In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 11‐3822 & 11‐3824
UNITED STATES OF AMERICA,
Plaintiff‐Appellee,
v.
LACEY PHILLIPS and ERIN HALL,
Defendants‐Appellants.
____________________
Appeals from the United States District Court for the
Western District of Wisconsin.
No. 11 CR 00012 — Barbara B. Crabb, Judge.
____________________
ARGUED MAY 30, 2012 — REARGUED EN BANC APRIL 16, 2013
— DECIDED SEPTEMBER 4, 2013
____________________
Before EASTERBROOK, Chief Judge, and BAUER, POSNER,
FLAUM, KANNE, ROVNER, WOOD, WILLIAMS, SYKES, TINDER,
and HAMILTON, Circuit Judges.
POSNER, Circuit Judge. The defendants were convicted of
violating, and conspiring to violate, 18 U.S.C. § 1014, which
criminalizes “knowingly mak[ing] any false statement … for
the purpose of influencing in any way the action of” any
2 Nos. 11‐3822 & 11‐3824
specified private and public entity that provides, or regu‐
lates the provision of, financial services; among the entities
are federally insured banks. The defendants were each sen‐
tenced to two months’ imprisonment plus three years of su‐
pervised release and they were ordered to pay (along with
Brian Bowling, of whom more shortly) nearly $90,000 in res‐
titution to successors in interest to the bank they were con‐
victed of having made false statements to. A panel of this
court affirmed the judgment, 688 F.3d 802 (7th Cir. 2012),
over the dissent of one of the panel members. The full court
granted rehearing en banc to clarify the elements of the
crime and their application to charges of mortgage fraud,
which have mushroomed in the wake of the collapse of the
housing and credit bubbles in the period 2006 to 2008. We
try in this opinion to clarify the meaning of “knowingly”
making a false statement “for the purpose of influencing in
any way” the action of the bank or other covered entity in
response to the false statement.
Lacey Phillips and Erin Hall are a couple. Phillips is a
hairdresser, Hall a barber. In the spring of 2006, just as—
unbeknownst to them—the housing bubble was deflating,
they found a house they wanted to buy priced slightly below
$250,000. Like countless American couples during the hous‐
ing bubble they mistakenly believed they could afford the
house they wanted. They had never owned a house, had on‐
ly a high‐school education (Hall had some college but no
degree), and were financially unsophisticated.
They applied to Associated Bank for a mortgage. The
bank turned down their application because Hall had a re‐
cent bankruptcy and because the bank deemed the couple’s
joint monthly income of $3,800 too meager to justify the loan
Nos. 11‐3822 & 11‐3824 3
of more than $200,000 that they needed. After this rebuff
Hall turned to a mortgage broker named Brian Bowling
whom he knew and admired (Hall had been Bowling’s bar‐
ber) for help in obtaining a mortgage loan. Bowling—a crook
who brokered fraudulent loans (but there is no indication
that either Phillips or Hall knew or suspected that he was a
crook)—steered the couple to a federally insured bank of
dubious ethics named Fremont Investment & Loan. Had
Fremont been the bank that had turned the defendants down
the first time, this might have shown that they realized they
didn’t meet the bank’s criteria for a loan and so would be
able to obtain a loan only by lying. But it was of course a dif‐
ferent bank that had previously turned them down.
Associated Bank was a reputable bank. Fremont was not.
See Commonwealth v. Fremont Investment & Loan, 897 N.E.2d
548, 551–55 (Mass. 2008); In re Fremont Investment & Loan,
Docket No. FDIC‐07‐035b (FDIC Order to Cease and Desist,
Mar. 7, 2007), www.fdic.gov/bank/individual/enforcement/
2007‐03‐00.pdf; “U.S. Regulators Order Fremont Investment
& Loan to Tighten Its Loan Policies and Operations,” New
York Times, Mar. 8, 2007, www.nytimes.com/2007/03/08/
business/worldbusiness/08iht‐mortgage.4840813.html (both
websites were visited on September 3, 2013). Fremont’s spe‐
cialty was making “stated income” loans—known to the
knowing as “liars’ loans” because in a stated‐income loan
the lender accepts the borrower’s statement of his income
without trying to verify it. Such loans, which played a signif‐
icant role in the financial collapse of September 2008—the
doleful consequences of which continue to plague the U.S.
and world economies—were profitable despite the high risk
of default because lenders sold them as soon as they’d made
them. Many of the loans were repackaged by the buyers into
4 Nos. 11‐3822 & 11‐3824
ill‐fated mortgage‐backed securities whose holders lost their
shirts. This was musical‐chairs financing.
