United States v. Pettigrew

• Court: Court of Appeals for the Fifth Circuit
• Decided: February 22, 1996
• Docket: 94-50182
• Status: Published

Opinion

IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

No. 94-50182

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

versus

HAL PETTIGREW, CRAIG WALKER, and CHAD POWELL,

Defendants-Appellants.

* * * * * * * * * * * * * * * * * * * * *

Consolidated with

No. 94-50183

GEORGE MONTAGUE,

Defendant-Appellant.

Appeals from the United States District Court for the Western District of Texas March 11, 1996

Before WISDOM, GARWOOD and JONES, Circuit Judges.

GARWOOD, Circuit Judge:

Defendants-appellants Hal Pettigrew (Pettigrew), Chad Powell

(Powell), George Montague (Montague), and Craig Walker (Walker)

appeal their convictions for alleged criminal activities relating

to their dealings with Victoria Savings Association (VSA). We

affirm in part, reverse in part, and in part reverse and remand for

a new trial, as well as partially remanding for resentencing.

Facts and Proceedings Below

During 1986, Pettigrew engaged in three real estate

transactions involving VSA that later became the subject of the

present indictment. In each of these transactions, Pettigrew would

purchase property on the open market which he would then sell to

third party buyers who received financing for the purchase through

VSA. The loans made by VSA to the third party purchasers were

allegedly over funded, with the excess profits being disguised

through the use of sham liens on the properties. Pettigrew would

then use these excess funds to purchase "real estate owned" (REO)

that VSA had acquired through foreclosure, thereby allowing VSA to

remove those properties from its books without suffering any loss

due to depressed real estate values. The first of these

transactions, referred to as the "Irving/River Run" transaction,

occurred in November 1986. William Snider (Snider), acting as

trustee for Llano Land Services (Llano Land), a Pettigrew-

controlled company, purchased approximately 55 acres of land

2 located in Irving, Texas, for $6.5 million. Later the same day,

Snider sold the property to Linus Baer and Carl Bohn, buyers

allegedly located by VSA chairman Rupert Hays (Hays) and Powell,

for $12,000,020. The approximately $5.5 million profit on the sale

was disguised by placing a $5 million sham lien on the property in

favor of Loch P. Lomond Production Company (Loch P. Lomond),

another Pettigrew-controlled entity. Llano Land then used the $5

million to purchase the River Run Condominiums from VSA, removing

them from VSA's inventory of REO. Upon the advice of attorney Ray

Williamson (Williamson), Pettigrew sent a letter to VSA purporting

to detail the terms of the transaction.

The next transaction, known as "McPherson Park/Luck Field,"

was similar in its details to the Irving/River Run deal. In

December 1986, Donald Johnson, acting as trustee for Crown Oaks

Employee Profit Savings Trust (COEPST), another Pettigrew entity,

purchased Luck Field for approximately $4.8 million. In January

1987, COEPST sold the Luck Field property to McPherson Park, Ltd.

(McPherson Park), a buyer selected by VSA, for approximately $12.5

million financed by VSA. Again, a sham lien for $10 million was

placed on the property in favor of Midwest Credit Company (Midwest

Credit). Following the closing, $6,100,000 was placed in

certificates of deposit held by VSA. Montague sent a letter to

Hays at VSA purporting to disclose the terms of the transaction.

The third transaction, known as "Cottonwood/White's Branch,"

began with the purchase of 205 acres of land for $4,150,000 by

Craig Walker (Walker) through his Cottonwood Capital Corporation

3 (CCC), acting as trustee for Pettigrew. The property was sold one

week later to White's Branch, Inc. for approximately $6.9 million,

financed in part by a $3,100,000 loan from VSA. A lien in favor of

Rand Financial Corporation (Rand) was placed on the property for

$2.5 million. Once again, Montague sent a letter to Hays

purportedly setting forth the terms of the transaction.

Approximately $1 million in profits from the McPherson Park/Luck

Field and Cottonwood/White's Branch transactions were used to make

"commission payments" to one H.E. Preble through an account at VSA

which funds were ultimately used to pay delinquent interest on a

note held by VSA.

Although the offenses for which the appellants were convicted

relate predominantly to the three transactions described above,

three additional real estate transactions are relevant to Powell’s

convictions. During the fall of 1986, R. Mark Pitzer (Pitzer) and

Ronnie E. Collins (Collins) approached Hays and Powell at VSA

seeking refinancing of notes held on a property referred to as

“Barthold Road.” VSA allegedly conditioned the refinancing on

Pitzer and Collins’ agreement to purchase two pieces of VSA’s REO,

the Cheyenne Plaza Shopping Center (Cheyenne Plaza) and Frankfort

Square Shopping Center (Frankford Square), using $800,000 in excess

funds to be included in the Barthold Road loan. Attorney J. Mark

Hesse (Hesse), Pitzer and Collins’ attorney, acted as a third party

purchaser of the properties acting through his company, Proformance

Incorporated (Proformance), using the excess funds from the

Barthold Road loan to make the downpayments. Hesse additionally

4 received “bottom” fifty percent liability on the Cheyenne Plaza and

Frankford Square notes. VSA also allegedly agreed to include an

additional $700,000 in the Barthold Road loan to secure the

cooperation of Pitzer and Collins. Powell was allegedly aware of

the structure of the transaction, yet signed loan committee

applications that failed to disclose that the purpose of the loan

was to finance the purchase of REO from VSA.

A second transaction involved a VSA loan of $6 million to

Pitzer and Collins through their Bloomdale Road Joint Venture #1

(Bloomdale Road) purportedly for the purchase of 149 acres in

McKinney, Texas. However, the government alleged that the loan was

overfunded by approximately $3 million, which was used for the

personal benefit of Hays, Powell, Pitzer, and Collins. For

example, Powell purchased Hays’ share of the Fall Creek Ranch with

the proceeds of a sale of a partial interest in the Fall Creek

Ranch venture to Pitzer and Collins. Pitzer and Collins had

purchased that interest from Powell with a loan from Union Bank

which was collateralized by CD’s purchased with the proceeds of the

Bloomdale Road loan. Once again, it is alleged that Powell was

aware that the Bloomdale Road loan was overfunded yet failed to

disclose this fact to VSA on committee loan applications that he

signed as a VSA officer.

The third transaction involved Powell’s receipt of a loan

through his wholly-owned company, Royston Properties, Inc. (Royston

loan). Powell obtained this loan for the purpose of paying

interest on a note (Santexco note) held by First City Bank on which

5 Hays was the guarantor. Hays’ interest in the loan was not

disclosed to VSA.

On June 23, 1993, a grand jury convened in the Western

District of Texas returned a thirty-six count indictment naming

Pettigrew, Powell, Montague, and Walker, as well as seven other

defendants. The indictment charged the defendants with two

conspiracies, as well as numerous substantive offenses relating to

their dealings with VSA, primarily bank fraud (18 U.S.C. §

1344(a)(1)) and the making of false entries in the books or records

of a lending institution (18 U.S.C. § 1006). Four defendants,

including Hays, pleaded guilty either before or during the early

stages of the trial, while three others were acquitted by the jury.

Following trial, Pettigrew was convicted of two counts of

conspiracy, two counts of bank fraud (18 U.S.C. § 1344), three

counts of aiding and abetting false entries in the records of a

lending institution (18 U.S.C. § 1006), and one count of money

laundering (18 U.S.C. § 1957). Powell was convicted of the two

conspiracy counts as well, along with six counts of making false

entries (18 U.S.C. § 1006), five counts of aiding and abetting

insider participation in the receipt of loan proceeds with the

intent to defraud VSA and an agency of the United States (18 U.S.C.

§ 1006), two counts of bank fraud (18 U.S.C. § 1344(a)(1)), and one

count of misapplication of funds (18 U.S.C. § 657). Walker and

Montague were both acquitted of the two conspiracy counts charged

in the indictment. However, Walker was convicted of one count of

aiding and abetting bank fraud and one count of aiding and abetting

6 the making of false entries, while Montague was convicted of two

counts of bank fraud (18 U.S.C. § 1344(a)(1)) and three counts of

aiding and abetting the making of false entries (18 U.S.C. § 1006).

