Opposition — Mitchell v. United States

Supreme Court, U,

FILED

| MAY 90 1979

MICHAEL RODAK, JR., CLERR

No. 78-1486

Iu the Supreme Court of the United States

OCTOBER TERM, 1978

CHARLES A. MITCHELL, PETITIONER

Vv.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE FIFTH CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

WADE H. MCCREE, JR.

Solicitor General

PHILIP B. HEYMANN

Assistant Attorney General

ELLIOTT SCHULDER

Attorney

Department of Justice

Washington, D.C. 20530

Page

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CITATIONS

Cases:

Gilbert v. United States, 370 U.S. 650....7, 8, 9, 11

Greathouse v. United States, 170 F.2d

EES 8,9

Hall v. United States, 372 F.2d 608 .......... 9-10

Marteney v. United States, 216 F.2d 760..8, 9, 10

Melvin v. United States, 316 F.2d 647........ 9

Pines v. United States, 123 F.2d 825.......... 9,10

Stinson v. United States, 316 F.2d 554...... 8

United States v. Brown, 246 F.2d 541........ 9

United States v. Crim, 527 F.2d 289, cert.

denied, 425 U.S. 906 ......................0.-c00-- 8, 10

United States v. Hagerty, 561 F.2d 1197.... 8, 10

United States v. Huntley, 585 F.2d 1400,

cert. denied, 480 U.S. 929 _.........02......... 8, 10

United States v. Johnson, 504 F.2d 622...... 8, 9

United States v. Jones, 553 F.2d 351, cert.

denied, 431 U.S. 968 ...0.......... oe. eee 8,9

United States v. Lipscomb, 546 F.2d 787,

cert. denied, 430 U.S. 970 -..00000..2.eee ee. 10

United States v. Metcalf, 388 F.2d 440...... 9

Cases—Continued Page

United States v. Seay, 518 F.2d 646, cert.

denied, 423 U.S. 995 ................---.-ceeeseesee 10

United States v. Tucker, 473 F.2d 1290,

cert. denied, 412 U.S. 942 -..................--- 8-9, 10

United States v. Williams, 498 F.2d 547.... 8

Wright v. United States, 172 F.2d 310...... 9,10

Statutes and regulations:

National Stolen Property Act, ch. 413, 53

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Be I I einen certo caictnininacarescnmennpmotnone 7

BP SRG. WEE airiseyeetaiepniiechicantinaencnsiomoserqene 7

Oe IIE, IT scitincenmnirwansesncsninniinetdpanscsibanasionn 2

BP Ree | BIE iets secsinconvnceccrcartomsncsnscinonce 7

Be Re I hcretectcisninceincnecceceamnentnneinions 7

Be Re I wide cienciniictaisosesaninaincei 2, 6, 7, 8, 9, 10

Miscellaneous:

2 East, Pleas of the Crown (1808) ............ 7-8

H.R. Rep. No. 422, 76th Cong., 1st Sess.

SpE ERIE SE tie ath a eS 7

S. Rep. No. 674, 76th Cong., 1st Sess.

CRE die spianissncaldabeinataietaateenachipagatianaonioee 7

In the Supreme Court of the United States

OCTOBER TERM, 1978

No. 78-1486

CHARLES A. MITCHELL, PETITIONER

Vv.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE FIFTH CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINION BELOW

The opinion of the court of appeals (Pet. App.

la-5a) is reported at 588 F.2d 481.

JURISDICTION

The judgment of the court of appeals (Pet. App.

6a) was entered on January 25, 1979. A petition for

rehearing was denied on February 28, 1979 (Pet.

App. 7a). The petition for a writ of certiorari was

filed on March 27, 1979. The jurisdiction of this

Court is invoked under 28 U.S.C. 1254(1).

(1)

2

QUESTION PRESENTED

Whether backdated certificates of deposit issued

without the actual deposit of funds are “falsely made”

securities within the meaning of 18 U.S.C. 2314.

