In the case before the United States Court of Appeals for the Seventh Circuit, defendants Angela Hubbard, Ieanis Shaw, Eddie Jackson, Pamela Young, and Bruce Jones faced a three-count indictment for bank fraud under 18 U.S.C. §§ 1344 and 2. The government accused Shaw and Hubbard of creating fraudulent mortgage loan documents to misappropriate mortgage proceeds into personal accounts. One count against Shaw was dismissed, leading to a superseding indictment that included money laundering charges under 18 U.S.C. § 1957 for all defendants except Jones. Shaw, Jackson, and Young were convicted by a jury on all counts, and the district court sentenced them to prison and ordered restitution.
On appeal, the defendants raised three main issues: (1) the exclusion of hearsay evidence regarding Hubbard’s alleged false statements about Shaw’s involvement in a wire transfer; (2) the sufficiency of the evidence supporting their convictions; and (3) a claim that the government counsel improperly commented on their decision not to testify, infringing on their Fifth Amendment rights. The appellate court affirmed the district court's decisions.
The background provided details on Washington Mutual Bank's operations, explaining how mortgage loans were processed through various stages, emphasizing that the functions were divided into discrete roles similar to an assembly line. The process involved solicitation, data entry, documentation preparation, underwriting, and closing, with specific job functions having no need for interaction between openers and closers. The closing department was responsible for preparing the wire transfer worksheets necessary for funding the loans.
Wire transfer worksheets included essential details such as the loan applicant's name, loan number, loan amount, and fund destination. Washington Mutual mandated that, in 2002 and 2003, two signatures were required on these worksheets: one from the closer who completed the loan paperwork and another from a manager at the Downers Grove facility. During this period, full-time closers could sign the worksheets, while contract closers could not. After obtaining the necessary signatures, the worksheet was faxed to the wire room in New York for further review and disbursement of funds, typically not to individual borrowers' accounts.
The Pronto system tracked approved loans and disbursement records, allowing reversals of wire transfer requests if documentation was flawed or transactions fell through. However, this reversal process could also be exploited to conceal fraudulent activities. Defendants in this case reversed wire transfers in Pronto, evading detection initially but leaving behind digital evidence that could identify the employees involved.
In May 2003, TCF Bank alerted Washington Mutual's loss prevention team about a suspicious wire transfer of $345,943.80 to Yvette Hulet's account, which raised concerns as she had no pending loan application. Investigating further, the team found that the worksheet used for this transfer was associated with a loan application of Percy Williams, revealing that Ms. Hulet's name had been fraudulently added as the beneficiary. Additional scrutiny uncovered that one of the signatures on the worksheet belonged to Stan Zotas, who was no longer with the company, indicating that the fraudulent transfer involved forgery. The investigation concluded that the fraud was committed by someone within Washington Mutual, as access to legitimate wire transfer worksheets was restricted to current employees.
Six wire transfers in Hulet's name were printed through Pronto in May 2003, although only one worksheet was faxed to the New York wire room. These transfers utilized Hulet's personal and banking information along with a pending loan application, but they were reversed in the system. Washington Mutual investigated the possibility of other fraudulent transfers from the Downers Grove facility and found that mortgage loan funds had been wire transferred to the personal accounts of Pamela Young, Eddie Jackson, and Bruce Jones.
On January 28, 2003, a transfer of $194,471.70 went into Young's Bank One account, using information from the pending loan application of Beverly Emon, another employee. On April 1, 2003, Jackson received $250,641.40 in his TCF Bank account, based on Frank Knoll's application. Jones received $187,134 on April 29, 2003, linked to Mark Corvo’s application. Although four additional wires were printed in Jones's name, they were reversed before funding.
Five wires were also printed in April 2003 in the name of George Davis, Shaw's husband, but were not sent for funding. Investigators found evidence of fraud in the transfers to Young, Jackson, and Jones, noting that none were mortgage loan customers at the time and that the authorization signatures had been manipulated from legitimate worksheets. The investigation led to Angela Hubbard and Ieanis Shaw, both of whom worked at the Downers Grove facility.
Following the $194,471.70 transfer, Young's bank records showed she had maintained low or negative balances prior. The next day, she opened a new savings account and transferred a significant amount from her checking account. She also issued a cashier's check to Hubbard for $97,000, which Hubbard later endorsed. Hubbard deposited a portion of this into her account shortly after. Young and Hubbard, who are sisters, had limited communication before the wire transfer but significantly increased their contact during the transfer period. Jackson's account, into which $250,641.40 was wired, was opened just days prior to the transfer.