Fremont went broke when the music stopped in June
2008. Its collapse was a harbinger of the worldwide financial
collapse that occurred three months later when Lehman
Brothers suddenly declared bankruptcy. “[The] very terms
[of Fremont’s loans]—short‐term interest rates followed by
payment shock, plus high loan‐to‐value and high debt‐to‐
income ratios—were likely to lead to default and foreclo‐
sure.” Megan Woolhouse, “Lender Settles with State for
$10m,” Boston Globe, Business, p. 7, June 10, 2009,
www.boston.com/business/articles/2009/06/10/subprime_
lender_settles_suit_with_mass_for_10m/ (visited Sept. 3,
2013) (quoting Attorney General of Massachusetts).
The defendants soon lost their home, being unable—
despite valiant efforts to keep up their mortgage payments
by working second jobs—to make the monthly payments of
principal and interest required by the terms of the mortgage.
The interest rate was adjustable; it reset automatically after
two years, doubtless at a higher rate. “A large majority of
Fremont’s subprime loans [the loan to the defendants was
subprime] were adjustable rate mortgage (ARM) loans,
which bore a fixed interest rate for the first two or three
years, and then adjusted every six months to a considerably
higher variable rate for the remaining period of what was
generally a thirty‐year loan.” Commonwealth v. Fremont In‐
vestment & Loan, supra, 897 N.E.2d at 552. Though hapless
victims of Bowling, the defendants were convicted in part on
the basis of his testimony; for he turned state’s evidence and
was rewarded for helping to convict his victims by being
given a big slice off his sentence.
Nos. 11‐3822 & 11‐3824 5
At the government’s urging, the trial judge excluded, as
irrelevant, evidence that might have persuaded the jury that
the defendants either had not made statements they knew to
be false or, though knowing the statements to be false,
hadn’t made them for the purpose of influencing the bank’s
action on their mortgage application. The district judge ruled
erroneously that if mortgage applicants “sign something and
they send it in, they’re attempting to influence the bank … .
They didn’t sign these papers just to put them up on their
wall. They signed these papers with the idea they would go
in to whoever and they would get a mortgage … . [If de‐
fendant Phillips, who signed the mortgage application to
Fremont] just took the papers and went home, we would not
have a crime. But by sending them in to the mortgage com‐
pany, she’s met the requirements of [section] 1014.”
The implication of the passage we just quoted is that
making a statement that is false and influences a bank is a
crime. It isn’t. The statement must be knowingly false. The
judge excluded evidence that if believed might have con‐
vinced a jury that any false statements the defendants made
were not made knowingly—that is, not known by them to be
false. The evidence if believed might also have rebutted an
inference of intent to influence the bank. Not that the jury
was erroneously instructed. But the judge may have been led
by a misunderstanding of section 1014 to exclude evidence
that if admitted might have exonerated the defendants.
We take up the issue of influencing first, and then the is‐
sue of knowing falsehoods. Suppose you’re an actress and
you habitually subtract three years from your true age be‐
cause you’re worried about movie producers’ discriminating
against aging actresses. You’re 40 but pretend to be 37. You
6 Nos. 11‐3822 & 11‐3824
know the bank doesn’t care whether you’re 40 or 37—you’re
wealthy and the bank is eager to have you as a customer—
but you don’t like your true age to appear on any document;
a bank employee might read it and discover the lie and post
his discovery on Facebook or Twitter, and within hours the
whole world would be privy to your secret. You would have
made a knowingly false statement on your bank application
by listing your age as 37, and rather than just pinning the
application to your wall you had submitted it to the bank.
Under the district judge’s interpretation of section 1014—an
erroneous interpretation that warped the trial in this case—
you would be guilty of a felony punishable by a prison sen‐
tence of up to 30 years and a maximum fine of up to
$1,000,000.
What is true is that if you make a knowingly false state‐
ment intending to influence a bank, it’s no defense that you
didn’t succeed in influencing it or even that you couldn’t
have succeeded. Materiality is not an element of the offense
punished by section 1014. United States v. Wells, 519 U.S. 482,
484 (1997); United States v. Lane, 323 F.3d 568, 582–83 (7th Cir.
