UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 95-10212
UNITED STATES OF AMERICA,
Plaintiff-Appellant,
VERSUS
BERNARD SCHUCHMANN,
Defendant-Appellee.
Appeal from the United States District Court
For the Northern District of Texas
May 24, 1996
Before POLITZ, Chief Judge, and GOODWIN1 and DUHÉ, Circuit Judges.
DUHÉ, Circuit Judge:
The government appeals the district court’s judgment of
acquittal. Because the government did not prove the knowledge
element of the alleged crimes beyond a reasonable doubt, we affirm.
BACKGROUND
In early 1985, Bernard Schuchmann purchased Taos Savings &
Loan and renamed it First American Savings Bank (“FASB”). In
February 1985, Schuchmann obtained approval to charter a new
institution, American Federal Savings Bank, which was later renamed
Americity Federal Savings Bank (“Americity”). Under the banking
regulations, Schuchmann had twelve months to capitalize this new
1
Circuit Judge, of the Ninth Circuit, sitting by designation.
institution.
Schuchmann solicited several business colleagues to invest in
Americity. Among these investors was Steve Sloan, a businessman
who had a prior business relationship with Schuchmann and FASB.
Sloan agreed to purchase $645,000 worth of the newly issued stock.
Although other investors obtained loans from FASB to invest in
Americity, Sloan was unable to do so because he previously borrowed
a substantial sum of money from FASB and FASB’s loans-to-one-
borrower limit precluded an additional loan.
As a result of this limitation, Sloan asked his administrative
assistant, Laura Bentley, to request a loan from FASB for $210,000.
Bentley completed a loan application and signed a promissory noted,
both provided to her by Sloan. On the application she listed
$21,000 as her monthly salary, $48,000 as her savings, and $9,600
in director’s fees, dividends, interest, and bonuses. Sloan then
signed a promissory note in Bentley’s favor and gave her a letter,
made out “to whom it may concern,” describing his own
responsibility for repaying the money.
Bentley had no contact with anyone at FASB about her loan
before it was approved. Schuchmann personally granted the loan and
$210,000 was wired into Bentley’s personal account. Bentley then
wrote Sloan a check for $210,000, and Sloan thereafter provided
her with the funds to make the loan payments. Bentley paid the
loan off with interest.
The jury found Schuchmann guilty as charged. After the jury
returned its verdicts, the district court granted a judgment of
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acquittal pursuant to Federal Rule of Criminal Procedure 29 and
conditionally granted a new trial.
DISCUSSION
Under Rule 29, a trial judge “has the duty to grant the motion
for judgment of acquittal when the evidence, viewed in the light
most favorable to the government, is so scant that the jury could
only speculate as to defendant’s guilt.” United States v.
Herberman, 583 F.2d 222, 231 (5th Cir. 1978). In reviewing a
judgment of acquittal, we view the evidence in the light most
favorable to the jury verdict and will affirm “if a rational trier
of fact could have found that the government proved all essential
elements of the crime beyond a reasonable doubt.” United States v.
Castro, 15 F.3d 417, 419 (5th Cir.), cert. denied, 115 S. Ct. 127
(1994). If, on the other hand, “the evidence viewed in the light
most favorable to the prosecution gives equal or nearly equal
circumstantial support to a theory of guilt and a theory of
innocence, the conviction should be reversed.” United States v.
Pennington, 20 F.3d 593, 597 (5th Cir. 1994).
The jury found Schuchmann guilty of conspiracy to defraud the
United States and Federal Home Loan Bank Board and to violate 18
U.S.C. §§ 1006, 657 in violation of 18 U.S.C. § 371 (count one)2;
making false entries in bank records in violation of 18 U.S.C. §
2
To establish a violation of 18 U.S.C. § 371, the government
must prove beyond a reasonable doubt: (1) an agreement between two
or more persons; (2) to commit a crime against the United States;
and (3) an overt act committed by one of the conspirators in
furtherance of the agreement. United States v. Mackay, 33 F.3d 489
(5th Cir. 1994).
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1006 (counts two through four)3; and willful misapplication of
funds in violation of 18 U.S.C. § 657 (count five)4. The
defendant’s knowledge is an essential element of all five counts of
conviction. Thus, the government must prove beyond a reasonable
doubt that Schuchmann knew in October 1985, when he made the
Bentley loan, that the loan was made for Sloan’s benefit.
Our task, therefore, is to review the evidence bearing on
Schuchmann’s mens rea and determine whether a jury could reasonably
infer from this evidence that he made the loan to Bentley knowing
it was really for Sloan. After a careful review of the record, we
hold that the district court properly granted the judgment of
acquittal. Although jury verdicts should be overturned with great
hesitancy, the evidence viewed as a whole does not meet the
constitutionally high standard of proof beyond a reasonable doubt.
