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U.S. v. Schwartz

decided: March 21, 1990.


On Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Criminal Action No. 88-00215-01.

Greenberg, Scirica and Seitz, Circuit Judges.

Author: Greenberg


GREENBERG, Circuit Judge.

Defendant-appellant, Steven A. Schwartz, appeals from the judgment of conviction and sentence entered May 26, 1989, on two counts of a three count indictment charging him with bank fraud under 18 U.S.C. § 1344(a). We are concerned with essentially legal issues as Schwartz indicates in his brief that the "appeal does not contest the sufficiency of the evidence to establish the charges contained in the two counts of conviction," but rather challenges the application of 18 U.S.C. § 1334(a) "to the facts as alleged and proved."*fn1

This is what happened. In 1982 Schwartz founded Medical Audit Services, a firm which audited hospital bills on behalf of health insurance providers to locate unauthorized services and overcharges. While Services was at first successful, by late 1986 and early 1987 it was having difficulties. It maintained its checking account at Philadelphia National Bank which gave it immediate access to deposited checks without waiting for them to clear. Schwartz used Services' account for both business and personal purposes.

On May 27, 1987, Schwartz deposited a check for $30,000 into Services' account with Philadelphia National drawn on an account with the Vanguard Group of his mother, Ilene Schwartz, but signed by him with her authority in her name. On that same day, Schwartz withdrew $2,500 from the Philadelphia National account which, without credit for the Vanguard check, had a balance of a little over $3,700. On May 28, 1987, Philadelphia National, at Schwartz's request, wired $9,500 from Services' account to a commodities account Schwartz maintained in Chicago. In addition, on the same day Philadelphia National wired $18,000 to his California friend, Christine Vitto, who was at a casino in Las Vegas, Nevada. Vitto placed two sports bets for Schwartz from this money. These three withdrawals equalled the amount of the $30,000 deposit. On May 29, 1987, the Vanguard check was returned unpaid as there were insufficient funds to cover it.

When Philadelphia National called Schwartz about the situation, he attributed the return of the check to a drop in the share value of his mother's account at Vanguard. He then went to a Philadelphia National office on May 29, 1987, and deposited another check drawn on the Vanguard account, again signed by him in his mother's name, this one for $35,000. Philadelphia National gave him immediate credit for this deposit. Schwartz then went to Las Vegas and then to California where he visited Vitto from whom he sought a loan. She said she could obtain only $200 but, at Schwartz's suggestion, gave him a signed, partially dated check, blank as to amount, payable to Services, drawn on her account at the Wells Fargo Bank. At that time Vitto showed Schwartz her check register reflecting a balance in the account of only a little over $400.

On June 1, 1987, Philadelphia National received a check for payment drawn on Services' account, signed by Schwartz, and payable to his mother for $10,000. It paid that check even though Services' account, including credit for the $35,000 Vanguard check, contained a balance of $8,709.84. On June 2, 1987, the $35,000 Vanguard check was returned for insufficient funds and, once again, the bank got in touch with Schwartz about the situation. On June 3, 1987, Schwartz brought Vitto's check to Philadelphia National, completed in his handwriting for $80,000, and deposited it. The bank, though already burned twice, adhered to its policy and gave him immediate credit for the $80,000.

The pace of events accelerated rapidly following the deposit of this third worthless check. On June 4, 1987, Schwartz had Philadelphia National wire $15,000 from Services' account to his commodities account and he obtained a cashier's check for $24,000 from Philadelphia National for a check he drew on Services' account. In addition, on June 4, 1987, the bank paid a second $10,000 check he had drawn in favor of his mother on Services' account. That evening he deposited the $24,000 check with an Atlantic City casino, lost $16,400 gambling, and withdrew the balance of the $24,000 from the casino. The following day he obtained another $15,000 cashier's check from Philadelphia National, debited against Services' account. He then returned to the casino, deposited the $15,000 check, lost $4,900 gambling, and withdrew the balance of the $15,000.

The action then slowed for several days as the next significant event was on June 10, 1987, when the Vitto check was returned for insufficient funds. By that time the overdraft balance in Services' account was $94,085.23.*fn2

Schwartz testified at the trial and had an explanation for the foregoing events. He said he thought the Vanguard check for $30,000 was good, that Vitto's father was going to cover the $35,000 Vanguard check in time for it to be honored, and that Vitto's father was going to set up him and Vitto in business and, in connection with that enterprise, cover the $80,000 check. Schwartz testified that he did not repay the $94,000 to Philadelphia National on advice of counsel because he had offsetting claims against the bank.*fn3

Not surprisingly the foregoing events led to the return of the indictment. In count one it was alleged that Schwartz "knowingly devised and executed, and attempted to devise and execute a scheme and artifice to defraud PNB [Philadelphia National] and to obtain the monies and funds owned by and under the custody and control of PNB by means of false and fraudulent pretenses, representations and promises, knowing those pretenses, representations and promises to be false when made." The count then described the depositing of the three worthless checks and the various withdrawals and, in the last paragraph, made particular reference to the first Vanguard check for $30,000.*fn4 The second and third counts incorporated the first count by reference, but respectively made reference to the second Vanguard check, i.e., the $35,000 check, and the $80,000 Vitto check. In all three counts it was alleged that Schwartz knew that the checks he deposited were drawn on accounts without sufficient funds to cover them. In each, Schwartz was charged with violating 18 U.S.C. § 1344(a), without specification of the applicable subsection, (a)(1) or (a)(2).

At the ensuing trial, Schwartz was acquitted on count one but was convicted on counts two and three. On count two he was fined $10,000 but a sentence of imprisonment was suspended and he was placed on probation for five years on condition that he pay the fine and a special assessment of $100, and make restitution to Philadelphia National of $94,085.25.*f ...

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