Appellants now bring this appeal.

Discussion

I. Instructional Errors

The trial court’s refusal to include a requested instruction

in the charge to the jury is usually reviewed for abuse of

discretion, and the court is given substantial latitude in

formulating the charge. United States v. Storm, 36 F.3d 1289, 1294

(5th Cir. 1994), cert. denied, 115 S.Ct. 1798 (1995). Generally,

refusal to include a requested instruction is reversible error only

if the requested instruction is substantially correct, the actual

charge given the jury did not substantially cover the content of

the proposed instruction, and the omission of the proposed

instruction would seriously impair the defendant’s ability to

present a defense. Id; United States v. Correa-Ventura, 6 F.3d

1070,1076(5th Cir. 1993).

A. 18 U.S.C. § 1006

All of the appellants urge, and indeed the government

concedes, that the district court erred in refusing to submit

appellants’ requested materiality instruction with respect to the

section 1006 counts. We agree.

In order to establish a violation of section 1006, which

prohibits the making of false entries in the records of a lending

institution, the government must establish beyond a reasonable

7 doubt that: (1) the lending institution was one of those described

in section 1006; (2) the individual making the entry was an

officer, agent, or employee of the institution; (3) the individual

knowingly or willfully made, or caused to be made, a false entry

concerning a material fact in a book, report or statement of the

institution; and (4) the individual acted with the intent to injure

or defraud the institution or any of its officers, auditors,

examiners, or agents. United States v. Beuttenmuller, 29 F.3d 973,

982 (5th Cir. 1994). Thus, materiality is an essential element of

the false entry offense. Id.; see also United States v. Parks, 68

F.3d 860, 865 (5th Cir. 1995), cert. denied, 64 USLW 3502 (1996).

In Beuttenmuller, we stated that “[w]hile materiality rests

upon a factual evidentiary showing by the prosecution, the actual

determination of materiality is a question of law for the court .

. . .” Beuttenmuller, 29 F.3d at 982. However, the Supreme

Court’s recent decision in United States v. Gaudin, 115 S.Ct. 2310

(1995), teaches otherwise. In Gaudin, the Supreme Court indicated

that the determination of materiality under a related statute, 18

U.S.C. § 1001, was not a pure question of law, but rather a mixed

question of law and fact. Id. at 2314-15. More importantly, a

unanimous Court held that the Fifth and Sixth Amendments demanded

that the defendant’s guilt of the element of materiality, like all

other elements of the crime, be determined beyond a reasonable

doubt by a jury of his peers.1 Id. at 2320.

1 While we are cognizant of the fact that one panel of this Court is generally powerless to overrule the previous decision of another panel absent rehearing by the full Court sitting en banc,

8 The government, while conceding that the trial court’s failure

to give the materiality instruction was error, insists that the

error was harmless. This argument appears to us to be foreclosed

by the Supreme Court's reasoning in Sullivan v. Louisiana, 113

S.Ct. 2078, 2081-82 (1993). In Sullivan, the Supreme Court was

presented with the question whether the harmless error analysis

could be applied to a defective reasonable doubt instruction.

Justice Scalia, writing for a unanimous Court, observed that

harmless error review requires a court to determine what effect the

constitutional error had upon the verdict rendered by the jury.

Id. at 2081. Therefore, the Court concluded that where there is

defective reasonable doubt instruction, harmless error review is

simply not possible as there is no verdict upon which the analysis

can operate. Id. at 2082. In other words, "[t]here being no jury

verdict of guilty-beyond-a-reasonable-doubt, the question whether

the same verdict of guilty-beyond-a-reasonable-doubt would have

been rendered absent the constitutional error is utterly

meaningless." Id.

The reasoning of Sullivan leads inescapably to the same

conclusion in the present case. Because the element of materiality

was withheld from the jury, the jury rendered no verdict as to that

particular element of the offense. Thus, the harmless error

an exception to this rule arises when there has been an intervening decision by the United States Supreme Court overriding the earlier decision. United States v. Parker, 73 F.3d 48, 51 (5th Cir. 1996). Given the Supreme Court’s decision in Gaudin, we conclude that Beuttenmuller’s holding that materiality under section 1006 is a question of law for the court has been overruled.

9 analysis is similarly inapplicable.

Having found that appellants’ convictions under section 1006

were fatally flawed, we are similarly compelled to reverse the

convictions for conspiracy found in count thirty-six. Although

making false entries in violation of section 1006 was but one of

several object offenses alleged in the indictment, where a general

verdict form allows for conviction for conspiracy to commit any one

of several object offenses a legal defect in any one of the

offenses alleged will require reversal of the conspiracy

conviction. United States v. Smithers, 27 F.3d 142, 147 (5th Cir.

1994).2 The trial court’s failure to instruct the jury with

respect to the materiality element of the false entry offense

raises the possibility that appellants’ conspiracy conviction rests

upon legally inadequate grounds. Because we are unable to

determine on review which object offense the jury selected, we

reverse.3

B. 18 U.S.C. § 1344(a)(1)

Pettigrew and Montague urge that their convictions for bank

fraud under 18 U.S.C. § 1344(a)(1) must also be reversed due to an

2 We take care to note the distinction between a general verdict for conspiracy that rests upon legally inadequate grounds such as the one with which we are presented today and a general verdict that rests upon insufficient evidence that does not require reversal. For a discussion of this distinction, see Griffin v. United States, 112 S.Ct. 466 (1991). 3 Because we reverse on the basis of the materiality instruction, we do not reach the question whether the trial court adequately instructed the jury on the intent element of the section 1006 offense.

10 instructional defect.4 Section 1344(a)(1) provides that it shall

be a crime to “knowingly execute[], or attempt[] to execute, a

scheme or artifice—— (1) to defraud a federally chartered or insured

financial institution . . . .”5 “The requisite intent to defraud

is established if the defendant acted knowingly and with the

specific intent to deceive, ordinarily for the purpose of causing

some financial loss to another or bringing about some financial

gain to himself.” United States v. Saks, 964 F.2d 1514, 1518 (5th

Cir. 1992) (citations omitted); see also United States v. Dobbs,

63 F.3d 391, 395 (5th Cir. 1995).

The trial court denied Pettigrew’s request to submit an

instruction to the jury defining "intent to defraud" that was

substantially in accord with the definition set forth in Saks.6

Furthermore, the instruction given by the trial court did not

specifically define “intent to defraud” for purposes of section

4 Montague adopts this point of error from Pettigrew’s brief. Although Walker and Powell were also convicted of offenses under this section, they have neither briefed nor moved to adopt this point of error. Therefore, any such error is waived. 5 Section 1344 was amended in 1989 to designate former subsection (a) as an entire section which now reads: “Whoever knowingly executes, or attempts to execute, a scheme or artifice (1) to defraud a financial institution . . . .” 6 Pettigrew’s requested instruction read: “To act with the intent to defraud means to act knowingly with the specific intent to deceive or cheat for the purpose of causing some financial loss to another or to bring some financial gain to oneself.” The trial court’s denial of Pettigrew’s requested instruction preserved error as to both Pettigrew and Montague as the district court had informed the defendants that any written request to charge not read to the jury would be deemed denied and constituted objection by all defendants.

11 1344(a)(1).7 Pettigrew and Montague contend that the failure to

submit the requested instruction allowed the jury to convict upon

a finding of deceit alone without finding that appellants possessed

the specific intent to defraud which is necessary element of the

offense. Appellants argue that this error was further exacerbated

by the fact that "intent to defraud" was defined elsewhere in the

instructions as "intent to deceive or cheat," and by the fact that

the prosecutor repeatedly equated "intent to deceive or cheat" with

"intent to defraud" during closing arguments.

