UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
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No. 92-8157
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UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
DONNA FRYDENLUND,
PERRY PRESSLEY and MAURY PAGE KEMP,
Defendants-Appellants.
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Appeals from the United States District Court
for the Western District of Texas
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(May 4, 1993)
Before POLITZ, Chief Judge, GOLDBERG, and JONES, Circuit Judges.
EDITH H. JONES, Circuit Judge:
Appellants Maury Kemp, Perry Pressley, and Donna
Frydenlund were convicted of bank fraud, in violation of 18 U.S.C.
§ 1344(1), and of conspiracy to commit bank fraud, in violation of
18 U.S.C. § 371. All three were sentenced to terms of imprisonment
and were ordered to pay restitution of approximately $1.5 million.
Kemp and Pressley challenge their sentences. Pressley and
Frydenlund challenge their convictions. Finding no reversible
error, we affirm.
I.
In late 1989, Kemp owned three car dealerships in
California. Frydenlund served as comptroller and general manager
of those businesses. Pressley, based in El Paso, was the
comptroller for Kemp Group, a holding company for Kemp's business
entities, including the three California car dealerships. Pressley
was Kemp Group's only employee and prepared financial statements,
signed checks, and ran errands for Kemp.
Kemp Group had a checking account at MBank in El Paso.
The three California dealerships had accounts at First Interstate
Bank in California. As the businesses began to fail in late 1989
and 1990, Kemp devised a check-kiting scheme to keep them running
until he could sell them as ongoing businesses. He instructed
Pressley to send blank Kemp Group checks to California, which would
then be filled out by Frydenlund in the amount needed to keep the
businesses' accounts current. In return, Frydenlund would send
back checks drawn on the First Interstate accounts to Pressley in
El Paso to cover the amounts of the Kemp Group checks. Pressley
would then deposit these checks in the MBank account. Over the
next few months, hundreds of checks traveled back and forth in this
manner between Kemp Group and the California dealerships.
In January 1991 First Interstate uncovered the scheme and
informed MBank that it was returning 37 checks totalling more than
$1.5 million. MBank posted the checks as overdrafts. A jury
convicted the three defendants of bank fraud and of conspiracy to
commit bank fraud. The trial judge gave them prison sentences and
ordered them to pay restitution of approximately $1.5 million.
II.
Appellants Pressley and Frydenlund challenge the
sufficiency of the evidence to convict them. In such challenges,
the court must decide whether a rational jury could find evidence
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that establishes guilt beyond a reasonable doubt. United States v.
Espinoza-Seanez, 862 F.2d 526, 536 (5th Cir. 1988). Not every
reasonable hypothesis of innocence need be excluded by the
evidence. Id. And all reasonable inferences and credibility
choices must be viewed in the light most favorable to the
government. Id.
The jury in this case could reasonably conclude from the
evidence presented at trial that both Pressley and Frydenlund
knowingly participated in a scheme to defraud MBank and FIB. Both
Pressley and Frydenlund admit full knowledge of the scheme. They
also admit that they acted under Kemp's orders to carry the scheme
forward. They argue in defense only that they lacked the specific
intent to deceive or cheat the bank. These arguments are
unpersuasive.
Check kiting is a scheme "designed to separate the bank
from its money by tricking it into inflating bank balances and
honoring checks drawn against accounts with insufficient funds."
United States v. Doherty, 969 F.2d 425, 428 (7th Cir.), cert.
denied, ____ U.S. ____, 113 S. Ct. 607, 121 L.Ed.2d 542 (1992); see
Williams v. United States, 458 U.S. 279, 281 n.1, 102 S. Ct. 3088,
3089 n.1, 73 L.Ed.2d 767 (1982). Section 1344(1) does not require
a specific intent to permanently deprive the bank of its funds. It
is sufficient to knowingly participate in a scheme to trick the
bank into inflating bank balances by kiting checks between two or
more banks. The bare act of check kiting defrauds the bank by
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temporarily placing the bank's funds at the disposal of the account
holder.1
Notwithstanding Pressley's and Frydenlund's declared
intent that the banks not be permanently deprived of funds, these
convictions must be sustained. Both admitted full knowledge of the
check-kiting scheme. They knew they were participating in check
kiting, and they knew that their activities would have the effect
of artificially inflating the balances of Kemp's accounts in MBank
and FIB. In extenuation, these appellants point out that they were
following Kemp's orders. Because he was a wealthy, established
businessman who had recently injected $500,000 additional capital
into the California dealerships, they had every reason to believe
he did not plan to deprive the banks of their money or to inflict
losses on them. Kemp, to his credit, accepted full personal
responsibility for the scheme and testified in his employees'
behalf. There is pathos in Kemp's and the appellants' positions,
but it cannot overcome the jury verdict finding them guilty under
§ 1344(1).
There was also ample evidence that the defendants took
part in a conspiracy to keep the check kite operating for months.
The defendants acted in concert with Kemp to facilitate the
1. At least six Circuits have expressly held that bare check-
kiting schemes fall within the scope of section 1344(1). See
Doherty, 969 F.2d at 428-29; United States v. Stone, 954 F.2d 1187,
1189-91 (6th Cir. 1992); United States v. Fontana, 948 F.2d 796,
802 (1st Cir. 1991); United States v. Celesia, 945 F.2d 756, 758-59
(4th Cir. 1991); United States v. Schwartz, 899 F.2d 243, 246-47
(3d Cir.), cert. denied, 498 U.S. 901, 111 S. Ct. 259, 112 L.Ed.2d
217 (1990); United States v. Bonnett, 877 F.2d 1450, 1454-56 (10th
Cir. 1989).
