submitted fictitious agreements to obtain money from the bank. Furthermore, Nirenberg and Inverso had also embezzled money from Delaware Valley through a scheme involving false mortgage documents, which although discovered by Heimbecker in 1973, was not disclosed to the bank for another year. Funds advanced by Central Penn for Karlee through the Delaware Valley line were frequently converted by Nirenberg and Inverso to make restitution to Delaware Valley for the other embezzlements.
On November 23, 1973, the defendant answered a conflict of interest questionnaire distributed by the bank. He stated that he did not have any interest, financial or otherwise, in any customer of the bank; that he did not receive any gifts or benefits from any customer of Central Penn; and he denied that he had acquired any stock, securities, or property available to him solely because of his employment with Central Penn.
In August of 1974, defendant revealed to the bank for the first time his interest in the Greenmeadow/Karlee group. His employment was terminated shortly thereafter. Eventually, after the entire scheme was uncovered, the bank foreclosed on the Karlee development and suffered substantial losses on the project.
With this factual background, defendant was convicted of the following counts of the indictment:
(1) Count I - knowingly and unlawfully receiving stock in Greenmeadow for endeavoring to procure a loan from Central Penn to Karlee through the Delaware Valley warehousing line;
(2) Count III - knowingly and unlawfully misapplying the funds of Central Penn in arranging the loan to Karlee and knowing of the forged documentation for the transaction;
(3) Count VI - knowledge of forged documents sent in an official report to the bank with ...