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Court weighs reach of federal bank fraud law

By: MARK SHERMAN
April 1, 2014 Updated: April 1, 2014 at 1:46 pm
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WASHINGTON (AP) — The question at the Supreme Court on Tuesday was whether you have to intend to defraud a bank to be guilty of bank fraud under federal law.

That question, perhaps surprisingly, has produced different answers in federal appeals courts around the country. The justices wrestled with how to arrive at a decision that would apply nationwide, amid concerns that a broad application of the federal law would sweep under it many crimes that are usually prosecuted by state authorities.

The court took up the case of Kevin Loughrin, who acknowledges having run a scheme to take merchandise and cash from a Target store in Utah.

Loughrin's crime doesn't immediately seem like bank fraud. But he was convicted under the federal bank fraud statute, and his conviction was upheld by the federal appeals court in Denver, because he used stolen checks to get the goods from Target.

Loughrin and a friend took outgoing checks from people's mailboxes, altered them and took them to Target, where cashiers accepted the checks as payment for food and goods. After buying the merchandise Loughrin would immediately return the items for cash, often without leaving the store. Target's fraud unit eventually caught on and Loughrin was convicted of altering six checks totaling $1,184.58. He was sentenced to three years in prison.

Kevin Russell, Loughrin's lawyer, told the justices they should require prosecutors to prove a defendant intended to defraud a bank, not just anyone.

The Obama administration argued that the law should be read broadly because banks lose about $1 billion a year to fraud.

Justice Anthony Kennedy was among several members of the court who worried about the reach of the law. "You have federalized any fraudulent transaction in the economy whenever a check is involved," Kennedy told Justice Department lawyer Anthony Yang.

Justice Elena Kagan said she could pass off as the work of a master the painting she made in her kitchen and be prosecuted for bank fraud if a buyer paid her by check.

"That's correct," Yang said.

And also maybe "a bit peculiar," Kagan replied. "I mean, if somebody pays me in cash, the government can't prosecute the person. If somebody pulls out a check, the government can, but that doesn't seem to make a whole lot of sense in terms of what the statute is about."

The court spends more of its time each year parsing federal laws for their meaning than it does on cases involving broad constitutional principles. These cases about statutory interpretation typically produce a complaint or two that Congress did not write the laws as clearly as it could have, and Tuesday's argument was no exception.

Do the justices, Kennedy wondered, "have a duty to save poorly drawn statutes by a sensible amendment?"

A decision is expected by late June in Loughrin v. U.S., 13-316.

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