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Date: 11-01-2021
Case Style:
United States of America v. DIANA YATES
United States of America v. DAN HEINE
Case Number: 18-30183
18-30184
Judge: Eric David Miller
Court: UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
Plaintiff's Attorney: David M. Lieberman (argued), Attorney; Brian C. Rabbitt,
Acting Assistant Attorney General; Criminal Division,
Appellate Section, United States Department of Justice,
Washington, D.C.; Clarie M. Fay, Michelle H. Kerin, and
Quinn P. Harrington, Assistant United States Attorneys;
Amy E. Potter, Criminal Appellate Chief; Billy J. Williams,
United States Attorney
Defendant's Attorney:
Description:
San Francisco, CA - Criminal defense lawyer represented defendants with conspiracy to commit bank fraud and 12 counts of making a false bank entry charges.
The panel vacated convictions and remanded for further
proceedings in a case in which a jury found Dan Heine and
Diana Yates, who were executives at the Bank of Oswego,
guilty of one count of conspiracy to commit bank fraud
(18 U.S.C. § 1349) and 12 counts of making a false bank
entry (18 U.S.C. § 1005).
The government told the jury that Heine and Yates
conspired to deprive the bank of three property interests:
(1) accurate financial information in the bank’s books and
records, (2) the defendants’ salaries and bonuses, and (3) the
use of bank funds. Explaining that there is no cognizable
property interest in the ethereal right to accurate information,
the panel held that the accurate-information theory—which
was the cornerstone of the government’s case and which the
government conceded on appeal is invalid—is legally
insufficient. Emphasizing the distinction between a scheme
whose object is to obtain a new or higher salary and a scheme
whose object is to deceive an employer while continuing to
* This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
UNITED STATES V. YATES 3
draw an existing salary, the panel held that the salarymaintenance theory was also legally insufficient. The panel
held that even assuming the bank-funds theory was
presented to the jury and was valid, the government’s
reliance on the accurate-information and salary-maintenance
theories was not harmless in this case in which the jury
returned a general verdict. The panel therefore vacated both
defendants’ convictions on the conspiracy count.
The panel held that because the conspiracy count is
invalid, the defendants’ convictions on the false-entry counts
must be vacated as well, given that the district court
instructed the jury that it could find the defendants guilty of
making false entries as co-conspirators. The panel wrote that
it would be inappropriate to consider harmless error sua
sponte in this case, and that there is no basis for remanding
to give the government an opportunity for a do-over after it
made the strategic choice not to address all of the
defendants’ arguments in its appellate brief.
Heine and Yates argued that insufficient evidence
supports their false-entry convictions on counts 7–9, 13, and
15, which charged that Heine and Yates omitted certain
loans from the past-due loan balance on the Bank’s quarterly
FDIC call reports after arranging for third parties to make
delinquent payments. The panel considered the sufficiency
of the evidence on those counts because a finding of
insufficient evidence would bar retrial. The panel reviewed
the convictions on counts 7–9 de novo, Yates’s convictions
on counts 13 and 15 de novo, and Heine’s convictions on
counts 13 and 15 for plain error.
The panel concluded that insufficient evidence supports
the convictions on counts 7–9 because the underlying loan
4 UNITED STATES V. YATES
payments made by another bank customer were not
themselves fictitious, so the entry at issue was not false.
The panel similarly concluded that insufficient evidence
supports a finding of falsity on count 15, where a bank
employee made the required payment using his own money.
The panel held that the error was plain and affected Heine’s
substantial rights.
The panel held that the convictions on Count 13, which
involved a loan to Chris Dudley, a former NBA player and
Oregon gubernatorial candidate, are supported by sufficient
evidence. To prevent his loan from being delinquent, Yates
directed that a payment be made from Dudley’s political
campaign account without Dudley’s knowledge and without
his permission. The panel wrote that the payment was not
what it was represented to be—an irrevocable commitment
by the payor to depart with funds and allow the bank to keep
the money in payment of an outstanding loan. Given that the
transaction was performed on the final business day of the
quarter, and Dudley’s testimony that a right of setoff did not
apply to the campaign account, the jury could have found
that the transaction was concocted for the very purpose of
distorting a financial statement, unauthorized, and subject to
being reversed.