Appellants assert that the failure to submit the requested

instruction was reversible error because it hampered their ability

to advance the defense that even if the sham liens were intended to

deceive, they were employed for the purpose of helping, rather than

7 The trial court’s section 1344(a)(1) charge reads as follows:

“Title 18 United States Code section 1344(1) [sic] makes it a crime for anyone to knowingly execute or attempt to execute a scheme or artifice to defraud a federally chartered and insured financial institution. For you to find a defendant guilty of this crime you must be convinced that the government has proved each of the following beyond a reasonable doubt. First, that the defendant devised a scheme or artifice to defraud a federally chartered and insured financial institution. Second, that the defendant executed or attempted to execute the scheme or artifice. And third, that the defendant acted knowingly. The term scheme or artifice to defraud includes any plan, pattern or course of action intended to deceive others in order to obtain something of value, such as money, from the institution to be deceived. The term federally chartered or insured financial institution includes a savings and loan association with deposits insured by the federal savings and loan insurance corporation.”

12 harming, VSA by removing REO from its books.8

However, our review of the record leads us to conclude that

appellants’ proposed “intent to defraud” instruction was

substantially covered in the charge given by the trial court.

While the court did not specifically define “intent to defraud” in

its instructions to the jury, the court did charge the jury that:

“[t]he term scheme or artifice to defraud includes any plan,

pattern or course of action intended to deceive others in order to

obtain something of value, such as money, from the institution to

be deceived.” (Emphasis added).9 The trial court further

instructed the jury that in order to find a defendant guilty it

must find “that the defendant devised a scheme or artifice to

defraud a federally chartered and insured financial institution.”

(Emphasis added). Based on the instructions given, the jury could

not logically have found that the appellants devised a scheme or

artifice to defraud VSA without finding that they necessarily

possessed the specific intent to cause some financial loss to the

institution.

Because appellants’ proposed instruction was both

substantially covered by the charge given by the trial court and in

8 Appellants cite testimony by Rupert Hays at trial that the Pettigrew transactions were intended to “benefit” or “maintain the financial strength” of VSA as evidence that they lacked the necessary intent to defraud. 9 While it would have been preferable in a case such as the present to replace “includes” with “means” in this instruction, there was no objection on that basis, and in context it is reasonably clear that the remaining portion of the sentence constituted a required element of the offense.

13 no way impaired appellants’ ability to present a defense, we find

no reversible error.

C. 18 U.S.C. § 1957

The money laundering statute under which Pettigrew was

convicted, 18 U.S.C. § 1957, provides that it shall be a crime to

“knowingly engage[] or attempt[] to engage in a monetary

transaction in criminally derived property that is of a value

greater than $10,000 and is derived from specified unlawful

activity . . . .” The knowledge element of the offense requires

that the defendant know that the property in question is

“criminally derived,” although it does not require knowledge that

the property was derived from “specified unlawful activity.” See

United States v. Baker, 19 F.3d 605, 614 (11th Cir. 1994); United

States v. Campbell, 977 F.2d 854, 859-60 (4th Cir. 1992), cert.

denied, 113 S.Ct. 1331 (1993).

Our review of the instruction given by the trial court

persuades us that Pettigrew’s conviction on the money laundering

count (Count 35) must be reversed.10 The court’s instructions may

10 The trial court instructed the jury in relevant part as follows:

“Title 18 United States Code 1957 makes it a crime for anyone to knowingly engage in a monetary transaction in the United States in criminally derived property that is of a greater value than ten thousand dollars and is derived from specified unlawful activity. For you to find a defendant guilty of this crime you must be convinced that the government has proven each of the following beyond a reasonable doubt. First, that the defendant Hal Pettigrew knowingly engaged in a monetary transaction by, through or to the Victoria Savings Association. Second, in criminally derived property of a value

14 most reasonably be read to permit conviction if Pettigrew knowingly

engaged in the transaction and the funds involved were in fact

criminally derived without requiring any showing by the government

that Pettigrew knew that the funds in question were criminally

tainted.11

D. Other Instructional Complaints

Pettigrew additionally maintains that the district court erred

in refusing both his proposed instructions on the defense theory of

the case and on the defense of withdrawal from the conspiracy.

These contentions are without merit.

In order to establish the defense of withdrawal from a

criminal conspiracy, the defendant must prove “‘[a]ffirmative acts

inconsistent with the object of the conspiracy and communicated in

a manner reasonably calculated to reach co-conspirators.’” United

greater than ten thousand dollars. And third, that the criminally derived property was from specified unlawful activity. . . . .

The government is not required to prove that the defendant knew that the offense from which the criminally derived property was derived was a specified unlawful activity.”

11 We also note that the indictment charged that Pettigrew and Hays had transferred illegal proceeds between NCNB Medical Center Bank and Texas Commerce Bank-Arlington, while the court’s charge referred only to “a monetary transaction by, through, or to the Victoria Savings Association.” Although it does not appear that Pettigrew objected to this aspect of the instruction at trial, at least if properly preserved, this constructive amendment of the indictment would likely also have required reversal of this count. See United States v. Restivo, 8 F.3d 274, 279 (5th Cir. 1993)(reversal required if instruction permitted jury to convict on factual basis that modified essential element of offense charged), cert. denied, 115 S.Ct. 54 (1994).

15 States v. MMR Corp.(LA), 907 F.2d 489, 500 (5th Cir.) (quoting

United States v. United States Gypsum Co., 98 S.Ct. 2864, 2887-88

(1978)), cert. denied, 111 S.Ct. 1388 (1991); see also United

States v. Stouffer, 986 F.2d 916, 922 (5th Cir.), cert. denied, 114

S.Ct. 115 (1993).

Pettigrew was not entitled to an instruction on the withdrawal

defense because it was not sufficiently raised by the evidence.

The so-called “disclosure letters” that Pettigrew caused to be sent

to Hays at VSA are simply not inconsistent with the object of the

conspiracy. The letters do not purport to be a withdrawal from or

abandonment of anything; nor do they purport to disclose any

criminal activity. While these letters reference the liens on the

properties, there is no indication that these liens do not

represent legitimate financial obligations. Furthermore, even had

the sham liens been fully disclosed, letters to a co-conspirator

who also happens to be an insider at VSA detailing the structure of

the transactions do not constitute evidence of withdrawal.

Pettigrew had no reason to believe that Hays as a co-conspirator

would disclose these letters to either VSA or bank regulators.

Accordingly, the district court did not err in refusing Pettigrew’s

proposed withdrawal instruction.

While “[a] defendant is usually entitled to have the court

instruct the jury on the defense’s ‘theory of the case’ . . . the

positing of a charge as the defendant’s theory of the case does not

automatically secure for the defendant a judicially narrated

account of ‘his’ facts and legal arguments.” United States v.

16 Robinson, 700 F.2d 205, 211 (5th Cir. 1983). Pettigrew’s proposed

instruction represents just such a “judicially narrated account of

‘his’ facts.”12 The district court did not err in refusing such an

instruction.

II. Admissibility of Evidence

A. Polygraph Evidence

Pettigrew argues that the district court erred in excluding

from evidence results of a polygraph examination that Pettigrew

maintains support his defense that he lacked the intent to deceive

bank regulators regarding the nature of his transactions with VSA.

Following the Supreme Court’s decision in Daubert v. Merrell Dow

Pharmaceuticals, Inc., 113 S.Ct. 2786 (1993), we have recently

reexamined our previous position that polygraph evidence is per se

inadmissible. In United States v. Posado, 57 F.3d 428 (1995), a

panel of this Court held that a per se rule against the

admissibility of the results of a polygraph examination was no

longer permissible.

While Posado rejected across-the-board application of a per se

rule of inadmissibility to polygraph evidence, we expressly stated,

“we do not now hold that polygraph examinations are scientifically

valid or that they will always assist the trier of fact . . . .”

Posado, 57 F.3d at 434. As this statement suggests, the district

court is always to be guided by the twin precepts of Rule 702: the

12 For instance, Pettigrew’s proposed instruction would have stated that “[h]e fully disclosed all aspects of the transactions in disclosure letters mailed to Victoria Savings Association, which letters were intended by Mr. Pettigrew to be placed in the files of Victoria.”