The account in question exhibited low or negative balances prior to a significant wire transfer. On the same day as the transfer, Mr. Jackson issued a personal check for $125,000 to Angela Hubbard, which was subsequently deposited into Ms. Hubbard’s account and used to write checks to Ms. Shaw totaling $20,000. Mr. Jackson quickly depleted his retained funds through cash withdrawals and purchases, leaving his account nearly empty within three months of the transfer. Telephone records indicated a marked increase in communication between Mr. Jackson and Ms. Hubbard during the period surrounding the wire transfer.
In April 2003, Ms. Shaw made various purchases, including wedding rings and furniture, and took a honeymoon trip. A subsequent wire transfer of $187,134 was made to Mr. Jones's account, from which he issued two cashier’s checks to Ms. Hubbard and Ms. Shaw, based on instructions from Ms. Hubbard. Mr. Jones had never met Ms. Shaw prior to this transaction. Ms. Shaw later opened a savings account with her check and transferred funds into her checking account.
An investigation revealed that the signatures authorizing the wire transfer matched those involved in a previous investigation, with user IDs from Ms. Hubbard and Ms. Shaw being used to reverse multiple wire transactions. On March 17, 2005, the defendants, including Hubbard, Shaw, Jackson, Young, and Jones, were indicted for a scheme to defraud Washington Mutual by generating false mortgage loan documents to facilitate the illegal transfer of funds from the bank to the personal accounts of associates.
Mr. Jones and Ms. Hubbard entered into plea agreements regarding their involvement in fraudulent wire transfers. On August 30, 2005, Mr. Jones pled guilty to a count involving a fraudulent wire transfer into his account. Ms. Hubbard followed suit on October 25, 2005, pleading guilty to a count related to the fraudulent Young wire transfer, agreeing to cooperate with the government and provide truthful information about her co-defendants.
In her proffer, Ms. Hubbard implicated Ms. Shaw, detailing that in January 2003, she and Ms. Shaw conspired to fraudulently wire money, first targeting Ms. Hubbard's sister, Pamela Young. Ms. Shaw prepared fraudulent mortgage documents and facilitated a wire request for funds to Young’s account. The scheme culminated on January 28, 2003, when they executed the transfer and agreed on profit distribution.
However, on January 20, 2006, shortly before trial, Ms. Hubbard recanted her prior statements, claiming Ms. Shaw had no involvement in the wire transfer, asserting that she was solely responsible for contacting Ms. Young and managing the fraudulent transfer. Despite this, she admitted to discussions with Ms. Shaw about the scheme, indicating that Shaw was aware of Ms. Hubbard's actions and expressed interest in participating after learning the financial outcome.
The government informed the court of Ms. Hubbard's recantation, contending she had lied during her proffers and plea hearing, rendering her unreliable as a witness. Consequently, the government moved to revoke Ms. Shaw's plea agreement, which the court granted, subsequently dismissing the indictment count against Ms. Shaw related to the Young wire transfer.
On March 1, 2006, a superseding indictment was returned against all defendants except Mr. Jones, adding money laundering charges. A supplemental evidentiary proffer was filed, including statements from Mr. Jones, who claimed Ms. Hubbard indicated that Ms. Shaw was orchestrating the fraud. Ultimately, defendants Shaw, Jackson, and Young were tried and convicted on all counts.
The government successfully moved to exclude evidence regarding Ms. Hubbard’s January 20th partial recantation of statements implicating Ms. Shaw in a wire fraud scheme. Ms. Shaw's counsel argued for the admissibility of these statements as statements against interest under Fed. R. Evid. 804(b)(3). The district judge noted the conflicting nature of Ms. Hubbard's statements and required substantial corroboration for the hearsay to be admitted, ultimately finding insufficient corroborating circumstances to allow it in, thereby sustaining the government's objection.
During the trial, Mr. Jones testified that Ms. Hubbard had told him about Ms. Shaw's involvement in the fraud, and he recounted an interaction where Ms. Hubbard indicated she could not assist him with wiring money but would check with another individual. Following their convictions, Ms. Shaw and Ms. Young requested a new trial, which was denied. At sentencing, Judge Castillo expressed doubts about Ms. Hubbard’s credibility and reiterated the decision to exclude her out-of-court statements.