2003). But it is relevant. If the loan applicant doesn’t think
his falsehood would influence the bank it is unlikely that in
making it he intended to influence the bank; as in our exam‐
ple of the actress, he would have had a different motive. As
the Supreme Court explained in Wells, “a statement made
‘for the purpose of influencing’ a bank will not usually be
about something a banker would regard as trivial, and ‘it
will be relatively rare that the Government will be able to
prove that’ a false statement ‘was … made with the subjec‐
tive intent’ of influencing a decision unless it could first
prove that the statement has ‘the natural tendency to influ‐
ence the decision.’ Hence the literal reading of the statute
Nos. 11‐3822 & 11‐3824 7
will not normally take the scope of § 1014 beyond the limit that
a materiality requirement would impose.” United States v. Wells,
supra, 519 U.S. at 499 (emphasis added), quoting Kungys v.
United States, 485 U.S. 759, 780–81 (1988).
Wells declined to read a requirement of proving material‐
ity into the statute not because materiality is irrelevant but
because “the literal reading of the statute”—the reading that
excludes materiality as an element of the offense—
nevertheless allows immateriality to be used as evidence
that the false statement was not intended to influence the
bank.
If the defendants believed that all the bank cared about
was that the applicant for a loan have a decent credit rating,
as did Phillips, who alone signed the application as borrow‐
er, they wouldn’t have thought the statement of income
would influence the bank’s decision any more than pinning
Phillips’s baby pictures to the application would have done
so. And if one believes the defendants’ version of what their
mortgage broker told them—a version they were forbidden
to present to the jury—they didn’t think that including in the
space for “borrower’s income” a non‐borrower’s income
would affect the bank’s decision, as all the bank cared about
was the total income available to service the loan—and the
non‐borrower was the applicant’s “significant other” and
future spouse. What can it mean to intend to influence a
bank by telling it something you’re confident won’t influ‐
ence it?
The defendants wanted but were forbidden by the dis‐
trict judge to testify that Bowling had told them, first, that
Phillips should be the only applicant for the stated‐income
loan because her credit history was good while Hall’s was
8 Nos. 11‐3822 & 11‐3824
bad because of his recent bankruptcy; second that Hall’s in‐
come should be added to hers on the line in the application
that asked for the borrower’s gross monthly income; and
third that this was proper in the case of a stated‐income loan
because what the bank was asking for was the total income
from which the loan would be repaid rather than just the
borrower’s income. Phillips and Hall were a couple (they
have since married) and so both their incomes would be
available to contribute to the mortgage payments. And now‐
adays of course many unmarried couples live together indef‐
initely in a state functionally equivalent to marriage, sharing
joint expenses, such as mortgage expenses, as a married
couple would do.
The judge forbade the defendants to testify to these
things because she didn’t see the relevance of such testimo‐
ny. The government adds that it would have been hearsay.
Not so (a surprising mistake for a Justice Department lawyer
to make); the defendants were offering the testimony about
Bowling’s alleged statements not to prove that a stated‐
income loan does permit what Bowling told them it did, but
to explain what they had heard him tell them (and that they
believed what he told them) when they made the applica‐
tion. It is not hearsay to testify to what someone told you
and what you thought the person meant, as long as you’re
not insisting on “the truth of the matter asserted in the [out‐
of‐court] statement.” Fed. R. Evid. 801(c)(2); Talmage v. Har‐
ris, 486 F.3d 968, 975 (7th Cir. 2007); United States v. Hanson,
994 F.2d 403, 406–07 (7th Cir. 1993); United States v. Thomp‐
son, 279 F.3d 1043, 1047 (D.C. Cir. 2002). The defendants
wanted to testify not that Bowling had told them the truth
but that his lies, undetected by them, had made them mis‐
Nos. 11‐3822 & 11‐3824 9
understand the meaning of “borrower’s income” in an ap‐
plication for a stated‐income loan.
