Bank Fraud – scienter — materiality

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United States Court of Appeals For the Seventh Circuit

Criminal

Bank Fraud – scienter — materiality

Although materiality is not an element of bank fraud, defendants are entitled to testify why they made false statements on a loan application.

“The evidence they were prevented from giving was pertinent 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 income out of which the mortgage would be repaid. The defendants must have known that in a literal sense Hall’s income 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 ambulance. 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 nictitating membrane.”

Reversed.

11-3822 & 11-3824 U.S. v. Phillips

Appeals from the United States District Court for the Western District of Wisconsin, Crabb, J., Posner, J.