On appeal, the defendants challenged the exclusion of Ms. Hubbard's recantation, the sufficiency of the evidence against them, and alleged improper comments by the government regarding their right to remain silent. The court reviewed the evidence exclusion for abuse of discretion regarding Ms. Shaw, while applying plain error review for Mr. Jackson, noting that Ms. Young waived her right to challenge the exclusion. The court concluded that all challenges failed, affirming the convictions.
Ms. Shaw attempted to impeach Ms. Hubbard by presenting her recanting statements, which is valid impeachment but restricted when concerning collateral matters. The court highlighted that Ms. Hubbard did not testify, making the impeachment efforts inappropriate since the jury was not tasked with determining Ms. Shaw's involvement in the Young wire transfer, a charge dismissed pre-trial. The evidence of Ms. Hubbard’s earlier statements implicating Ms. Shaw was irrelevant, as it served merely to suggest Ms. Hubbard was lying, which is not a proper impeachment purpose. The district judge could have excluded this irrelevant evidence under Fed. R. Evid. 403 due to its potential to mislead the jury.
Under Fed. R. Evid. 804(b)(3), hearsay statements can be admissible if the declarant is unavailable, the statement is against the declarant’s penal interest, and corroborating circumstances indicate the statement's trustworthiness. The district court found Ms. Hubbard unavailable due to her Fifth Amendment rights and that her recantation was against her penal interest. The remaining issue was whether the defendants demonstrated that corroborating circumstances indicated the trustworthiness of Ms. Hubbard’s statements. The court noted that the district judge's assessment of trustworthiness is given considerable deference and that out-of-court statements meant to exculpate the accused must have corroborating evidence to be admissible.
Defendants assert that the statements made by Ms. Hubbard regarding Ms. Shaw's involvement in a fraudulent scheme are admissible, referencing the factors from United States v. Nagib, which evaluates corroborating circumstances for Rule 804(b)(3) purposes. These factors include the relationship between the declarant and the exculpated party, the voluntariness of the statement given after Miranda warnings, and whether the statement aimed to curry favor with authorities. The analysis reveals that while Ms. Hubbard and Ms. Shaw were not closely related, they were involved in the same fraudulent activity. Ms. Hubbard was informed of her Miranda rights, and her statements appeared to be voluntary without any indication of recantation to gain leniency from the government.
However, other circumstances undermine the corroboration suggested by the Nagib factors. Ms. Hubbard's assertion that Ms. Shaw was not involved in the Young wire transfer contradicts her previous statements where she implicated Ms. Shaw. The precedent set in United States v. Groce shows that inconsistent statements can undermine trustworthiness under Rule 804(b)(3). The defendants argue that Ms. Hubbard's recantations were corroborated by other evidence, but the court disagrees, noting that Ms. Shaw had benefitted financially from her involvement in the scheme, which was supported by evidence including her user identification number linked to fraudulent transactions. This evidence allowed a reasonable jury to conclude that Ms. Shaw was indeed involved in the fraudulent activities, countering the defendants' claims.
Judge Castillo determined that Ms. Hubbard's conflicting statements rendered her recanting hearsay statements untrustworthy, requiring substantial corroboration for admission. He assessed her credibility as nonexistent and concluded that there were insufficient corroborating circumstances to validate her statements, a decision well within his discretion according to the record. The judge's ruling was based on Rule 804(b)(3), which mandates exclusion of out-of-court statements lacking corroboration. The defendants mistakenly claimed the court relied on inherent powers for the exclusion, but the ruling was firmly grounded in evidentiary rules. While the jury assesses witness credibility, judges decide on evidence admissibility, and defendants do not possess an absolute right to present inadmissible testimony. Prior cases cited by the defendants, such as Taylor v. Illinois and United States v. Peak, do not undermine the court's authority under Rule 804(b)(3), which explicitly requires corroborative trustworthiness for hearsay statements, unlike the state of mind exception in Rule 803(3).