The evidence they were prevented from giving was per‐
tinent both to whether they had knowingly made a false
statement and to whether, if so, their intention had been to
influence the bank to grant them a mortgage. They wanted
to testify that Bowling had told them that in a stated‐income
loan the line for the borrower’s income on the application
form really means the borrower’s income plus the income of
a spouse, or parent, or a person one is cohabiting with in a
committed relationship whether marital or nonmarital, or
anyone else whose income will be an additional source of
repayment of the mortgage. On this interpretation, which
financial naïfs like these defendants could well believe, they
weren’t trying to influence the bank by means of a false
statement, because on that interpretation what the bank was
asking for in the line for borrower’s income was the total in‐
come out of which the mortgage would be repaid. The de‐
fendants must have known that in a literal sense Hall’s in‐
come was not part of the borrower’s, Phillips’s, income. But
literal meanings are not the only true meanings of phrases or
sentences or other linguistic units. If Phillips told Hall that
she had a toothache that was killing her, it would not have
been an intelligent response for Hall to call 911 for an ambu‐
lance. Or if she had told him that he was a “cool cat,” this
would not be a lie just because he lacks whiskers and a nicti‐
tating membrane.
These examples illustrate, what should be obvious, that
even the simplest sentences require interpretation. Francis
Lieber gave the following example almost two centuries ago
in his celebrated book Legal and Political Hermeneutics, Or,
10 Nos. 11‐3822 & 11‐3824
Principles of Interpretation and Construction in Law and Politics:
With Remarks on Precedents and Authorities 28–30 (1839):
“Suppose a housekeeper says to a domestic: ‘Fetch some
soupmeat,’ accompanying the act with giving some money
to the latter.” That sounds straightforward, but Lieber ex‐
plains that the domestic
will be unable to execute the order without interpretation,
however easy, and, consequently, rapid the performance of
the process may be. Common sense and good faith tell the
domestic, that the housekeeperʹs meaning was this: I. He
should go immediately, or as soon as his other occupations
are finished; or, if he be directed to do so in the evening,
that he should go the next day at the usual hour; 2. that the
money handed him by the housekeeper is intended to pay
for the meat thus ordered, and not as a present to him; 3.
that he should buy such meat and of such parts of the ani‐
mal, as, to his knowledge, has commonly been used in the
house he stays at, for making soups; 4. that he buy the best
meat he can obtain, for a fair price; 5. that he go to that
butcher who usually provides the family, with whom the
domestic resides, with meat, or to some convenient stall,
and not to any unnecessarily distant place; 6. that he return
the rest of the money; 7. that he bring home the meat in
good faith, neither adding any thing disagreeable or injuri‐
ous; 8. that he fetch the meat for the use of the family and
not for himself. Suppose, on the other hand, the house‐
keeper, afraid of being misunderstood, had mentioned
these eight specifications, she would not have obtained her
object, if it were to exclude all possibility of misunder‐
standing. For, the various specifications would have re‐
quired new ones. Where would be the end? We are con‐
strained, then, always, to leave a considerable part of our mean‐
ing to be found out by interpretation. [Emphasis added.]
Nos. 11‐3822 & 11‐3824 11
It is for a jury to determine what the defendants under‐
stood to be the meaning that Bowling attached to “borrow‐
er’s income.” In finance as in law, words and phrases in eve‐
ryday use often bear a specialized meaning of which ordi‐
nary people are ignorant. Won’t the typical reader of a typi‐
cal mortgage application form (such as “Uniform Residential
Loan Application,” https://www.fanniemae.com/content/
guide_form/1003rev.pdf (visited Sept. 3, 2013)) sense that
such words as “liquid,” “delinquent,” “delinquency,” “suc‐
cessors,” “title,” “discount,” “vested interest,” and “im‐
provements” are not being used in their everyday sense?
Couldn’t a loan applicant believe—if told by a professional
whom the applicant has reason to trust—that “borrower’s
income” on such a form also may not bear its everyday
meaning?
Indeed the bank, given its business model, may have
been asking for either an individual’s income or a combined
income, rather than just for the former. If Phillips was trying
to influence the bank not by concealing the existence of Hall
(with his bad credit record) but by reporting an income from
which the mortgage would be repaid that was large enough
to persuade the bank that the loan would not be unduly
risky, and she thought the loan application asked for that
measure of income, she was trying to influence the bank by
saying something she believed to be true.
An FBI agent who interviewed Hall quoted him as saying
that “Bowling mentioned that [Phillips] would need to
change her [job] title to make her income look a little better.”
(So on the loan application she was listed as a “sales manag‐
er,” which was false.) But there was also evidence, consistent
with Fremont’s business model, that the bank didn’t give a
12 Nos. 11‐3822 & 11‐3824
fig about the couple’s ability to repay the loan. It planned to
sell the loan, which would then be folded with many other
loans into a mortgage‐backed security that would be sliced
and the slices sold around the world, the premise being that
the security would be safe because of diversification—the
mortgages bundled into the security would be on properties
scattered across the United States. A nationwide collapse of
the housing market was not foreseen.