There were only two witnesses at the trial who testified
3
To establish a violation of 18 U.S.C. § 1006, the government
must show: (1) that the institution is a lending institution
authorized and acting under the laws of the United States; (2) the
defendant was an officer, agent, or employee of the institution;
(3) the defendant knowingly and willfully made, or caused to be
made, a false entry concerning a material fact in a book, report,
or statement of the institution; and (4) the defendant acted with
the intent to injure or defraud the institution or any of its
officers, auditors, examiners, or agents. United States v. Parks,
68 F.3d 860, 865 (5th Cir. 1995), cert. denied, 116 S. Ct. 825
(1996).
4
A conviction for misapplication of funds in violation of 18
U.S.C. § 657 requires that the government prove beyond a reasonable
doubt: (1) that the savings and loan institution was authorized
under the laws of the United States; (2) that the accused was an
officer, director, agent or employee of the institution; (3) that
the accused knowingly and willfully misapplied the monies or funds
of the institution; and (4) that the accused acted with intent to
injure or defraud the institution. Id. at 863.
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regarding Schuchmann’s knowledge of the Bentley loan, Don Faraone
and Laura Bentley. Steve Sloan, as an indicted co-defendant, did
not testify. Laura Bentley, the straw borrower, testified that she
did not know whether Schuchmann knew that Sloan would receive the
loan proceeds:
THE COURT: So I’m understanding this, you don’t know of
your own personal knowledge whether Mr. Schuchmann knew
about the real deal on the two hundred ten thousand
dollar loan, that Sloan was really getting the money.
Is that what you are telling us?
BENTLEY: I have no personal knowledge. (R.9, p.50)
When Bentley characterized her activities with Sloan as
“deceptive,” the court again asked for clarification:
THE COURT: Ma’am, I’m not clear about something. When
did you come to the conclusion that it was deceptive?
Are you saying you didn’t think it was back then?
BENTLEY: Again, that wasn’t my focus. I know the fact
that it was very private and not to be talked about other
than between Steve and myself. (R. 10, p. 107)
Although Bentley had no personal knowledge of Schuchmann’s
involvement, the government argues that there was insufficient
information about Bentley’s creditworthiness on her loan
application to justify the loan, and therefore, Schuchmann must
have known that Bentley was a nominee for Sloan. On the loan
application, Bentley listed $21,000 as her monthly salary, $48,000
as her savings, and $9,600 additional income from director’s fees,
dividends, interest, bonuses, and commissions. Bentley testified
that the income she had mistakenly listed as monthly was really her
yearly income. Because Schuchmann knew about Bentley’s employment
as Sloan’s administrative assistant, the government contends that
Schuchmann would have recognized this error and concluded that
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Bentley was not qualified for the loan.
Even if Schuchmann knew Bentley’s income information was
incorrect, however, the evidence shows that Bentley’s family wealth
provided Schuchmann a legitimate reason for approving the loan.
Bentley admitted that it was likely that Schuchmann knew about her
family wealth at the time her loan was approved. She testified
that the director’s fees listed on her loan application were from
her service on the Board of Directors of the Trident Corporation,
a large and successful corporation owned by her father. Eric
Stattin, the only expert witness with underwriting experience,
testified that a banker would consider the wealth of the borrower’s
family in deciding whether to approve a loan:
Question: Would it be reasonable, in your professional
opinion, for the banker, in determining whether or not to
make a loan, to take into consideration the wealth of the
borrower’s family?
Stattin: Yes. (R. 20, p. 74)
Moreover, the government’s witness William Gilligan testified to
this reality:
Question: And a lender might take into consideration
things that are not shown in the loan application or
anything else that he sees in paper?
Gilligan: That’s right, sure.
Question: I mean, there are things like the wealth of the
borrower’s family. Those are things that any lender
would consider, is it not?
Gilligan: I would, yes. I think most would.
(R. 15, p. 208)
This testimony demonstrates that Schuchmann may have believed that
Bentley was qualified for the loan and thus permits the inference
that Schuchmann was acting with lawful intent.