17 scientific validity of the method, and ability to “assist the trier

of fact to understand the evidence or determine a fact in issue .

. . .” This necessarily flexible inquiry, like all others under

Rule 702, is left to the sound discretion of the trial court and is

reviewed on appeal only for abuse of discretion. See Eiland v.

Westinghouse Corp., 58 F.3d 176, 180 (5th Cir. 1995)(admission or

exclusion of expert opinion testimony under Rule 702 will not be

disturbed unless “manifestly erroneous”); see also, United States

v. Powers, 59 F.3d 1460, 1471 (4th Cir. 1995)(refusal to admit

scientific evidence reviewed for abuse of discretion), cert.

denied, 116 S.Ct. 784 (1996).

We conclude that our decision in Posado does not require

reversal in the present case for several reasons. As the Supreme

Court observed in Daubert, the determination of whether proffered

scientific evidence will assist the trier of fact is essentially a

relevance inquiry. Daubert, 113 S.Ct. at 2795-96. “‘Expert

testimony which does not relate to any issue in the case is not

relevant and, ergo, non-helpful.’” Id. at 2795 (quoting 3 Weinstein

& Berger 702[02], p. 702-18). The results of the polygraph

examination that Pettigrew wished to introduce related to three

questions asked by the examiner in response to which Pettigrew:

(1) agreed that Hays had first proposed the idea to create the sham

liens; (2) agreed that he disclosed the liens in letters which he

caused to be sent to Hays; and (3) denied that he knew that the

letters would be hidden from bank regulators. The first two of

these responses are simply immaterial to the question whether

18 Pettigrew intended to deceive the bank regulators. Nor can we say

that the district court abused its discretion in excluding the

third response which, while arguably more relevant, suggests only

that Pettigrew did not know that the letters would not be

disclosed. The fact that he did not know that the letters would be

disclosed to regulators does not mean that he did not at least

think that it was highly unlikely.

Pettigrew argues that the fact that the district court denied

his motion requesting the admission of the polygraph results

without a hearing indicates that the court necessarily applied a

per se rule of inadmissibility. While generally we do not sanction

efforts to “short-circuit” the Daubert analysis, when the offer

fails the second prong of the Rule 702 inquiry we see little

reason to force a district court to expend precious judicial

resources in painstakingly evaluating the scientific validity of

the evidence under Daubert.

Further, even if the evidence offered by Pettigrew survived

the Rule 702 inquiry, the potential for prejudice created by such

evidence is high in the absence of appropriate safeguards. In

Posado, we suggested that an “enhanced role” for Rule 403 may be

appropriate in the context of the Daubert analysis due to the

possible prejudicial effect of polygraph evidence in comparison to

its probative value. We identified several safeguards present in

Posado which operated to counterbalance such prejudice. For

instance, the prosecution was contacted before the examination was

administered and given the opportunity to participate, and the

19 evidence was not offered at trial before a jury but in a pretrial

suppression hearing before a judge who would be less likely to be

“intimidated by claims of scientific validity.” Posado, 57 F.3d at

435. We further observed that the rules of evidence are relaxed in

pretrial suppression hearings. Id.

None of these safeguards were present in the case before us.

The polygraph examination was administered by an expert selected by

the defense apparently without the participation of the government,

and the defense wished to present this evidence before the jury.

While these factors may not always be conclusive, the absence of

these or other similar safeguards certainly weighs most heavily

against the admission of polygraph evidence.

While express findings by the district court are generally the

preferred practice, in the present context we cannot say that the

district court abused its discretion on the record before us.

B. Testimony of Government’s Expert Witness

Montague argues that the district court erred in admitting

certain testimony by William Black (Black), the government’s expert

witness on fraud in the savings and loan industry, because Black

both offered legal conclusions and testified as to the mental state

of the defendants.

Montague relies primarily on our decision in Owen v. Kerr-

McGee Corp., 698 F.2d 236 (5th Cir. 1983), in which we noted that

while Federal Rule of Evidence 704 abolished the old rule against

witnesses testifying as to “ultimate issues,” Rule 704 was not

intended to allow a witness to testify regarding legal conclusions.

20 Id. at 239-40. Montague notes that throughout his direct

testimony, Black repeatedly responded to hypotheticals posed by the

prosecutor by concluding that the acts described constituted a

“crime,” “fraud,” “deception,” or “cover-up.” Montague contends

that by framing his responses as legal conclusions, Black was in

effect instructing the jury as to the verdict it should reach.

Assuming arguendo that Black’s testimony was error under Owen,

such error was not preserved by proper objection. In order to

preserve error for appellate review, a defendant’s objection to the

admission of evidence must adequately apprise the trial judge of

the grounds for objection. United States v. Waldrip, 981 F.2d 799,

804 (5th Cir. 1993); United States v. Tomblin, 46 F.3d 1369, 1387

n.42 (5th Cir. 1995). Upon review of the record, we find no

objection by any defendant during the entire course of the

government’s direct examination of Black to the effect that Black’s

testimony constituted an impermissible legal conclusion.13 Thus,

we conclude that no error was preserved.

Montague also asserts that Black’s testimony was improper

because it violated Federal Rule of Evidence 704(b)’s prohibition

against expert testimony regarding whether the defendant possessed

the mental state that is a necessary element of the offense

charged. Specifically, Montague complains of Black’s responses to

hypotheticals posed by the prosecutor that the participants in such

13 We note that when a proper objection was raised to a question soliciting a response involving a legal conclusion during the government’s redirect examination of Black, the objection was sustained by the trial court.

21 a scheme had to be “in on it,” had engaged in a “deception” and a

“cover-up,” and that the disclosure letters were a “confession.”

However, again there was no objection to any of these statements by

Black at the time that they were made.14 Therefore, the admission

of these statements is reviewable only for plain error, United

States v. Aggarwal, 17 F.3d 737, 743 (5th Cir. 1994), and we find

no such error here. See id. (use of terms “scam,” “fraud,” and

“fraudulent” not plain error).

C. Improper Cross-examination By Government

Pettigrew asserts that the government engaged in prosecutorial

misconduct throughout the trial by insinuating his guilt through

the improper questioning of witnesses. The only potential error of

this type which warrants discussion pertains to the government’s

cross-examination of Pettigrew’s attorney, Ray Williamson. On

cross-examination, the prosecutor asked Williamson whether another

transaction in which he and Pettigrew had engaged was “itself the

subject of an investigation.” Williamson denied that he knew of

any such investigation. While recognizing that neither prior bad

acts of a witness nor the mere fact that a witness has been

arrested or indicted is generally admissible for impeachment

14 Although the defendants filed a joint motion to strike Black’s testimony the following day, we do not believe that this satisfies Fed. R. Evid. 103(a)(1)’s requirement of a “timely objection or motion to strike.” Furthermore, the motion to strike complained only that Black’s characterization of the hypothetical transactions as “fraudulent” constituted improper testimony regarding the defendant’s mental state. Our decision in Aggarwal, 17 F.3d at 743, suggests that expert opinion that a given scheme was fraudulent is not necessarily improper. No reversible error is presented.

22 purposes as a conviction would be,15 we have also recognized that

where the arrest or accusation arises out of the transaction at

issue it is admissible to show the potential bias of the witness.

United States v. Musgrave, 483 F.2d 327, 338 (5th Cir.), cert.

denied, 94 S.Ct. 447 (1973). We believe that the case before us

presents an analogous situation. The fact that another transaction

in which Pettigrew and Williamson were involved was under

investigation would clearly demonstrate potential bias on

Williamson’s part as to how he characterized the transactions at

issue in the present case. As it appears the government had a good

faith basis for the question, we find no reversible error here. 16 III. Improper Joinder and Denial of Outsiders’ Motion to Sever

Montague asserts that the district court erred in denying his

objection to the joinder of all defendants, both VSA insiders and

outsiders, in a single trial. In the alternative, Montague

maintains that reversal is required because the district court

denied requests to sever the two VSA insiders from the outsider

defendants, and failed to take adequate steps to insulate the

outsider defendants from spillover prejudice.

