United States v. Lacey Phillips

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.