It’s true that even if the bank didn’t care what was on the
loan application, the defendants could have thought they
were influencing the bank—and a purpose to influence is an
element of the crime (though, to repeat, only if the influence
is exerted through knowingly false statements). But a jury
could find that the defendants believed the bank had ap‐
proved the loan to the couple, and was telling them through
Bowling what to put on the loan application, or what he
should put on it in their name, and that in complying with
his directives the defendants were not trying to influence the
bank because they knew the bank had already made up its
mind to make the loan and were just following Bowling’s
directions, which they may not have understood. What if he
told them that the bank wouldn’t even read their applica‐
tion, that all it cared about was having a signed application?
Then in authorizing Bowling to fill in the application the de‐
fendants would not have been trying to influence the bank.
The jury rendered a general verdict, simply finding the
defendants guilty of both counts of the indictment (the sec‐
ond being the conspiracy count). The verdict did not reveal
what false statements the jury attributed to the defendants.
For all we can know, the only false statement to the bank
that the jury found that Phillips and Hall had known to be
Nos. 11‐3822 & 11‐3824 13
false (given that Hall hadn’t signed the application and that
neither of the defendants may have read it) was the state‐
ment of income in the borrower’s line on the form—for they
admitted to having known their incomes would be com‐
bined on that line, while denying knowledge of the other fal‐
sities charged—those they attributed to Bowling. Had they
been allowed to testify to what Bowling had told them the
phrase “borrower’s income” meant, the jury might well have
concluded that the couple had believed that combining their
income on the “borrower’s income” line of the loan applica‐
tion was precisely what the application called for.
It’s true that the combined income was inflated on the
application and that Phillips’s job was falsely listed as that of
a sales manager rather than a hairdresser in order to make
the income figure more credible. Phillips testified, however,
that the application was filled out by Bowling and that nei‐
ther she nor Hall read it or was aware of the inaccuracies in
it. Bowling had told them he would add Hall’s income to
Philipps’s in the line for the borrower’s income but not that
he would inflate their combined income.
The jury may well have believed the FBI agent’s testimo‐
ny that Hall had acknowledged having been told by Bowling
that Phillips’s job title would be inflated on the application.
But alternatively the jury may not even have considered the
agent’s testimony; the judge’s evidentiary ruling left the jury
with little choice but to convict the defendants on the basis
of the (literal) meaning of “borrower’s income” alone.
The government does not argue that by signing the form
Phillips adopted the false statements in it that she was una‐
ware of. Nor would that be a plausible reading of a criminal
statute that forbids only false statements made “knowingly.”
14 Nos. 11‐3822 & 11‐3824
It is careless to sign a document without reading it, but it is a
knowing adoption of its contents only if the signer is playing
the ostrich game (“willful blindness”), that is, not reading it
because of what she knows or suspects is in it. In re Aimster
Copyright Litigation, 334 F.3d 643, 650 (7th Cir. 2003); United
States v. Azubike, 564 F.3d 59, 66–67 (1st Cir. 2009); United
States v. Aina‐Marshall, 336 F.3d 167, 170–71 (2d Cir. 2003).
Because Hall didn’t sign the application form, the bank
could not have sought a deficiency judgment against him
when the mortgage was defaulted. But there is no evidence
that Hall was kept off the application form in order to avoid
being potentially subject to a deficiency judgment. It would
be highly implausible. Deficiency judgments are rarely
sought in Wisconsin because Wisconsin law allows mortga‐
gees to foreclose six months after obtaining a default judg‐
ment if they waive their right to a deficiency judgment. Wis.
Stat. 846.101(2). Otherwise they must wait a year. Id., 846.10.
Anyway what bank would think it worth the expense of su‐
ing to obtain a deficiency judgment against a barber? And
remember that Fremont’s business model involved selling
the mortgages it issued, not servicing and if necessary fore‐
closing on them.