STATUTE INVOLVED

18 U.S.C. 2314 provides in pertinent part:

Whoever, with unlawful or fraudulent intent,

transports in interstate or foreign commerce any

falsely made, forged, altered, or counterfeited

securities or tax stamps, knowing the same to

have been falsely made, forged, altered, or coun-

terfeited; * * *

* * * * *

Shall be fined not more than $10,000 or im-

prisoned not more than ten years, or both.

STATEMENT

Following a jury trial in the United States Dis-

trict Court for the Northern District of Mississippi,

petitioner was convicted on three counts of interstate

transportation of falsely made securities, in viola-

tion of 18 U.S.C. 2314.1 He was sentenced to con-

current terms of two years’ imprisonment.’ The court

of appeals affirmed (Pet. App. la-5a).

1 Petitioner was acquitted of making a false statement to a

federally-insured bank, in violation of 18 U.S.C. 1014, and of

conspiracy to violate 18 U.S.C. 1014 and 2314.

2The proceeding against co-defendant Boyd Hobbs was

transferred to the Northern District of Alabama, where Hobbs

pleaded guilty to one count of the indictment and was sen-

tenced to one year’s imprisonment (I R. 26-27). (“R.” re-

fers to the seven-volume record in the court of appeals, which

contains the trial transcript.)

3

The relevant facts are not in dispute (Pet. 4).

Petitioner was president of the Columbus Savings and

Loan Association. In 1971 the Association developed

“cash flow or cash shortage problems” as a result of

unsound loans (V R. 958, 975-976).° Petitioner

sought to conceal those problems from the Associa-

tion’s board of directors; together with co-defendant

Boyd Hobbs, a developer of commercial properties,

petitioner devised a sophisticated “kiting” scheme to

increase the Association’s cash reserves (Pet. App.

2a).

The scheme involved the issuance of certificates of

deposit by the Association without the actual deposit

of funds (III R. 421-424, 520-581; V R. 965-967).

Co-defendant Hobbs would arrange with out-of-state

banks to obtain business loans to be secured by cer-

tificates of deposit. Petitioner would then issue back-

dated certificates of deposit and give them to Hobbs

for use as collateral.t Petitioner also authorized as-

3’ By August 1971, the Association’s liquidity problems had

reached the point where it had a $243,000 deficit balance at its

depository bank, and savings withdrawals exceeded deposits

by $50,000. Thus, if all the Association’s outstanding checks

were presented for payment, it would have been seriously over-

drawn and would have had to borrow against legally required

reserve deposits to meet its obligations (IV R. 831-835; V R.

887-890, 959-965 ; Gov’t Ex. 50 at 18).

* The certificates were issued in two different forms. Each

form certified that Hobbs had placed funds on deposit in the

Association as of the “date” of issue (Gov’t Ex. 6a, 12a, 18a,

15a). The backdating of the certificates was essential to the

success of the scheme (Pet. App. 3a). When Hobbs first at-

tempted to pledge accurately dated certificates shortly after

4

signments of the certificates to the pledgee banks.

In exchange for the certificates, Hobbs gave petitioner

checks or drafts in the amount of the face value of

the certificates. Pursuant to a previous agreement,

however, petitioner did not negotiate the checks or

enter the transactions in the Association’s ledger.

Hobbs then transported the certificates in inter-

state commerce to the pledgee banks, which accepted

the certificates as collateral for their loans to Hobbs.

Hobbs later deposited the loan proceeds in his ac-

count to cover the checks that he had previously

written. Upon receiving notification from Hobbs that

the checks were covered, petitioner negotiated the

checks and recorded the transactions on the Associa-

tion’s books (reflecting receipt of the checks and is-

suance of the certificates) (V R. 991).