Federal Rule of Criminal Procedure 8(b) provides that “[t]wo

or more defendants may be charged in the same indictment or

15 United States v. Greer, 939 F.2d 1076, 1097 (5th Cir. 1991)(prior bad acts), cert. denied, 113 S.Ct. 1390 (1993); United States v. Abadie, 879 F.2d 1260, 1267 (5th Cir.), cert. denied, 110 S.Ct. 569 (1989). However, that a witness for the government is under indictment by it is admissible for impeachment purposes. See United States v. Alexius, F.3d (5th Cir. Feb. 15, 1996, No. 95-50175). 16 Pettigrew adopts this point of error.

23 information if they are alleged to have participated . . . in the

same series of acts or transactions constituting an offense or

offenses.” Fed. R. Crim. P. 8(b). The propriety of joinder is

determined on the basis of the allegations in the indictment that

are accepted as true barring charges of prosecutorial misconduct.

United States v. Faulkner, 17 F.3d 745, 758 (5th Cir.), cert.

denied, 115 S.Ct.193 (1994). As a general rule, persons indicted

together should be tried together, particularly in conspiracy

cases. United States v. Neal, 27 F.3d 1035, 1045 (5th Cir. 1994),

cert. denied, 115 S.Ct. 1165 (1995), “[P]roper joinder requires

that the offenses charged ‘must be shown to be part of a single

plan or scheme,’ and . . .‘[p]roof of such a common scheme is

typically supplied by an overarching conspiracy from which stems

each of the substantive counts.’” Faulkner, 17 F.3d at 758(quoting

United States v. Lane, 735 F.2d 799. 805 (5th Cir. 1984), rev’d in

part o.g., 106 S.Ct. 725 (1986)). In the present case, each of the

counts charged in the indictment stems from a common conspiracy to

defraud VSA and bank regulators. Thus, joinder of all defendants

was proper.

Once it is established that joinder was proper, denial of a

motion to sever is reviewable only for abuse of discretion.

Faulkner, 17 F.3d at 758. “[W]hen defendants properly have been

joined under Rule 8(b), a district court should grant a severance

under Rule 14 only if there is a serious risk that a joint trial

would compromise a specific trial right of one of the defendants,

or prevent the jury from making a reliable judgment about guilt or

24 innocence.” Zafiro v. United States, 113 S.Ct. 933, 938 (1993).

“To demonstrate an abuse of discretion, the defendant ‘bears the

burden of showing specific and compelling prejudice that resulted

in an unfair trial,’. . . and such prejudice must be of a type

‘against which the trial court was unable to afford protection.’”

Faulkner, 17 F.3d at 759 (quoting United States v. Holloway, 1 F.3d

307, 310 (5th Cir. 1993), and United States v. Pofahl, 990 F.2d

1456, 1483 (5th Cir.), cert. denied, 114 S.Ct. 266 (1993)).

The arguments advanced by Montague are, for the most part,

identical to those that we addressed in United States v. Neal, 27

F.3d 1035 (5th Cir. 1994). Montague contends that the outsiders

were prejudiced by the large volume of evidence introduced with

respect to the insider fraud at VSA, and that the trial court

failed to administer proper limiting instructions to insulate the

outsiders from spillover prejudice. However, as we observed in

Neal, “a quantitative disparity in the evidence ‘is clearly

insufficient in itself to justify severance.’” Id. at 1045

(quoting United States v. Harrelson, 754 F.2d 1153, 1175 (5th

Cir.), cert. denied, 106 S.Ct. 599 (1985)). Nor does the “mere

presence” of spillover prejudice ordinarily require severance,

particularly when the defendants are convicted of participating in

the same conspiracy. Id. Finally, the fact that——as here——the jury

returned verdicts of “not guilty” as to some of the defendants

clearly suggests that it was able to take a discerning approach to

the evidence presented. Id. Insofar as Montague’s claimed error

lies in the trial court’s failure to give limiting instructions

25 with respect to evidence that may have been relevant only to some

defendants, we are unable to conclude that this was an abuse of

discretion as Montague has identified no “specific and compelling

prejudice” that he and the other outsider defendants suffered as a

result.

However, Montague also contends that severance was required

because the outsider defendants wished to exclude any testimony

relating to the guilty pleas of co-conspirator witnesses who would

testify at trial, while the insider defendants wished to utilize

this evidence to impeach those government witnesses. In United

States v. Handly, 591 F.2d 1125, 1128 (5th Cir. 1979), we held that

a prosecutor’s reference to the guilty pleas of a defendant’s co-

conspirators was error, unless the defendant chose to rely on the

guilty pleas of his co-conspirators as part of his defense

strategy. We first note that the Supreme Court has held that

mutually antagonistic defenses are not prejudicial per se, and

severance is not necessarily required even if some prejudice is

shown. Zafiro, 113 S.Ct. at 938. Rather Rule 14 leaves “the

tailoring of the relief to be granted, if any, to the district

court’s sound discretion.” Id. (emphasis added). Again, the fact

that the jury returned “not guilty” verdicts as to some defendants

strongly suggests that there was no such prejudice here. Further,

that these witnesses had pleaded guilty would add little to their

admissible testimony as to the conspiracy and their role in it.17

17 We do not here deal with prosecution references to guilty pleas by co-conspirators who do not testify.

26 Finally, contrary to Montague’s representations in his brief,the

district court properly instructed the jury that “[t]he fact that

an accomplice has entered a plea of guilty to the offense charged

is not evidence in and of itself of the guilt of any other

person.”18 Therefore, the district court acted within its

discretion in declining to sever Montague and the other outsider

defendants for trial.

IV. Sufficiency of the Evidence

In reviewing a challenge to the sufficiency of the evidence to

support a defendant’s conviction, we must affirm the jury’s verdict

if, viewing the evidence and the inferences that may reasonably be

drawn from it in the light most favorable to the verdict, a

rational trier of fact could have found that the evidence

establishes the defendant’s guilt beyond a reasonable doubt.

United States v. Garza, 42 F.3d 251,253(5th Cir. 1994), cert.

denied, 115 S.Ct. 2263 (1995). “The evidence need not exclude

every reasonable hypothesis of innocence or be wholly inconsistent

18 Montague states in his brief: “The court further compounded the prejudice to Mr. Montague and the other outsiders by suggesting in its final instructions that the guilty pleas could be considered at least as supporting other evidence of a defendant’s guilt.” In fact, the trial court instructed the jury as stated in the text and also as follows:

“An alleged accomplice, including one who has entered into a plea agreement with the government, is not prohibited from testifying. On the contrary, the testimony of such a witness may alone be of sufficient weight to sustain a verdict of guilty. You should keep in mind that such testimony is always to be received with caution and weighed with great care. You should never convict an accused upon the unsupported testimony of an alleged accomplice unless you believe that testimony beyond a reasonable doubt.”

27 with every conclusion except that of guilt, and the jury is free to

choose among reasonable constructions of the evidence.” United

States v. Bermea, 30 F.3d 1539, 1551 (5th Cir. 1994), cert. denied,

115 S.Ct. 1113 (1995). 19 A. Evidence of VSA’s Federally Insured Status

Powell, relying on United States v. Schultz, 17 F.3d 723 (5th

Cir. 1995), argues that the government’s failure to introduce

sufficient evidence of VSA’s federally-insured status requires

reversal of all counts of the indictment. Powell argues that

reversal is required both because federally-insured status is a

necessary prerequisite to federal jurisdiction and because

federally-insured status is a necessary element of every offense

charged in the indictment.20

We find sufficient evidence of VSA’s federally-insured

status. Former VSA President Barron offered testimony that the

funds of VSA were insured “at that time” by the FSLIC, and Powell

himself acknowledged the federally-insured status of VSA on cross-

examination by the government. As we noted in Schultz, “[i]f those

officials had possessed personal knowledge of the bank’s insurance

status, their testimony that [the bank] was insured by the FDIC

during the period in question, if unchallenged, would have

sufficiently proven the jurisdiction issue in the case sub judice.”