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exchange of hundreds of checks. To find a conspiracy violation
under 18 U.S.C. § 371, a jury need only find an agreement between
two or more persons to violate the law and an overt act by one
member of the conspiracy in furtherance of the conspiracy. A
specific agreement need not be shown, but may be inferred from
concert of action. See United States v. Magee, 821 F.2d 234, 239
(5th Cir. 1987). Here, there was clearly a concert of action
between Kemp, on the one hand, and his financial managers, on the
other.
III.
Appellants Kemp and Pressley argue that the district
court erred in calculating their base offense level under the
sentencing guidelines. Persons convicted of check kiting are
sentenced under section 2F1.1 of the Guidelines. See Doherty, 969
F.2d at 430; United States v. Haddock, 956 F.2d 1534; 1554 (10th
Cir.), cert. denied, _____ U.S. _____, 113 S. Ct. 88, 121 L.Ed.2d
50 (1992); United States v. Carey, 895 F.2d 318, 323 (7th Cir.
1990); United States v. Bolden, 889 F.2d 1336, 1339 (4th Cir.
1989). The ultimate overdraft in this case was $1,552,430.99, and
the district court used that amount for the purpose of calculating
the appropriate upward adjustment under section 2F1.1(b)(1).
The appellants argue that it was inappropriate to use the
total amount of the overdraft, because after the dust settled
MBank's loss was much less than the amount of the overdraft. The
defendants believe that the real loss to MBank is zero, because
Kemp executed a promissory note to MBank for the full amount of the
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overdraft, secured by a second lien on the California dealership
properties, and because Kemp will eventually pay back MBank when he
sells the dealerships. According to the appellants, because
MBank's losses, if any, will be lower than the amount of the
overdraft at the time the scheme was uncovered, the court erred by
sentencing them according to the higher, "inflated" number.
Appellants characterize their argument as directed not at
the district court's finding of MBank's actual loss, which is
shielded by the clearly erroneous rule on appeal,2 but at its legal
misapplication of the guidelines, a matter we review de novo.3 The
appellants contend that check kiting should be treated like a
fraudulently obtained loan, for which an application note
accompanying § 2F1.1 specifies that the victim's (i.e., the bank's)
loss "is the amount of the loan not repaid at the time the offense
is discovered," reduced by whatever the bank might recover from
collateral pledged to secure the loan. U.S.S.G. § 2F1.1 appl. note
7(b).
We reject this argument for two reasons. First, check
kiting is not more equivalent to a fraudulent loan transaction than
to simple theft. As the government points out, the bank at least
voiced its approval of the credit extended on a fraudulently
obtained loan, while a check kite is done surreptitiously precisely
because the bank would under no circumstances have lent to the
2. United States v. Rodriguez, 897 F.2d 1324, 1325 (5th Cir.),
cert. denied, 498 U.S. 857, 111 S. Ct. 158, 112 L.Ed.2d 124 (1990).
3. United States v. Ruff, 984 F.2d 635, 639 (5th Cir. 1993).
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kiter. The bank also voluntarily places a limit on its risk when
it lends money, but it is at the mercy of the check kiter for the
amount of loss he may cause.
Second, no matter which part of § 2F1.1 is applied, the
sentencing standard depends upon the bank's actual loss. Kemp did
not disagree that the out-of-pocket loss to MBank was $1.5 million:
he agreed to repay that amount. The only question here is whether
his agreement, his good intentions, and the second lien on the
California dealerships reduced that actual loss.4 The district
court implicitly found they did not, and this finding is not
clearly erroneous. At the time of sentencing, Kemp's financial
empire was in trouble, the appraisals of the dealerships could be
seen as optimistic, the sales proceeds for one were tied up in
litigation, and no payments had been made to reduce the $1.5
million loss. Without hearing further explanation, the court was
not required to credit the bank's lower estimate of its loss to a
third party. Thus, although it is possible that the actual loss
may in some cases be less than the overdraft when the kite is
discovered, Kemp did not persuade the court of that in his case.
The Seventh Circuit has rejected a similar argument in
United States v. Carey, 895 F.2d 318 (7th Cir. 1990). In Carey,
the defendant's check-kiting scheme left a $220,000 deficit in his
4. The fraudulent loan cases cited by Kemp are distinguishable on
the facts, because in each of those, the "actual loss" was subject
to reduction by actual payments made on the loans before default
and valuable collateral given for those loans. See United States
v. Kopp, 951 F.2d 521 (3d Cir. 1991); United States v. Rothberg,
954 F.2d 217 (4th Cir. 1992); Haddock, 956 F.2d at 1554-55.
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account when the scheme was finally exposed. The district court
granted Carey a downward departure because he had restored all but
$20,000 of the money owed to the bank. The Seventh Circuit
reversed, holding that restitution did not alleviate the fact that
he had defrauded the bank of $220,000 before his artifice was
discovered. The entire loss was due directly to Carey's actions,
and his restitution of the lion's share of the money, though
commendable, did not decrease the seriousness of the crime he had
committed. The district court in this case did not erroneously
apply the Guidelines to determine the appellants' sentences.5
CONCLUSION
For the foregoing reasons, the judgment and sentences of
each appellant are AFFIRMED.
5. The government suggests by innuendo that the sum total of the
defendants' fraud approached $47,000,000, the total of all of the
checks used in the kiting scheme. That figure grossly misstates
the nature of the scheme. Each check worked only a temporary
float. A check-kiting scheme involving only two checks would
inflate the account balances for only a very short time, perhaps
only a few days. In a more involved scheme, each check replaces
the previous checks, merely sustaining the float, rather than
adding to the amount floated. See United States v. Deutsch, ____
F.2d ____, ____, 1993 W.L. 32685, at *7 (2d Cir. Feb. 11, 1993).
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