Over a two-year perioc, petitioner issued to Hobbs

nearly $4 million in backdated certificates of deposit

(IV R. 788). During that period, petitioner also ap-

proved loans to Hobbs totalling several million dollars,

which petitioner concealed from the Association’s

board of directors (IV R. 696-700, 701-708; V R. 940-

942; 948-949; Gov’t Ex. 55). The Association lost

they were issued, officers of the pledgee banks questioned why

the certificates were being pledged immediately after issuance

(III R. 522-524). Thereafter, petitioner backdated all of the

certificates in order to insure that they would be acceptable to

the lending banks (V R. 983-986). Because the certificates

represented that Hobbs held substantial assets at the Associa-

tion, his credit worthiness was enhanced. Petitioner admitted

that “anyone reading the certificate would assume that those

deposits were actually there in the Association” (V R. 991).

pe

5

substantial amounts of money when Hobbs defaulted

on these loans; the full extent of the Association’s

losses were undetermined at the time of trial (IV R.

711, 764, 793-795).°

Petitioner conceded at trial that Hobbs’ checks for

the certificates of deposit were not processed through

regular channels until after loans had been obtained

on the certificates (V R. 904-906, 966-970, 978-979,

987, 991-993). He also admitted that although the

certificates purported to represent deposits on account

at the Association on the date they were issued (V

R. 991), the Association would not have been obligated

to pay Hobbs unless and until his checks had cleared

(V R. 998-995).

In its instructions to the jury, the district court

stated (VII R. 48):

A falsely made security is one issued without

any real or believed obligation on the part of the

maker to pay or redeem the security on the de-

mand of the person to whom it is issued. The

issuance of a savings certificate without the ac-

tual deposit of the funds represented by the cer-

tificate does not obligate the maker to pay the

purported depositor and therefore falsifies the

5 Approximately 10% of the Association’s liabilities were

in certificates issued to Hobbs; approximately 30% of its

assets were in loans to Hobbs, including loan participa-

tions that had to be repurchased by the Association from other

institutions when Hobbs defaulted (IV R. 781-788, 790-792;

V R. 971-972, 974-977).

* The certificates of deposit were valid obligations of the

Association as to innocent third party assignees who took them

for value.

6

nature of the instrument within the meaning of

Section 2314.

In affirming petitioner’s conviction, the court of

appeals held that there was sufficient evidence to sup-

port the jury’s finding that the securities in ques-

tion were “falsely made” within the meaning of 18

U.S.C. 2314. The court rejected the argument that

the term “falsely made” relates exclusively to

genuineness of execution, and concluded that the cer-

tificates of deposit were “falsely made” in this case

because petitioner “knew that Hobbs’ checks would

bounce if immediately negotiated and hence he knew

that there was no obligation on the part of the As-

sociation to honor the CD at the time it was issued”

(Pet. App. 4a-5a).

ARGUMENT

The certificates of deposit involved in this case

were issued at petitioner’s direction and were then

transported by Hobbs in interstate commerce and

pledged as collateral for loans. The certificates

falsely represented that Hobbs had a specified sum

an deposit in an existing savings account at the

Association. In addition, the certificates stated that

they had been issued on a date prior to the date on

which they actually were issued. The question here

is whether those certificates were “falsely made”

within the meaning of 18 U.S.C. 2314. We submit

that the falsely dated certificates, issued as part of

a fraudulent scheme to obtain loans from other in-

7

stitutions by false pretenses, were “falsely made” as

that term is used in Section 2314.’

The term “falsely made” is not defined in Section

2314 or in any of the other sections of the criminal

code in which it is employed.* Moreover, the legisla-

tive history provides no assistance in defining “falsely

made.” * The term “forged,” also appearing in the

statute, was usually used at common law in reference

to the “ ‘false making * * * of any written instru-

ment for the purpose of fraud and deceit.’” Gilbert

v. United States, 370 U.S. 650, 656 (1962) (em-

phasis in original) (quoting from 2 East, Pleas of

7™The parties who were directly deceived by petitioner’s

scheme to negotiate false certificates of deposit were the lend-

ing banks that received them as collateral. Those lenders were

deceived about the amount of assets owned by Hobbs. They

were led to believe that he owned substantial, previously exist-

ing liquid assets. In fact, however, the deposits were not an

independent cushion for the loans; the loans themselves were

used to create the deposits under petitioner’s kiting scheme.