19 Pettigrew and Montague adopt this point of error. 20 Although not an element of money laundering under 18 U.S.C. § 1957, money laundering does require proof that the funds were proceeds of unlawful activity, and the unlawful activity alleged in the indictment was the use of a scheme or artifice to defraud a federally insured financial institution.

28 Schultz, 17 F.3d at 727. A Supervisory Agreement entered into by

VSA and the FSLIC as well as an accompanying VSA Board of Directors

resolution both make reference to violations of FSLIC regulations

occurring in November 1986. All the several VSA printed

letterheads in evidence bore the legend “Member FSLIC.” Finally,

the government introduced copies of both a FSLIC certificate of

insurance issued to “Victoria Federal Savings and Loan Association”

with an original issuance date of March 25, 1935, and a copy of a

1987 Texas Savings and Loan Department examination of VSA “as of

12-31-86" that identifies VSA’s date of insurance as “3-25-35.”

Despite the inclusion of the word “federal” in the name on the

certificate of insurance, the jury could reasonably infer from the

evidence that these documents both referenced VSA. When viewed

cumulatively, a rational jury could have concluded from all the

evidence that VSA was a federally-insured institution.21

B. Pettigrew

Pettigrew argues that there is insufficient evidence to

support his conviction of a conspiracy to defraud the United States

in violation of 18 U.S.C. § 371 as charged in Count One of the

indictment. To establish a conspiracy under section 371, the

government generally must prove beyond a reasonable doubt that (1)

there was an agreement between two or more persons to pursue an

unlawful objective, (2) the defendant voluntarily agreed to join

the conspiracy, and (3) that one of the persons committed an overt

act in furtherance of the conspiracy. Faulkner, 17 F.3d at 768;

21 Nothing suggests that VSA was not so insured.

29 United States v. El-Zoubi, 993 F.2d 442, 445 (5th Cir. 1993).

Pettigrew essentially argues that there is insufficient

evidence that he agreed to join with Hays and others in a

conspiracy to defraud the United States of the lawful government

functions of the Federal Home Loan Bank Board as charged. The

agreement to join a conspiracy need not be express, but may be

inferred from circumstantial evidence. United States v. Hopkins,

916 F.2d 207, 212 (5th Cir. 1990); see also United States v.

Schmick, 904 F.2d 936, 941 (5th Cir. 1990) (any element of

conspiracy may be inferred from circumstantial evidence), cert.

denied, 111 S.Ct. 782 (1991). There is ample evidence in the

record from which a rational juror could infer Pettigrew’s

agreement to join the conspiracy. Pettigrew was aware of the use

of the sham liens to disguise the excess profits from the

transactions, and Pettigrew-controlled entities and associates were

employed to disguise the fact that these loan proceeds were then

being used to purchase REO from VSA. Pettigrew’s conviction on

Count One must be affirmed.

Pettigrew additionally maintains that there is insufficient

evidence that he possessed the necessary criminal intent to support

his convictions under 18 U.S.C. §§ 1006 and 1344(a)(1). Pettigrew

first maintains that there is no evidence in the record that Hays

ever informed him that the purpose of the liens was to deceive bank

regulators. However, the record reflects that Hays testified on

direct examination that he told Pettigrew that the River Run

transaction needed to be designed so that VSA could book the

30 transaction as a sale in order to avoid raising “a red flag, as far

as external auditors, as well as the examiners.” This testimony

when viewed in conjunction with the extensive involvement of

Pettigrew employees, associates, and entities in these transactions

provides sufficient evidence from which a rational juror could

conclude that Pettigrew knew of the purpose of the sham liens.

Pettigrew additionally argues that the letters that he sent or

caused to be sent to Hays discussing the terms of the transactions

were inconsistent with any intent to defraud VSA or deceive federal

regulators. However, as we indicated during our earlier discussion

of Pettigrew’s entitlement to a withdrawal instruction, these

letters simply do not constitute evidence of withdrawal or any

other action inconsistent with the required intent. While the

letters refer to the imposition of the liens, they do not indicate

that these liens do not represent an actual financial obligation or

the purpose for which they were imposed. If anything, we read

these letters as further evidence of Pettigrew’s illicit purpose

rather than as evidence of acts inconsistent with such intent.

Finally, Pettigrew argues that he acted in good faith reliance

on the advice of counsel, thereby precluding any intent to defraud

VSA or deceive the examiners. As we have previously noted,

“[s]trictly speaking, good faith reliance on advice of counsel is

not really a defense to an allegation of fraud but is the basis for

a jury instruction on whether or not the defendant possessed the

requisite specific intent.” United States v. Carr, 740 F.2d 339,

346 n.11 (5th Cir. 1984). Such an instruction was given in the

31 present case, and the jury apparently concluded that Pettigrew

possessed the necessary intent. Based on the record before us, we

cannot say that this was error.

B. Montague

Montague also challenges the sufficiency of the evidence that

he possessed the necessary intent to support his convictions under

18 U.S.C. §§ 1006 and 1344(a)(1). Like Pettigrew, Montague relies

on evidence that he acted pursuant to the advice of Williamson and

sent letters to Hays purporting to disclose the terms of the

transactions as evidence that he lacked the requisite intent, and

these arguments prove similarly unavailing. As discussed above,

whether reliance on the advice of counsel is inconsistent with the

requisite intent is an issue for the jury’s determination, and we

cannot say that the jury erred on the record before us. Nor do the

letters sent by Montague to Hays at VSA constitute evidence

inconsistent with the intent to defraud or deceive, as they do not

disclose that the liens were shams.

The only additional argument raised by Montague is that there

is no evidence that he was aware that the sham liens would be

referred to in the sellers’ closing statements on the properties,

and therefore he lacked the necessary intent to support his

conviction for aiding and abetting Hays on the false entry counts

(Counts 12, 23, 24). However, the government introduced as an

exhibit an internal Crown Oaks memorandum prepared by Cheryl

Moczygemba (Moczygemba) that details the McPherson Park

transaction, and states, “[f]or ‘looks’ sake, Victoria Savings did

32 not want to show such a large figure going back to the seller on

the closing statement.” (Emphasis added). Montague apparently

instructed Moczygemba to be “careful” about the way in which she

wrote her memos, although he did not ask her to rewrite the Crown

Oaks memo. This evidence demonstrates that Montague read

Moczygemba’s memo, and was therefore aware that the liens appeared

on the closing statements. Although it is admittedly a closer

question than in the case of Pettigrew, when viewed in the light

most favorable to the verdict, the evidence of Montague’s extensive

knowledge of the transactions, the letters to Hays, and his

statement to Moczygemba regarding the McPherson Park transaction

constitute sufficient evidence from which a rational juror could

conclude that Montague possessed the necessary intent.

Montague also argues that there was insufficient evidence that

including the sham liens on the sellers’ statements constituted

“material” false statements. We held in Beuttenmuller that a

“material fact” under section 1006 is one “‘hav[ing] a natural

tendency to influence, or be[ing] capable of affecting or

influencing, a government function.’” Beuttenmuller, 29 F.3d at

982 (quoting United States v. Swain, 757 F.2d 1530, 1534 (5th

Cir.), cert. denied, 106 S.Ct. 81 (1985)(construing 18 U.S.C. §

1001)). The listing of the sham liens on the sellers’ statements

was clearly a necessary step in evading the net worth requirements

imposed on VSA as they disguised the fact that VSA was actually the

source of the funds used to purchase its own REO, which allowed VSA

to book the transaction as a sale. Although the section 1006

33 convictions must be reversed and remanded for new trial due to the

failure to instruct the jury regarding materiality, we conclude

that there is sufficient evidence of materiality had the issue been

properly submitted.