But the district court’s key error was forbidding the de‐
fendants to testify to what Bowling told them when he in‐
structed Phillips to sign the application for the mortgage
loan. He may have said to them: “Your application isn’t ille‐
gal.” Or: “Whatever you write on it won’t affect the bank’s
lending decision because it doesn’t read the applications—
they’re just window dressing.” Or: “combining your income
isn’t a misstatement under Fremont’s stated‐income loan
program.” The first statement would not have helped the
Nos. 11‐3822 & 11‐3824 15
defendants because mistake of law is rarely allowed as a de‐
fense to a criminal charge, Cheek v. United States, 498 U.S.
192, 199 (1991); United States v. Dimitrov, 546 F.3d 409, 414
(7th Cir. 2008); United States v. Allen, 670 F.3d 12, 18 (1st Cir.
2012), and we are given no reason to think that 18 U.S.C.
§ 1014 is an exception. The second statement, however,
would have helped negate the element of intent to influence.
And the third if believed would have refuted the prosecu‐
tion’s claim that the defendants had knowingly made a false
statement to the bank, unless the jury believed that other
false statements on the application were made by the de‐
fendants or (as may have been the case with the change in
Phillips’s job title) with their knowledge, rather than by
Bowling without his telling them. Had the jury believed ei‐
ther that the defendants lacked the intent to influence the
bank or that they did not make any knowingly false state‐
ments, it would have acquitted them.
The erroneous exclusion of evidence favorable to the de‐
fendants could thus have been decisive in the jury’s decision
to convict. The judgment is therefore reversed and the case
remanded for a new trial.
REVERSED, AND REMANDED WITH INSTRUCTIONS.
16 Nos. 11-3822 & 11-3824
EASTERBROOK, Chief Judge, with whom BAUER, Circuit
Judge, joins, dissenting. Lacey Phillips and Erin Hall decided
to buy a house together. After one bank turned them down
because their income was inadequate, Brian Bowling, a loan
broker, told them that they could get a loan by changing
what they told the potential lender. Bowling prepared an
application that omitted Hall’s name (avoiding a credit check
that would have revealed his bankruptcy), attributed the
combined income of Hall and Phillips to Phillips alone, dou-
bled that combined income, and falsely claimed that Phillips
was a sales manager at a satellite TV business. (Bowling
knew that the $90,000 annual income Phillips claimed to
earn needed to match the job she claimed to hold; actually
she was a hairstylist at J.C. Penney, with an annual income
less than $24,000.) Phillips signed the application and an
employment verification form. Fremont Investment & Loan
extended credit, and the couple bought their home. But they
could not keep up the payments, and the mortgage holder
foreclosed. A jury convicted them of violating 18 U.S.C.
§1014.
Section 1014 is a simple statute. It reads: “Whoever
knowingly makes any false statement … for the purpose of
influencing in any way the action of [any of a long list of en-
tities, including federally insured lenders] shall be fined not
more than $1,000,000 or imprisoned not more than 30 years,
or both.” There are just three elements: (1) knowingly mak-
ing a false statement; (2) to one of the listed entities; (3) for
the purpose of influencing that entity. Phillips and Hall con-
cede that the documents contain many false statements, and
the jury found that they knew the documents’ contents to be
false. The instructions told the jury to acquit defendants if
they thought the statements to be true. Defendants concede
Nos. 11-3822 & 11-3824 17
that Fremont was among the entities listed in §1014. That
leaves “for the purpose of influencing in any way the action”
of the lender. The bank fraud statute, 18 U.S.C. §1344, re-
quires proof of intent to defraud; §1014 is a different animal,
requiring only proof of intent to influence. See United States
v. Wells, 519 U.S. 482 (1997); United States v. Lane, 323 F.3d
568, 582–85 (7th Cir. 2003).
Much of the majority opinion reads as if there were an
open issue about whether defendants knew that the applica-
tion contained false representations. Yet Bowling’s testimony
would have been irrelevant to that subject, which the jury
resolved against defendants on instructions they do not con-
test. Although the jury did not return a special verdict telling
us which falsehoods it had found, there’s no need for special
verdicts in criminal cases. See Black v. United States, 130 S. Ct.
2963 (2010). It is enough if the evidence supports any of the
ways in which the defendants could have committed the of-
fense. See Griffin v. United States, 502 U.S. 46 (1991). The evi-
dence shows that defendants’ income was combined (even
though Hall’s income would have been unavailable to the
lender) and then doubled, and that Phillips’s occupation was
misrepresented in order to make the asserted income look
plausible. Defendants argue that (a) Bowling told them that
it was OK to combine their income, and (b) they did not read
the application and thus did not know about the doubling,
which Bowling added without telling them (presumably af-
ter Phillips signed the form). The jury necessarily rejected
proposition (b), which supports the conviction without re-
gard to what Bowling may have said about the propriety of
combining incomes.