The funds of the lenders were not used to augment the re-

sources of a business borrower with substantial collateral, but

rather to supply liquidity to a savings and loan association

with serious cash management and loan portfolio deficiencies.

8 See, e.g., 18 U.S.C. 478 (foreign obligations or securities),

18 U.S.C. 495 (contracts, deeds, and powers of attorney), 18

U.S.C. 507 (ship’s papers), 18 U.S.C. 1426 (naturalization or

citizenship papers), 18 U.S.C. 1543 (passports).

® The predecessor of the provision at issue here was enacted

in 1939 as an amendment to the National Stolen Property Act,

ch. 418, 53 Stat. 1178. The committee reports do not dis-

cuss the intended meaning of the term “falsely made.” See

S. Rep. No. 674, 76th Cong., Ist Sess. (1939) ; H.R. Rep. No.

422, 76th Cong., Ist Sess. (1939).

8

the Crown 852 (1803)); see also id. at 656-657 &

nn.8-10.

While it is clear that forgery and false making are

closely related concepts, the lower courts disagree

over whether the term “falsely made,” as used in

Section 2314 and its predecessors, was meant to be

synonymous with forgery or was intended to have a

broader meaning. The Fourth, Seventh and Tenth

Circuits hold that the two terms are essentially

synonymous. See United States v. Jones, 553 F.2d

351, 354 (4th Cir.), cert. denied, 481 U.S. 968

(1977) ; Greathouse v. United States, 170 F.2d 512,

514 (4th Cir. 1948); United States v. Johnson, 504

F.2d 622, 625 (7th Cir. 1974); United States v. |

Crim, 527 F.2d 289, 294 (10th Cir. 1975), cert.

denied, 425 U.S. 905 (1976); United States v. Wil-

liams, 498 F.2d 547, 551 (10th Cir. 1974) ; Marteney

v. United States, 216 F.2d 760, 763 (10th Cir. 1954).

On the other hand, the Fifth, Sixth, and Eighth Cir-

cuits adhere to the view that “the purpose of the

term ‘falsely made’ was to broaden the statute be-

yond rigorous concepts of forgery and to prohibit

the fraudulent introduction into commerce of falsely

made documents regardless of the precise method by

which the introducer or his confederates effected their

lack of authenticity.” United States v. Huntley, 535

F.2d 1400, 1402 (5th Cir. 1976), cert. denied, 430

U.S. 929 (1977). See United States v. Hagerty, 561

F.2d 1197, 1199 (5th Cir. 1977); Stinson v. United

States, 316 F.2d 554, 555-556 (5th Cir. 1963);

United States v. Tucker, 473 F.2d 1290, 1293-1294

. aie

(6th Cir.), cert. denied, 412 U.S. 942 (1978) ; Pines

v. United States, 123 F.2d 825, 828 (8th Cir. 1941).

In cases construing the term “forgery” under var-

ious statutes, the courts “have generally drawn a dis-

tinction between false or fraudulent statements and

spurious or fictitious makings.” Gilbert v. United

States, supra, 370 U.S. at 658. Where the falsity

lies in the representation of underlying facts de-

scribed in a document, but not in the genuineness

of its execution, forgery ‘; generally found not to

exist. Ibid. The same distinction between falsity of

representation and execution has also been applied by

a number of courts in interpreting the “falsely made”

provision of Section 2314. See United States v. Jones,

supra, 553 F.2d at 355; United States v. Johnson,

supra, 504 F.2d at 625-626; Melvin v. United States,

316 F.2d 647, 648 (7th Cir. 1963); United States

v. Brown, 246 F.2d 541, 542 (2d Cir. 1957); Mar-

teney v. United States, supra, 216 F.2d at 763-764;

Wright v. United States, 172 F.2d 310, 311 (9th

Cir. 1949); Greathouse v. United States, supra, 170

F.2d at 514.