Defendants claim that excluding Ms. Hubbard's recantation of previous statements violated their Sixth Amendment right to confront witnesses. The court reviews such evidentiary rulings de novo, emphasizing the Confrontation Clause's guarantee for effective cross-examination. However, there is no absolute right to cross-examine to any extent desired, as the district judge has discretion to limit cross-examination based on factors like prejudice and relevance. The defendants effectively cross-examined Agent Clifford, and the district judge rightly prohibited questions regarding Ms. Hubbard’s recantation about Ms. Shaw’s role in a wire transfer, as Ms. Shaw was not charged with that offense. This recantation was deemed marginally relevant and potentially confusing, as Ms. Hubbard did not fully recant her statements implicating Ms. Shaw in the overall fraudulent scheme. Allowing such evidence could have led to the admission of other statements by Ms. Hubbard that might confuse the jury regarding Ms. Shaw's involvement. Additionally, during the recantation, Ms. Hubbard indicated prior discussions with Ms. Shaw about wiring money, reinforcing that Ms. Shaw was aware of the transactions, thus complicating the narrative further.
Ms. Hubbard made damaging statements regarding Ms. Young's involvement in a fraudulent scheme, which were admitted into evidence. The admission raised issues of potential prejudice against Ms. Young and her confrontation rights, as outlined in Crawford v. Washington, where the defendant's right to confront witnesses is violated if testimonial statements are admitted without the opportunity for cross-examination. The defendants argued that it was inconsistent for the district court to allow Ms. Hubbard's out-of-court statements through Mr. Jones's testimony while limiting cross-examination of Agent Clifford about Ms. Hubbard’s later recantation.
However, the court clarified that the Confrontation Clause does not apply to co-conspirator statements made in furtherance of the conspiracy, as these are not considered hearsay under Federal Rule of Evidence 801(d)(2)(E). The evidence supported the conclusion that Ms. Hubbard and the defendants were involved in a scheme to defraud Washington Mutual, making her statements admissible. In contrast, her recanting statements, not made in the course of the conspiracy, were not admissible under the same rule.
The court also noted that there is a critical distinction between Rules 801(d)(2)(E) and 804(b)(3) regarding the requirement for corroborating circumstances for admissibility. The district court's rulings on the admissibility of Ms. Hubbard's statements were not inconsistent. The statements introduced at trial were limited and did not violate the Confrontation Clause. The court found that it had discretion in limiting Agent Clifford's cross-examination concerning Ms. Hubbard’s recantation without violating the defendants' rights. Any potential error in excluding evidence was deemed harmless if it did not significantly influence the jury's decision, as established in precedents.
Determining whether an error was harmless involves assessing several factors: the importance of the witness’s testimony, whether it was cumulative, the presence of corroborating or contradicting evidence, and the overall strength of the government's case. The defendants argue that Ms. Hubbard's testimony was crucial, alleging the government’s efforts to exclude her statements indicated they would weaken its case. However, it is noted that Ms. Hubbard never testified, and her statements were deemed irrelevant by the government at the time. Additionally, the jury did not need to consider Ms. Shaw's guilt related to the Young wire transfer, directly linked to Ms. Hubbard’s recanted statements. The government presented compelling evidence against Ms. Shaw, including her user identification being associated with several wire transfers and checks from Ms. Hubbard and Mr. Jones, who had no prior connection to Ms. Shaw. While Ms. Hubbard's statements provided some corroborative evidence, they were not essential to the government’s case. Consequently, the exclusion of her January 20 statements, even if erroneous, was deemed harmless.
Regarding the sufficiency of evidence, the defendants claimed that the evidence presented at trial did not adequately demonstrate their knowledge and intent to defraud. The burden of proof lies heavily on them, and when evidence is challenged, it is reviewed favorably towards the verdict. A conviction for bank fraud under 18 U.S.C. § 1344 necessitates proof of the defendant's knowing participation in a fraudulent scheme against a bank.
The excerpt outlines the legal standards and evidentiary requirements for proving intent to defraud in the context of bank fraud. Intent to defraud involves acting willfully with the specific aim to deceive for financial gain or to cause financial loss to another party. This intent can be established through circumstantial evidence, including actions like falsifying loan documents.
In the case discussed, the government presented direct evidence, such as testimony from Mr. Jones linking Ms. Hubbard to the fraudulent scheme, and extensive circumstantial evidence against Ms. Young, who is Ms. Hubbard's sister. Notably, a significant wire transfer of $194,471.70 was made into Ms. Young's account at a time when her account had low or negative balances. The transfer request included her personal information, suggesting she provided it to Ms. Hubbard.