Dissenting, Judge Bress would have affirmed the
convictions in full. He wrote that the majority contradicts
governing precedents and improperly vacates convictions
that were premised on a valid legal theory, backed by
overwhelming proof of wrongdoing. He wrote that with no
challenge to any jury instructions and no serious challenge
to the admission of any evidence, this court exceeded its role
by setting aside defendants’ lawful conspiracy convictions.
As to the false bank entry convictions, he wrote that in
UNITED STATES V. YATES 5
holding that no rational jury could convict defendants of
making false bank entries where the defendants were using
bank money to cure “past due” loans, thereby masking the
risk associated with the bank’s loan practices, the majority
departs from precedent while unduly limiting Congress’s
prohibition on false bank entries.
COUNSEL
Elizabeth G. Daily (argued), Assistant Federal Public
Defender; Stephen R. Sady, Chief Deputy Federal Public
Defender; Portland, Oregon; Kendra M. Matthews, Boise
Matthews Ewing LLP, Portland, Oregon; for DefendantAppellant.
David M. Lieberman (argued), Attorney; Brian C. Rabbitt,
Acting Assistant Attorney General; Criminal Division,
Appellate Section, United States Department of Justice,
Washington, D.C.; Clarie M. Fay, Michelle H. Kerin, and
Quinn P. Harrington, Assistant United States Attorneys;
Amy E. Potter, Criminal Appellate Chief; Billy J. Williams,
United States Attorney; United States Attorney’s Office,
Portland, Oregon; for Plaintiff-Appellee.
6 UNITED STATES V. YATES
OPINION
MILLER, Circuit Judge:
Dan Heine and Diana Yates were executives at the Bank
of Oswego in Lake Oswego, Oregon. After a 29-day trial, a
jury found Heine and Yates guilty of one count of conspiracy
to commit bank fraud and 12 counts of making a false bank
entry. But as the district court explained at sentencing, unlike
“your typical white-collar fraud case . . . neither defendant
directly tried to line their pockets as a result of their fraud.”
Indeed, the novelty of some of the government’s legal
theories led the district court to predict that the case could
result in “a really interesting appellate or Supreme Court
decision.”
We leave that judgment to the reader. On the issues we
do need to decide, we agree with the defendants that two of
the government’s three theories of bank fraud were legally
inadequate and that presenting those theories was not
harmless. We therefore set aside the conspiracy conviction.
Without a conspiracy, the false-entry counts cannot stand
because the jury may have based its verdict on those counts
on a theory of co-conspirator liability. We separately
conclude that the evidence was insufficient to support the
jury’s guilty verdict on false-entry counts 7–9 and 15. We
therefore vacate all of the convictions and remand for further
proceedings.
I
Heine founded the Bank of Oswego in 2004. Over the
next decade, he served as the bank’s president and chief
executive officer and as a member of the board of directors.
Yates also joined the bank at its founding, serving as its
executive vice president and chief financial officer until her
UNITED STATES V. YATES 7
resignation in 2012. Over the years, Yates also served as the
bank’s chief operating officer and chief credit officer. Unlike
Heine, Yates was not a member of the board. Both Heine and
Yates served on the bank’s internal loan committee, which
met weekly to discuss the bank’s outstanding loans and to
decide whether to approve new loans. Particularly large
loans required the approval of the board of directors.
As a new bank, the Bank of Oswego was closely
scrutinized by the Federal Deposit Insurance Corporation.
The FDIC requires banks to submit quarterly “call reports,”
public documents that include a bank’s balance sheet, its
income statement, and detailed information about its assets
and liabilities. While the bank’s controller was responsible
for preparing the call reports, Yates had to approve the
reports before they were submitted to the FDIC.
In January 2009, the bank hired a vice president of
lending, Geoff Walsh. Walsh was a highly productive
employee. In a 2011 performance review, Heine described
him as a “rock star,” adding that his “personality, contacts
and intelligence” enabled the bank “to attract and serve
many professionals of high net worth and influence in the
Portland-metro area.” At the same time, Heine noted
“growing concern” with Walsh’s “apparent breach of
internal controls” and his failure to “follow[] sound lending
policy, procedures and practices.” Heine’s concern would
prove to be well-founded—Walsh’s conduct set in motion
the chain of events that would eventually lead to the
defendants’ convictions.