The first, perhaps only, conversation that Bentley had with
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Schuchmann concerning the loan further connects Bentley’s credit
standing to her family wealth. Bentley was uncertain of when the
conversation took place, her best estimate putting it in August of
1986. Schuchmann told Bentley that the bank examiners had flagged
her loan and some others and were questioning them. Schuchmann
then told Bentley:
[H]e had taken care of it. He had spoken to the
examiners himself and he was taking care of the questions
that they had raised. And that he had mentioned to them
about the wealth of my father, and that he was going to
personally vouch for my good credit standing. And that
if anybody approached me, questioning me about this loan,
any examiner, then I was to not respond, but to tell
Bernie about it and he would handle it. (R. 10, p. 148-
49)
The government argues that this conversation proves that Schuchmann
knew about the nominee nature of the loan and wished to deceive the
FHLBB about it. We disagree. This testimony provides equal
circumstantial support to a theory of innocence, indicating that
Schuchmann believed Bentley’s family wealth played a role in
assessing her creditworthiness. Sloan’s involvement in the loan
was not acknowledged during this conversation, and the government
failed to prove the impropriety of Schuchmann’s request that
Bentley refer questions about her loan to him.
Bentley’s understanding of her arrangement with Sloan further
supports the defense’s position that Schuchmann expected Bentley to
bear the burden of repaying her loan. Bentley testified that she
believed she was personally liable to the bank for her loan and
that the bank expected her (and not Sloan) to repay the loan.
Thus, to assuage her fears about repayment, Sloan agreed to
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indemnify Bentley for the loan, but the letter of indemnification
was never provided to Schuchmann, perhaps signaling that Sloan and
Bentley never revealed their arrangement to Schuchmann. In
addition, Bentley personally wrote FASB an apology letter after
receiving a late notice, assuring FASB that all future payments
would receive prompt attention.
The trail of the loan proceeds may similarly indicate an
attempt to deceive Schuchmann. In order to disguise the true
recipient of the funds, the loan proceeds were wired into Bentley’s
personal account, not Sloan’s, and Bentley repaid the loan by
writing checks from her personal account. Sloan designed this
scheme and advised Bentley about all aspects of her loan
application, including the appropriate terms for the promissory
note. Because no testimony establishes that Sloan needed to
consult Schuchmann for this information, Sloan and Bentley’s
“private” arrangement may not have included Schuchmann.
The second key witness, Don Faraone, who was at the time
president of Americity, testified that Schuchmann told him that “we
have to take care -- reimburse Sloan in the form of his consulting
fees so that he can pay the loan that he has through Bentley.” (R.
19, p. 145) Schuchmann spoke in the present tense about Sloan
making payments on the loan. When cross-examined about the timing
of the conversation, Faraone testified that it occurred either (1)
when Sloan was moving into the Americity offices; or (2) when
Sloan’s consulting contract was being renegotiated. However, both
of these events occurred in the summer of 1987, approximately nine
8
months after repayment of the Bentley loan. Thus, in July of 1987,
there would have been no need to help Sloan repay his loan.
As a result of this inconsistency, the district court
concluded that it was factually impossible for this conversation to
have taken place. See United States v. Osum, 943 F.2d 1394, 1405
(5th Cir. 1991) (“[T]estimony generally should not be declared
incredible as a matter of law unless it asserts facts that the
witness physically could not have observed or events that could not
have occurred under the laws of nature.”). We do not find this
testimony incredible as a matter of law, because Faraone may have
simply confused the timing of the conversation or the verb tense
Schuchmann used. However, even when construed in favor of the jury
verdict, this evidence does not support the inference that
Schuchmann “knew” at the time the loan was made that it was a
nominee loan. Instead, this testimony only permits the inference
that Schuchmann knew at some point after Bentley received her loan
proceeds that she had given them to Sloan.
Although not as direct as Faraone’s testimony, the government
also relies on the testimony of defense expert Eric Stattin and
bank examiner Ray Wiske to establish Schuchmann’s guilt. We find
the connections between the testimony of these two witnesses and
Schuchmann’s state of mind too attenuated to support his
conviction. According to the government, Eric Stattin testified
that, in preparing for the trial, he had been advised that Sloan
told Schuchmann that he, Sloan, would see to it that FASB was
repaid for Bentley’s loan.
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Question: So were you advised by the defense that
somebody told Mr. Schuchmann that there was a supporter
out there of Laura Bentley who would see to it that her
loan was paid back?
Stattin: Yes, I believe I was told that.
Question: Was that Mr. Sloan?
Stattin: Yes.
Question: Did Mr. Schuchmann ever say to you that he had
talked with Laura Bentley’s family?
Stattin: I don’t remember hearing that. (R.20, p. 110)
Even if Sloan told Schuchmann that he would support the loan,
nothing in this dialogue indicates that Sloan revealed the nominee
nature of the loan to Schuchmann. Indeed, a plausible
interpretation of this testimony is that when questioned by
Schuchmann about the Bentley loan, Sloan misled Schuchmann into
believing that Bentley, the true borrower, would not be a credit
risk. The nominee loan would not have been the first secret Sloan
kept from Schuchmann. Bentley testified that she and Sloan had a
practice of forging Schuchmann’s signature without his knowledge
and authorization.