Phone records indicated increased communication between Ms. Young and Ms. Hubbard around the time of the transfer, supporting the inference of their collusion. Following the transfer, Ms. Young's behavior—failing to inquire about the unexpected funds and promptly moving large sums to a new account and issuing a check to Ms. Hubbard—further indicated her knowledge and intent to participate in the fraudulent scheme. The jury could reasonably deduce that her actions were not innocent, and her lack of extravagant spending did not negate her culpability. The legal threshold for proving bank fraud does not require detailed tracking of how the funds were used post-transfer.
Sufficient evidence exists for a jury to conclude that Ms. Shaw possessed the knowledge and intent to defraud while working at Washington Mutual. She was likely an insider and played a significant role in a fraudulent scheme involving wire transfers. Although her job did not typically include accessing wire transfers, an investigation indicated that her user identification was used to reverse multiple transfers, including one to Mr. Jackson on March 28, and others after her colleague Ms. Hubbard left the bank. The jury could reasonably infer that Ms. Shaw was the one using her ID, especially since she was still employed at the bank while Ms. Hubbard was not.
Additionally, the similarities in the authorizing signatures of the Jones wire transfer and other fraudulent transfers further supported this inference. Ms. Shaw's intent to defraud was also suggested by her receipt of two $10,000 checks from Ms. Hubbard shortly after a significant wire transfer, which the jury could view as payment for her involvement in the scheme. The unusual nature of these transactions and her immediate deposit of the checks into her account bolstered this inference.
Furthermore, after the Jones wire transfer, a $60,000 cashier’s check was issued to Ms. Shaw, allegedly instructed by Ms. Hubbard, who had left the bank just before. The jury could deduce that this payment was for Ms. Shaw's role in the fraud. Despite Ms. Shaw's claim of a lack of knowledge regarding the checks, and her delayed spending of the funds, the quick expenditure of illicit gains is not a requirement for a bank fraud charge. Evidence indicated that she spent significant amounts shortly after receiving the funds on luxury items and vacations.
Ms. Shaw’s failure to spend all the money does not undermine the inference of her intent to defraud; the jury could reasonably conclude she limited her spending to avoid drawing attention to her sudden financial gain. Mr. Jackson, who was not a Washington Mutual customer, received a wire transfer of $250,641.40 into a newly opened account that had previously been nearly empty. There was no evidence he questioned this transfer or notified the bank of any errors. The wire transfer documentation included his name and account details, suggesting he provided this information to Ms. Hubbard. Increased communication between Ms. Hubbard and Mr. Jackson in the days surrounding the transfer supports the inference that they conspired regarding the fraudulent transaction. Further, Mr. Jackson's actions post-transfer, including a $125,000 check to Ms. Hubbard—indicative of a kickback—and his rapid expenditure of the funds on cash, vehicles, and gifts, bolster the inference of his knowledge and intent to defraud. The defendants' overall participation in the fraudulent scheme is supported by substantial evidence, including Mr. Jones's testimony, negating their challenge to the sufficiency of the evidence.
Regarding the prosecutor's rebuttal remarks, the defendants claimed improper comments about their choice not to testify. While a prosecutor may critique the defense's case, they cannot imply adverse inferences from a defendant's silence. The court assesses such remarks for plain error if no objection was raised at trial, requiring the defendants to demonstrate the comments were improper, prejudicial, and likely to have altered the trial's outcome.
The court evaluates whether an improper remark during trial denied defendants a fair trial by considering several factors: the seriousness of the statement, whether it was provoked by defense counsel, jury instructions to disregard it, the possibility for rebuttal, and the strength of the evidence against the defendants. In this instance, the prosecutor’s comment regarding a lack of explanation for a $60,000 check was assessed. The court concluded that the comment did not reference Ms. Shaw's silence but rather addressed her counsel’s lack of explanation. The prosecutor's rebuttal remarks were deemed to provide context and were not inflammatory.
The defense failed to show that the comment prejudiced their case or affected the trial's outcome, especially since no objections were raised at the time, and the jury was instructed that the government bears the burden of proof and that defendants are not required to testify. The court assumed the jury followed these instructions and found the evidence against the defendants compelling. Consequently, even if the prosecutor's remark was improper, it did not deprive the defendants of a fair trial, leading to the affirmation of their convictions.
