United States v. Sher

Citations: 505 F. Supp. 858; 1981 U.S. Dist. LEXIS 10270Docket: Crim. A. No. 80-147

Court: District Court, W.D. Pennsylvania; January 9, 1981; Federal District Court

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The United States v. Michael Sher case involves a defendant charged with a 49-count indictment for participating in a check-kiting scheme that defrauded a federally insured bank of over $1.85 million, violating 18 U.S.C. §§ 1014 and 2. The scheme allegedly occurred between January 11, 1979, and April 12, 1979, involving the defendant opening two checking accounts under his corporation's name at Equibank and Philadelphia National Bank, both of which granted immediate credit on deposits. The government claims the defendant deposited worthless checks between these accounts to exploit the time lag in check clearance.

In his motion to dismiss the indictment, the defendant argues that § 1014 does not include check-kiting in its prohibitions. The statute criminalizes knowingly making false statements or overvaluing assets to influence bank actions related to insured deposits. However, it does not explicitly mention checks, and its legislative history offers no clarity on the inclusion of check-kiting activities. Two contradictory judicial interpretations exist: one ruling (United States v. Edwards) states that § 1014 does not cover check-kiting, reasoning that presenting a check does not constitute a false statement, as a check is merely an order to pay rather than a statement of financial condition.

The court in Edwards expressed skepticism regarding the classification of presenting a check for deposit as an 'application, advance, discount, purchase, purchase agreement, repurchase agreement, commitment, or loan' under 1014. It noted that the entities listed in 1014 did not typically engage in the banking practices associated with the Federal Savings and Loan Insurance Corporation and the Federal Deposit Insurance Corporation, which were added to the statute in 1970. The court also questioned whether withdrawing funds from a checking account before deposited checks cleared could be deemed an 'advance.' Furthermore, it found the statute ambiguous concerning check-kiting schemes, indicating that if Congress intended to prohibit passing worthless checks, it could have done so more clearly.

In contrast, the Fifth Circuit in United States v. Payne concluded that 1014 does encompass check-kiting, critiquing Edwards’ reasoning. The Fifth Circuit argued that a check implies a representation by the drawer about available funds, equating this implication to a legal representation concerning the check's value. The court overcame other statutory language barriers identified by Edwards, stating that a check qualifies as a 'security' under 1014, and presenting a worthless check could signify overvaluation of that security. It determined that such presentation influences a bank's actions regarding loans or advances, aligning closely with the definition of check-kiting. The court noted that the legislative history of 1014 reflects a consolidation of various provisions, indicating Congress intended to cover a broad range of business transactions, not limited to those applicable to farm or home construction loans, thereby encompassing all actions that could expose FDIC-insured banks to loss.

The court examines whether 18 U.S.C. § 1014 applies to check-kiting schemes, noting that the Third Circuit has not previously addressed this issue. It acknowledges the persuasive reasoning of the Fifth Circuit in Payne but emphasizes the ambiguity in § 1014's language concerning the cashing of checks. Criminal statutes require strict construction, favoring the defendant in cases of ambiguity. The court agrees with findings from the Edwards case that if Congress intended to cover check-kiting under § 1014, it would have explicitly stated so. The legislative history is limited, with no clear indication that check-kiting was meant to be included. Previous reports emphasize that § 1014 primarily addresses false statements related to loans with federally insured institutions. The court concludes that there is no clear Congressional intent to classify check-kiting as a criminal act under § 1014, leading to the decision to grant the defendant's motion to dismiss the indictment.