Sixth Circuit vacates bank fraud conviction

In a surprising development, the 6^th Circuit Court of Appeals ordered that a Tennessee businessman’s conviction for bank fraud be vacated. The 6^th Circuit in the case, U.S. vs. Parkes, held that the jury convicted Timothy Parkes with insufficient evidence of guilt beyond a reasonable doubt. The 6^th Circuit also held that the lower court improperly excluded motive evidence critical to the defense. 

Mr. Parkes’ business made car floor mats and, in the course of conducting that business, borrowed money from a local bank. The business suffered enormous losses when a new manufacturing process failed, resulting in the mats melting in intense summer sun. The business eventually decided to begin importing its mats from China, and essentially acted as a distributor. This decision allowed the business to keep going, but it still owed more than $2 million to the bank. 

The bank also honored bounced checks of the business, essentially converting those amounts into new loans. Soon the loan size exceeded lending limits. To avoid FDIC scrutiny, the bank president falsified entries on its books to make it appear that the amount loaned had gone to several different shell companies. Prosecutors charged Mr. Parkes with participating in the scheme based on a vague fax from the business to the bank. However, there was no evidence that Mr. Parkes was the author of the fax, which was subject to a few alternate explanations. In addition, although the bank president pleaded guilty pursuant to a plea agreement requiring cooperation, the government never introduced his testimony to establish that Mr. Parkes intended that fraudulent bank entries be made.

What the jury did not hear was that the bank president had been embezzling from the bank for years. He may have made the false entries on his own to avoid triggering FDIC scrutiny of his own malfeasance. In addition, the jury did not hear how the bank president had concealed loans exceeding limits from other businesses. Critically, of course, this would have explained to the jury why the bank president might have done this for Mr. Parkes’ business without Mr. Parkes’ intending that it be done. 

The lower court excluded all of this, saying that telling the jury that the bank president was an embezzler would discredit any testimony that he might give. The 6^th Circuit held that it was relevant to Mr. Parkes’ defense in that it spoke to his motive, or lack thereof. The Court of Appeals also held that the relevance of an item has to be judged in relation to the specific issues present in the case. What may be unfairly prejudicial in one case could be pertinent in another. 

The 6^th Circuit, acting through Judges Ray Kethledge, Jane Branstetter Stranch, and District Judge James Gwin, ordered that Mr. Parkes’ conviction be vacated, and that an acquittal be entered.

Click here to view the full opinion.

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• US v. HAROLD STAFFORD

In this well written opinion, Judge Sutton summed up the activity of Mr. Stafford of Nashville:  "Harold Stafford set out to make money from a quaint phenomenon once known as rising home prices.  The first premise of his plan was legitimate but mistaken—that residential real estate would continue to appreciate in value. The second premise of his plan was illegitimate and equally mistaken—that he could get away with filing a series of fraudulent loan applications to purchase the properties.  When the predictable happened, a jury convicted him for violating several white-collar criminal laws, and a judge sentenced him to 96 months in prison."


On appeal to the Sixth Circuit, Stafford raises three issues; the most serious of which is enhancement at his sentencing.  The Sixth Circuit affirmed the District Court on all grounds. 


Regarding an enhancement for obstruction of justice, the Court noted, Stafford told a straw buyer of a home that, if he faced questioning, “we can’t say anything, we have got to stick together.” Because Stafford impeded an ensuing investigation of the mortgages in question, it sufficed as an enhancement for obstruction.

Sophisticated Means was satisfied as an enhancement when Stafford instructed others to submit applications for owner-occupied loans; told straw buyers to purchase all of their houses in the same month before the purchases appeared on their credit reports; directed others to apply for loans from different lenders; supplied people with falsified tax returns; and otherwise misused his specialized knowledge of the mortgage industry to create and sustain this conspiracy.  


Lastly, the Court found he was an organizer or leader because he recruited many straw buyers, enlisted builders to sell nearly two dozen homes and brought others in on the scheme. He gave direction and oversight at all levels of the scheme the Sixth Circuit found.