C. Walker

While mindful of the deference due a jury verdict, we are

unable to conclude that there is sufficient evidence in the record

before us that Walker possessed the necessary intent to support his

conviction under 18 U.S.C. §§ 1006 and 1344(a)(1). The government

asks us to rely primarily on evidence that: (1) Walker acted as

trustee in the White’s Branch property and negotiated the sham

lien; and (2) Walker was a “close associate” of Pettigrew’s and

often dealt with financial institutions. However, the fact that

Walker acted as trustee for the White’s Branch transaction and

helped to create the sham lien is not alone sufficient to establish

intent to defraud VSA or deceive federal examiners.22 However, a

verdict may not rest on mere suspicion, speculation, or conjecture,

or on an overly attentuated piling of inference on inference. See,

e.g., United States v. Menesses, 962 F.2d 420, 427 (5th Cir. 1992).

While the issue is a close one, we are simply unable to say that

a rational juror could have found Walker possessed the necessary

intent beyond a reasonable doubt based upon the record evidence.

D. Powell

1. False Entry Counts

22 We note that the trustees in the other transactions were either not indicted or acquitted on all counts.

34 Powell launches a three-pronged attack on the sufficiency of

the evidence to support each of his convictions under section 1006.

Powell urges that in each instance there is insufficient evidence

that: (1) the entries were false; (2) Powell was aware of their

falsity; and (2) Powell made the entries or caused them to be made.

With respect to the false entry count relating to the Barthold

Road committee loan application (Count 3), Powell first argues that

there was insufficient evidence of the falsity of the statement

that the purpose of the loan was “to refinance property.” However,

there is evidence that the Barthold Road loan was conditioned on

the agreement of Pitzer and Collins to purchase the Cheyenne Plaza

and Frankford Square properties. The omission of material

information may constitute a false entry under section 1006.

United States v. Baker, 61 F.3d 317, 323 (5th Cir. 1995).

Furthermore, Pitzer testified that Powell was aware of the

structure of the transaction. Therefore, the evidence that Powell

signed the committee loan application despite his knowledge that it

omitted material information is sufficient to support his

conviction on Count Three.

Powell raises the same arguments with respect to the false

entry counts relating to the committee loan applications for the

Cheyenne Plaza and Frankford Square loans (Counts 4, 5). The

committee loan applications indicated that the borrower,

Proformance, was to make the downpayments on the Cheyenne Plaza and

Frankford Square properties. Powell does not dispute that the

funds used to purchase these properties came from the VSA loan to

35 Pitzer and Collins related to the Barthold Road property. The

evidence supports the jury’s apparent conclusion that Proformance

was utilized as the borrower to disguise the link between the loan

to Pitzer and Collins, and the purchase of the REO. The entry

reflecting that the funds belonged to Proformance was therefore

false in that it misrepresented the true source of the funds.

Given the evidence that Powell was aware of the structure of the

Barthold Road transaction and nonetheless signed the committee loan

application, there was sufficient evidence to support his

conviction under section 1006.

Powell challenges the sufficiency of the evidence to support

his conviction for false entry relating to the Bloomdale Road loan

(Count 8) on the same grounds. The committee loan application

listed the purpose of the loan as being: “To provide funds to

purchase approximately 156.264 acres in McKinney, Texas zoned for

residential and retail use.” Powell’s own testimony establishes

that he was aware that the funds were being used for other purposes

as well as indicating that he believed the funds were to be used

as detailed in a document prepared by VSA employee Janine Radke

that reflected other purposes for the loan proceeds. Therefore,

there was sufficient evidence of a material omission, that Powell

was aware of such omission, and that he aided and abetted the

making of the false entry by affixing his signature to the loan

committee application.

Although providing extremely limited argument on this point,

Powell asserts that there was insufficient evidence to support his

36 false entry conviction in connection with the Irving/River Run

transaction (Count 11). Powell acknowledges that the committee

loan application did not reflect that part of the loan proceeds

were to be used by Pettigrew to purchase the River Run property.

However, he argues that the entry was literally true, and even if

false, there is no evidence that Powell was aware of its falsity.

Powell’s argument that the statement contained in the

committee loan application was not false is without merit. The

omission of the relationship between the sale of the Irving

property and the River Run purchase is clearly material.

Powell acknowledges that he located Bohn and Baer to purchase

the Irving property, and Bohn testified that Powell was involved in

negotiating the terms of the transaction. Both Bohn and Baer

indicated that after closing the Irving transaction they realized

that River Run was linked to the Irving transaction. Baer

indicated that this connection was reflected in a trust agreement

signed by Bohn involving River Run, which was included among the

documents. Given Powell’s involvement in the transaction, the jury

could rationally conclude that Powell was aware of the

transaction’s connection to River Run as well, and thus of the

material omission from the committee loan application.

Powell next contests the sufficiency of the evidence to

support his conviction on the false entry count relating to the

McPherson Park transaction (Count 22). The committee loan

application for the McPherson Park transaction stated that the

purpose of the loan was “[a]cquisition and development” of the Luck

37 Field property. However, the evidence indicates that some of the

loan proceeds were to be reinvested in VSA although the parties

could ultimately not agree as to the manner in which this was to be

done. There was some evidence Powell was present at a meeting

involving the structuring of the McPherson Park transaction from

which the jury could reasonably infer that Powell was aware of the

details of the transaction. Again, Powell signed the committee

loan application despite such knowledge, and in so doing

contributed to the making of the false entry.

2. Sharing in Proceeds of Loans

“In order to convict a defendant of improper participation in

bank transactions under section 1006, the government must

demonstrate: (1) the defendant’s connection with the protected

institution; (2) direct or indirect receipt of some benefit from a

bank transaction; and (3) intent to defraud.” United States v.

Brechtel, 997 F.2d 1108, 1115 (5th Cir. 1993). The government may

prove intent by circumstantial evidence, id. at 1116, and “[a]n

inference of intent to defraud arises where a responsible bank

insider acts to procure a transaction which he knows will benefit

him, without disclosing his interest therein.” Id.

Powell raises two arguments with respect to his conviction for

aiding and abetting Hays’ sharing in the proceeds of the Bloomdale

Road loan in violation of section 1006. The first of these

arguments actually raises a question of statutory construction

despite being couched as a sufficiency point, in which Powell

maintains that the connection between the Bloomdale Road loan and

38 the purchase of Hays’ share of the Fall Creek Ranch is too

attenuated to constitute “participation” by Hays in the proceeds

of a VSA loan. To briefly recap the details of the transaction,

Powell purchased Hays’ share of the Fall Creek Ranch with the

proceeds of a sale of a partial interest in the Fall Creek Ranch

venture to Pitzer and Collins. Pitzer and Collins purchased that

property with a loan from Union Bank, which was collateralized by

CDS purchased with the proceeds of the Bloomdale Road loan.

Powell contends that the relationship between the Bloomdale

Road loan and the purchase of Hays’ interest in the Fall Creek

Ranch is simply too remote. We cannot agree. The statute

expressly prohibits an officer of a federal credit institution from

“participat[ing] or shar[ing] in or receiv[ing] directly or

indirectly any money, profit, property, or benefits through any

transaction, loan, commission, contract, or any other act of any

such corporation, institution, or association . . . .” 18 U.S.C.

§ 1006 (emphasis added). While there will be some point at which

such a relationship becomes too remote, that point has not been

reached in the present case. To so hold would encourage the

structuring of transactions to evade the grasp of the statute.

Although Powell does include a citation to the record,

Powell’s other sufficiency argument as to this count consists of

one sentence in which he maintains that Pitzer told him that the

money to purchase the share in the Fall Creek venture was coming

from a loan secured by Pitzer and Collins’s interest in “the

39 property.”23 We understand this argument to be that Powell lacked

the necessary intent to aid and abet Hays in the commission of the

offense. We conclude that a rational juror could have reached the

conclusion that Powell was aware of the source of the funds.