Ray Wiske’s testimony is also insufficient. Wiske, a federal
bank examiner, testified that he reviewed FASB’s books and
discussed Bentley’s loan with Schuchmann in March of 1986. Wiske
criticized that loan, along with James Jarocki’s, on the ground
that the creditworthiness of the borrowers was not established by
the loan documentation. In explaining his actions, Schuchmann told
Wiske that “all these borrowers [Bentley, Jarocki, and the other
four Americity investors] are well-known to him and he expects no
problems with the loan payments. He said he had committed to make
the loans at the approximate time he gained control of the
association.” (R. 14, p. 11) According to the government, this
10
statement refers to February of 1985 when Schuchmann gained control
of FASB. Although Schuchmann argues that this statement is plagued
by ambiguous language and may refer to a later date, we view the
statement in the light most favorable to the government. The
government argues that this statement was intended purposely to
mislead Wiske, because Schuchmann had never “committed” to make the
loan to Bentley in February of 1985. Although the government may
be really arguing that this statement proves Schuchmann had
committed to make the loan to Sloan (instead of Bentley), such an
inferential leap is simply too tenuous to support a finding of
intent beyond a reasonable doubt. Moreover, this statement is
insufficient to establish that Schuchmann was intentionally
misleading the bank examiner, since it is uncontested that he may
have committed to most of the loans referred to at that time.
The government next highlights Schuchmann’s active role in
negotiating with other Americity investors to draw the inference
that Schuchmann monitored Sloan’s efforts to raise the necessary
investment funds. However, only five of the eighteen investors
obtained loans through FASB; eight of the remaining thirteen
investors funded their investments totally independent of
Schuchmann and FASB; and four were members of the Schuchmann
family. The remaining investor, Sloan, purchased $645,000 of
stock, using the $210,000 from the Bentley loan and $435,000 from
non-FASB sources to fund his investment. This pattern of
investment does not give rise to the inference that Schuchmann
participated in each investor’s financing, and therefore, would
11
have necessarily known how Sloan raised the funds for his
investment.
Schuchmann’s prior business relationship with Sloan likewise
does not aid the government in establishing that Schuchmann
supervised Sloan’s investment. While Schuchmann and Sloan may have
had a close business relationship, the evidence demonstrates that
Schuchmann did not participate in many of Sloan’s business
ventures. Moreover, in October 1985, Schuchmann had no reason to
believe that Sloan was short of funds and needed to borrow
$210,000. Even if Schuchmann knew Sloan needed money, the evidence
shows that Schuchmann either could have personally lent Sloan the
money or cured the prospective loan-to-one-borrower problem.
Government witness James Neil testified that three weeks before the
Bentley loan Schuchmann had personally lent him $200,000, even
though Neil still had loan-to-one-borrower capacity. And
Schuchmann was certainly not lacking in funds with access to more
than $4.4 million in cash in October of 1985. Fred Miller, a
government witness, testified that Schuchmann could have withdrawn
$210,000 from his personal accounts at that time simply by writing
a check. (R. 16, p. 36) A personal loan, however, would not have
been Schuchmann’s only legal option to help Sloan raise the
necessary funds. Expert witness Rosemary Stewart, who in 1985 was
the Director of Enforcement for the Federal Home Loan Bank Board,
testified that in 1985 a savings and loan institution could easily
cure a prospective loan-to-one-borrower problem by selling to
another institution a participation in the borrower’s existing
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loans. (R. 20, p. 162)
Finally, the government emphasizes that Bentley’s loan
coincided with the five other loans made by Schuchmann’s bank to
the people who were investing in Americity. When examined closely,
however, this coincidence does not prove that Schuchmann knew that
the Bentley loan was intended for Sloan’s investment. There are
significant differences between the investors’ loans and Bentley’s
loan. The loans to the five investors were all dated October 15,
1985, had identical interest rates, and ranged in amount from
$40,000 to $90,000. By contrast, Bentley’s loan was dated three
days later (October 18, 1985), had a higher interest rate than the
investors’ loans, and totaled $210,000. (R.14, pp.10-11) We are
persuaded that, even when viewed in tandem with the other evidence,
this similarity in timing only permits a jury to “speculate” about
the defendant’s state of mind rather than infer knowledge beyond a
reasonable doubt.
All of this evidence, taken together and viewed in the proper
light, does not support the jury’s guilty verdicts. The evidence
provides equal circumstantial support to Schuchmann’s innocence,
leaving open the question whether Schuchmann was Sloan’s co-
conspirator or his victim. Thus, the government failed to prove
the knowledge element of the crimes charged beyond a reasonable
doubt.
CONCLUSION
For the foregoing reasons, the judgment of acquittal is
AFFIRMED.
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