18 Nos. 11-3822 & 11-3824
Bowling’s proposed testimony would have been relevant
if the only lie in the application were combining the couple’s
income while omitting Hall’s name. Most of the majority’s
opinion treats this as the only lie. But it wasn’t. The com-
bined income was doubled and Phillips’s occupation mis-
stated. Given Griffin we must resolve this appeal on the as-
sumption that the jury found that defendants knew about
the doubling.
In asking whether the doubling was “for the purpose of
influencing” the lender, it is helpful to distinguish two
things that Bowling might have said. First, he might have
told the defendants that banks do not care whether appli-
cants disclose any income. That is to say, Bowling might have
said that applicants can leave the “income” line blank and
still get a loan. Or he might have told them that banks do not
care about the truth of the stated income. Banks that syndi-
cate their loans do not lose if the borrowers default—that’s
why some didn’t run credit checks on potential borrowers,
and why the phrase “liars’ loans” developed—but they do
care about the representation that the income is high enough.
Without the representation that the income is sufficient, the
loan can’t be syndicated, the original bank would remain on
the hook, and the loan therefore would not be made. The
distinction I am drawing is between a belief about whether
the statement would influence the bank, and whether the truth
of the statement would influence the bank.
If Bowling told defendants that banks would make loans
with the income line left blank, then his testimony would
have been relevant, because it would have tended to show
that the defendants did not have “the purpose of influenc-
ing” the lender when they put a number, any number, in the
Nos. 11-3822 & 11-3824 19
income blank. But if Bowling told the defendants only that
the bank did not care about the truth of the claimed income,
that would not have aided the defense. To the contrary, it
would have supported the prosecution by showing that de-
fendants knew that the stated income was vital to the suc-
cess of the application.
I could not find any suggestion by defense counsel in the
district court that Bowling would have testified that he told
defendants that Fremont would loan money to applicants
who left the income line blank. Everything that happened in
the district court is consistent with the second understand-
ing: defendants wanted to show that, although they knew
that banks respond to the income stated on the form, they
thought that banks don’t care whether the statements are
true. Indeed, the whole idea of a “stated-income loan pro-
gram” is that the statements matter, even if banks don’t veri-
fy their truth. A belief in the propriety of lying is a mistake-
of-law defense that a district court may (indeed must) rebuff.
All §1014 requires is proof that the defendants lied in order
to influence a bank. And as a proposition of fact the sort of
testimony they wanted to offer would have demonstrated
the very purpose needed to convict them. They were not
prejudiced by its exclusion.
My colleagues see three possibilities:
[Bowling] may have said to them: [1] “Your application
isn’t illegal.” Or: [2] “Whatever you write on it won’t affect
the bank’s lending decision because it doesn’t read the ap-
plications—they’re just window dressing.” Or: [3] “com-
bining your income isn’t a misstatement under Fremont’s
stated-income loan program.”
20 Nos. 11-3822 & 11-3824
Opinion at 14 (bracketed numbers added). Possibility (1)
would be a forbidden mistake-of-law defense, just as the ma-
jority says. Possibility (3) would be a genuine defense if the
application accurately stated the couple’s combined income,
but because it doubled the income (and given Griffin we
must assume that the verdict reflects a finding that defend-
ants knew this) does not assist defendants. And possibility
(2) neglects the vital distinction I have mentioned—the dif-
ference between a lender not caring whether there is a num-
ber in the income blank, and a lender not caring whether
that number is true.
If the lender cares about the level represented as the
would-be borrower’s income—as Fremont surely did, in or-
der to syndicate the loan—then the representation is made
for the purpose of influencing the lender. Had defendants
told the truth, they wouldn’t have received the loan. And
Bowling’s testimony, as counsel described it to the district
court, would have shown that defendants knew that banks
care how much they claim to earn, even if they thought
banks don’t care about whether the claim is true. The upshot
of my colleagues’ contrary conclusion is that crooked bro-
kers such as Bowling can confer on clients a legal entitlement
to obtain loans by deceit. That’s bad economics as well as
bad law. It makes it harder to extirpate liars’ loans programs,
and it raises the rate of interest that will be charged to honest
applicants. These convictions should be affirmed.