Thus, under this restrictive view, a security is not

falsely made within the statutory definition if it is

drawn by the maker in his own name on an existing

bank in which he has inadequate funds, since in that

situation the security is authentic in its execution;

the falsity is merely in the implicit representation

that adequate funds are on account at the institution.

See, e.g., United States v. Metcalf, 388 F.2d 440, 442

n.4 (4th Cir. 1968) ; Hall v. United States, 372 F.2d

10

603, 607 n.8 (8th Cir. 1967); Marteney v. United

States, supra, 216 F.2d at 763; Wright v. United

States, supra, 172 F.2d at 311-312. But see United

States v. Hagerty, supra. A security drawn on a

nonexistent institution, however, is falsely made un-

der Section 2314, since there could be no genuine in-

strument issued by a fictitious bank. See, e.g., United

States v. Lipscomb, 546 F.2d 787 (8th Cir. 1976),

cert. denied, 480 U.S. 970 (1977); Pines v. United

States, swpra, 123 F.2d at 828. Similarly, the statute

is deemed to have been violated if the maker uses a

fictitious name or an unauthorized signature of an-

other in drawing the security. See, e.g., United States

v. Huntley, supra, 535 F.2d at 1403; United States —

v. Crim, supra, 527 F.2d at 294; United States v.

Seay, 518 F.2d 646, 647-648 (7th Cir.), cert. denied,

423 U.S. 995 (1975) ; United States v. Tucker, supra,

473 F.2d at 1294.

Even though there is disagreement among the cir-

cuits about the outer limits of Section 2314, that

disagreement is not material to the outcome of the

present case. The certificates of deposit involved here

were falsified during the process of execution, in

furtherance of petitioner’s fraudulent scheme.”° The

10 The fraudulent backdates were integral parts of the execu-

tion of the certificates of deposit. See Government Exhibits

12a, 18a, and 15a, which were executed as follows:

“WITNESS the seal of the undersigned and the signa-

ture of its duly authorized officers, this the 18 day of

October 1972. THE COLUMBUS SAVINGS AND LOAN

ASSOCIATION Jane P. Anderson.”

11

false backdating in the execution of the certificates

was just as much fraud in the making of the securi-

ties as if a false signature had been affixed to them.

None of the cases cited by petitioner holds otherwise,

or suggests that fraudulent backdating is not falsity

in the execution of a security." Thus, while there

may be disagreement among the circuits concerning

the precise scope of the term “falsely made,” that dis-

agreement is not significant here; to the contrary,

it appears that the other circuits (including those

that require fraud in the execution of the security

or equate false making with forgery) would likely

agree with the Fifth Circuit in this case that se-

curities that are falsely backdated when executed as

part of a scheme to defraud are “falsely made.”

See also Government Exhibit 6a, which was executed as fol-

lows:

“Date December 29, 1971

The Columbus Savings and Loan Association

By Jane P. Anderson”

11 Moreover, even if “false making” is defined narrowly as

the equivalent of “forgery,” it is significant that forgery was

not limited at common iaw to the act of simulating another

person’s signature; rather, forgery was held to encompass

the fraudulent making or altering of a writing to the detri-

ment of another. See Gilbert v. United States, supra, 370 U.S.

at 656-657 & nn.8-10.

12

CONCLUSION

The petition for a writ of certiorari should be

denied.

Respectfully submitted.

WADE H. McCREE, JR.

Solicitor General

PHILip B. HEYMANN

Assistant Attorney General

ELLIOTT SCHULDER

Attorney

May 1979

W ov. S. GOVERNMENT PRINTING OFFICE; 1979 294207 398