Powell also challenges the sufficiency of the evidence to

23 Pitzer testified upon cross-examination by Powell’s counsel:

“A: Well, at the time I was on the advisory board of the bank [Union Bank], and the bank was always looking for real estate loans, or good loans for the bank, and I had suggested that we make a loan for our interest in the Fall Creek Ranch. And that we collateralized that with the CD’s . . . . Q: Okay. And so this was new money that you borrowed from Union Bank, that you sent to the Charles Schreiner Bank? Money you borrowed on that note? A: That’s correct. Q: What happened to that money that came from Victoria? Those CD’s? A: They were collateral for the note. Q: Okay. Why didn’t you just use the money from Victoria to -- why -- A: We decided we could just get a short term loan from the bank, and [sic] helps us show performance with the bank, to have a note, and then pay it off in pretty short period of time. Q: Did you talk this over with Chad Powell, that you were going to do this? A: I believe we told him what we were doing. Q: What did you tell him? A: Make sure that they were -- if they were okay with that. Q: Okay. A: And there was no problem on their side. Q: What did you tell them? A: We told them what we were going to do, and they said that sounded fine. Q: What did you tell them you were going to do? A: That we were going to borrow money from Union Bank, and it was going to be collateralized by our interest in the property.”

40 support his conviction for aiding and abetting Hays’ receipt of the

benefits of the VSA Royston loans in violation of the insider

participation provision of section 1006. Powell acknowledges that

he borrowed money from VSA after he was no longer an officer there,

and that the loan proceeds were used to pay the interest and

principal on the Santexco note at First City Bank on which Rupert

Hays was still a guarantor.

Powell first maintains that Hays received no benefit as he no

longer possessed an interest in the underlying collateral.

However, the government correctly notes that the benefit which

accrued to Hays through Powell’s payment of the note was not having

to perform on his guarantee. Such a benefit, although indirect, is

sufficient under the insider participation provision of section

1006. See Brechtel, 997 F.2d at 1115.

Powell’s only other argument that merits passing attention is

that there was insufficient evidence that he knew that Hays had

failed to disclose his guarantor status on the Santexco note. This

contention is rebutted by the testimony of Al Bond, who serviced

the note at First City, that Powell had “made a comment that Mr.

Hays was sensitive to the fact that he was a guarantor on this

loan, and he was trying to help obtain, or was trying to work with

Chad [Powell] in providing financing at Victoria Savings, and that

there could be [the] appearance of conflict,” and that Hays “did

not want to acknowledge or sign any of the extension or renewal

documents because of that.” In the present context, a rational

juror could infer from this testimony that Powell was aware that

41 Hays had not disclosed his guarantor status on the Santexco note.

3. Misapplication

Powell also argues that there was insufficient evidence to

support his conviction for aiding and abetting the willful

misapplication of VSA funds in violation of 18 U.S.C. § 657. In

order to establish an offense under section 657, the government

must “prove that (1) the defendant was an officer, agent or

employee of, or connected in some way with, a federally insured

savings and loan association, (2) he willfully misapplied funds of

the association, and (3) he acted with intent to injure or defraud

the association.” Faulkner, 17 F.3d at 771; United States v.

Tullos, 868 F.2d 689,693(5th Cir.), cert. denied, 109 S.Ct.

3171(1989). In order to establish Powell’s liability as an

accomplice, the government needed to establish that Powell

“‘associated with a criminal venture, participated in the venture,

and sought by his action to make the venture succeed.’” United

States v. Parekh, 926 F.2d 402, 406 (5th Cir. 1991) (quoting United

States v. Holcomb, 797 F.2d 1320, 1328 (5th Cir. 1986), cert.

denied, 108 S.Ct. 354 (1987)).

Powell’s attack on the sufficiency of the evidence consists of

three points: (1) there was insufficient evidence that the

Barthold Road loan was “overfunded;” (2) there was insufficient

evidence that Proformance was not a creditworthy borrower, thus

negating any intent to injure or defraud VSA; and (3) evidence that

the loan was intended to induce the Barthold Road borrowers to take

out the loan was not illegal, and therefore, was not evidence of

42 misapplication.

However, these arguments fail to counter the evidence

introduced by the government. It is undisputed that Powell was an

officer of VSA. Furthermore, there was evidence that Powell signed

committee loan applications that failed to fully disclose the

purpose of the loans, thereby assisting Hays in evading net worth

requirements by disguising the fact the REO purchases were funded

by VSA. Assisting Hays in evading the net worth requirements both

exposed VSA and its officials to potential governmental sanctions

and potentially undermined the financial stability of the

institution, therefore constituting sufficient evidence of intent

to harm VSA. See Parekh, 926 F.2d at 908. In short, the evidence

was such that a rational trier of fact could have found Powell

guilty of all elements of the offense beyond a reasonable doubt.

4. Bank Fraud

support his convictions for bank fraud under section 1344(a)(1) in

Counts Seven and Ten. Powell’s argument in both instances turns

primarily on whether there was sufficient evidence that the

Bloomdale Road and Irving/River Run loans were overfunded, and

whether VSA funds were used to reduce the personal debts of Hays

and Powell and finance the River Run purchase. There was

sufficient record evidence from which a rational juror could

conclude that the loans were overfunded in order to disguise the

use of VSA funds to benefit Powell and Hays and to evade the net

43 worth requirements imposed on VSA.24

V. Conclusion

In summary, we reverse the false entry convictions of

Pettigrew (Counts 12, 23, 24), Montague (Counts 12, 23, 24) and

Powell (Counts 3, 4, 5, 8, 11, 22) due to the trial court’s failure

to properly instruct the jury on materiality under section 1006.

This instructional error also requires that we reverse the

convictions of Pettigrew and Powell under section 371 for

conspiracy to commit offenses against the United States (Count 36).

These counts are all remanded for another trial.

With respect to Pettigrew, we also reverse and remand for

another trial his money laundering conviction under section 1957

for instructional error (Count 35), while affirming his

convictions for bank fraud under section 1344(a)(1) (Counts 10, 21)

and conspiracy to defraud the United States of the lawful

government functions of an agency under section 371 (Count 1).

Pettigrew’s sentence on Counts 1, 10, and 21 is vacated and as to

him the cause is remanded for resentencing on such counts.

We affirm the remainder of Powell’s convictions for conspiracy

24 Powell’s sole remaining sufficiency point urges us to reverse his conviction on the conspiracy counts because: “None of the actions proved by the Government to have been taken or agreed to by Powell were illegal. Thus, the conspiracy Counts must fail, because the objects of the conspiracies were not illegal. Beuttenmuller, at 5.” Although Powell’s conspiracy conviction on Count 36 has been reversed due to instructional error, we decline to address this point as it relates to Count 1 as it fails to comply with the requirements of Fed. R. App. P. 28(a)(4). United States v. Abroms, 947 F.2d 1241, 1250 (5th Cir. 1991), cert. denied, 112 S.Ct. 2992 (1992).

44 to defraud the United States of the lawful government functions of

an agency under section 371 (Count 1), misapplication under section

657 (Count 2), bank fraud under section 1344(a)(1), and aiding and

abetting insider participation in the benefits of a federal credit

institution under section 1006 (Counts 13, 15, 16, 17, 19).

Powell’s sentence on Counts 1, 2, 13, 15, 16, 17, and 19 is vacated

and as to him the cause is remanded for resentencing on such

counts.

We further affirm Montague’s convictions for bank fraud under

section 1344(a)(1) (Counts 10, 21); his sentence on Counts 10 and

21 is vacated and the cause as to him is remanded for resentencing

on such counts. However, Walker’s convictions for bank fraud under

section 1344(a)(1) and false entry under section 1006 (Count 24)

must be reversed for insufficiency of the evidence, and such counts

as to Walker shall be dismissed.25

Accordingly, the judgment of the district court is

AFFIRMED in part; REVERSED in part; REVERSED and REMANDED in part; and VACATED and REMANDED in part.

25 The motion of Pettigrew and Montague to cross-adopt the argument found at pages 16 through 19 of Powell’s brief previously carried with the case is hereby granted, as is the motion of Walker to adopt Part III of the reply brief of Montague and Part VI of the reply brief of Pettigrew.