Appeals court overturns Bank of Oswego fraud convictions
The United States Court of Appeals last week overturned the original ruling on a case in which former Bank of Oswego executives Dan Heine and Diana Yates were found guilty of conspiracy to commit bank fraud and falsifying bank records.
According to court documents filed Oct. 8, which were first reported on and published in full by Oregonlive, the panel from the United States Court of Appeals for the Ninth Circuit threw out the convictions of conspiracy to commit bank fraud and making false bank entries, citing "insufficient evidence."
"We agree with the defendants that two of the government's three theories of bank fraud were legally inadequate and that presenting those theories was not harmless. We therefore set aside the conspiracy conviction," Judge Eric D. Miller wrote in the Oct. 8 ruling. "Without a conspiracy, the false-entry counts cannot stand because the jury may have based its verdict on those counts on a theory of co-conspirator liability."
While Heine's attorneys declined to speak to the media, the Federal Public Defender's office for the District of Oregon issued a statement.
"We are gratified that the Ninth Circuit vacated all convictions against Dan Heine and determined that most of the government's theories did not even state criminal offenses," the statement read. "Mr. Heine, who is 75 years old and worked for 50 years as a respected banker, had confidence that he would be vindicated on appeal and looks forward to putting this difficult time behind him."
Similarly, Yates' attorney Kendra Matthews with Boise Matthews LLP told Pamplin Media Group she was pleased Yates' convictions were overturned.
"We are hopeful the ruling will bring this matter — at long last — to a close, allowing Ms. Yates to focus her time and energy on the future, not the past," Matthews said.
Following a seven-week trial that concluded in November 2017, a jury found Heine, Bank of Oswego's former chief executive officer, and Yates, former chief financial officer, guilty of one count of conspiracy to commit bank fraud and 12 counts of falsifying bank records.
The following year Heine was sentenced to 24 months in prison and Yates received an 18-month term. The two were also each fined $1,300 in court fees and were both required to serve three years of supervised probation after their release. Both defendants were ordered to begin serving their sentences on Sept. 12, 2018 pending the results of an Aug. 7, 2018 hearing that would eventually determine whether Heine and Yates could stay out of prison while they appealed the judge's decision in federal court.
The decision to appeal was granted and the two were released pending appeal.
Heine founded Bank of Oswego, and both he and Yates worked at the community-based financial institution from its inception in 2004 until Yates resigned in 2012 and Heine retired in 2014. Both were arrested and arraigned on June 26, 2015.
The bank sold its assets to Seattle-based HomeStreet Bank in August 2016, and both of its former Lake Oswego locations now operate as HomeStreet branches. HomeStreet did not assume any liability for The Bank of Oswego's legal troubles, however — that responsibility remains with The Bank of Oswego, which still exists as a corporate entity but no longer operates as a bank.
The original 27-count grand jury indictment, which was unsealed on June 24, 2015, and a superseding 20-count indictment filed in March 2017 alleged a complex scheme to hide bad loans from September 2009 through 2014 in an effort to portray the bank's financial condition as much better than it was. Heine and Yates were charged with concealing the true financial condition of the bank from regulators and the bank's board by falsely reporting that the bank had title to a property in a straw-buyer transaction, falsely reporting that delinquent loans were paid and falsely reporting the sale of bank-owned property.
During the trial, the defense teams sought to place most of the blame on the bank's former chief loan officer, Geoff Walsh. Walsh conducted most of the transactions in question, and lawyers for Heine and Yates argued that the two had trusted Walsh and been misled.
But the jury sided with government prosecutors who made the case that Heine and Yates were aware of Walsh's crimes and worked to cover them up. Walsh separately pleaded guilty to fraud and testified against his former bosses; he was sentenced in January 2018 to 30 months in prison.
On appeal, judges poked holes in the government's case against Heine and Yates.
"The government told the jury that Heine and Yates conspired to deprive the bank of three property interests: (1) 'accurate financial information in the bank's books and records,' (2) 'the defendants' salaries [and] bonuses,' and (3) 'the use of bank funds,'" Miller wrote. "The accurate-information theory is legally insufficient. There is no cognizable property interest in 'the ethereal right to accurate information.'"
Miller added that "recognizing accurate information as property would transform all deception into fraud."
In a dissenting opinion, Judge Daniel A. Bress said it was a mistake to throw out the convictions.
"The defendants' conduct was not merely unsavory—it was plainly unlawful," Bress wrote. "A proper understanding of the facts of this case and the mechanics of defendants' scheme confirms the verdict of the jurors who heard the evidence of the defendants' misdeeds firsthand. … With no challenge to any of the jury instructions and no serious challenge to the admission of any evidence, we have exceeded our role by setting aside defendants' lawful conspiracy convictions."
While the Court of Appeals determined that many of Heine and Yates' actions weren't criminal, the court sent the case back to the U.S. District Court to determine whether to try the case again on Count 13, which was not thrown out. This particular count involved a loan to former NBA player and Oregon gubernatorial candidate Chris Dudley.
"To prevent his loan from being delinquent, Yates directed that a payment be made from Dudley's political campaign account without Dudley's knowledge and without his permission," the Oct. 8 court documents read. "The panel wrote that the payment was not what it was represented to be—an irrevocable commitment by the payor to depart with funds and allow the bank to keep the money in payment of an outstanding loan.
"Given that the transaction was performed on the final business day of the quarter, and Dudley's testimony that a right of setoff did not apply to the campaign account, the jury could have found that the transaction was concocted for the very purpose of distorting a financial statement, unauthorized, and subject to being reversed."
Former Lake Oswego Review reporter Anthony Macuk contributed to this article.
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