The bank’s troubles began at the end of 2009 when the
FDIC reported disappointing results after an on-site
examination. Concluding that the bank’s overall financial
condition was “less than satisfactory,” the FDIC identified
“emerging weaknesses” in the bank’s asset quality and loan
8 UNITED STATES V. YATES
portfolio. The agency also criticized the bank’s management
structure, expressing particular concern over its
concentration of responsibilities in Yates. The FDIC warned
that “[a] single individual’s ability to perform effectively in
all of these roles is questionable” and that “[s]uch a
concentration of responsibilities in one person . . . represents
a weakness in the bank’s internal control structure.” In 2010,
the bank entered into a memorandum of understanding with
the FDIC to address the agency’s concerns. But when the
FDIC returned to examine the bank early in 2011, it again
found the bank’s condition “less than satisfactory,”
downgrading its management score and concluding that
“CFO Diana Yates’ split attention is contributing to risks.”
In January 2012, an independent auditor discovered that
Walsh had received personal loans from one of his clients,
Martin Kehoe. Kehoe was a “hard money lender” who made
non-bank loans to individuals at high interest rates. The
auditor immediately forwarded her findings to Heine and
Yates. Yates contacted Kehoe, who denied that Walsh had
ever borrowed money from him. Heine was unconvinced. In
his opinion, this was “a major issue” that had to be reported
to the board. Yates responded that Heine was overreacting.
Kehoe followed up with an email directly to Heine stating
that Walsh had not received any loans through Kehoe’s
business and had never been paid a fee for any customer
referrals.
Meanwhile, the FDIC continued to criticize the bank’s
performance. When the agency completed its 2012
examination, it informed Heine and Yates that it planned to
downgrade the bank’s management score yet again.
According to Chris Shepanek, the chairman of the board of
directors, Yates became “extremely upset about the whole
situation,” was overwhelmed by the bank’s problems, and
UNITED STATES V. YATES 9
felt that Heine failed to support her in meetings with the
FDIC. She resigned shortly thereafter.
After Yates’s departure, Heine began reviewing Walsh’s
emails, forwarding items that concerned him to the board.
Eventually, Heine concluded that Walsh was involved in a
hard-money lending scheme funded by a $1.7 million loan
the bank had issued to Kehoe. Heine fired Walsh four days
later.
In July 2013, Walsh was arrested and charged with
offenses unrelated to his work at the bank; he eventually
pleaded guilty to wire fraud and conspiracy to commit wire
fraud. But he also pleaded guilty to one count of conspiracy
to make a false bank entry in the course of his work at the
bank. Walsh cooperated with the government and provided
extensive testimony at Heine and Yates’s trial.
In 2017, a grand jury returned a superseding indictment
charging Heine and Yates with one count of conspiracy to
commit bank fraud, in violation of 18 U.S.C. § 1349, and
18 counts of making a false bank entry, in violation of
18 U.S.C. § 1005. The indictment alleged that Heine and
Yates conspired “to conceal the true financial condition of
the Bank and to create a better financial picture of the Bank
[for] the Board of Directors, shareholders (current and
prospective), regulators and the public” by “report[ing] false
and misleading information about the performance of loans,
conceal[ing] information about the status of foreclosed
properties, ma[king] unauthorized transfers of Bank
proceeds, and fail[ing] to disclose material facts about loans
to Bank insiders to the Board of Directors, shareholders and
regulators.” The false-entry counts charged Heine and Yates
with “conceal[ing] and omitt[ing] from Call Reports and
Board of Directors’ Reports material information about
loans.”
10 UNITED STATES V. YATES
At trial, the government argued that the defendants—
facing pressure from the FDIC and economic uncertainty
due to the 2008 financial crisis—had conspired to defraud
the bank. The government argued that Heine and Yates
carried out the conspiracy through three schemes:
(1) recruiting a bank employee named Daniel Williams to
make an undisclosed straw purchase of a property located on
A Avenue using bank funds; (2) arranging for third parties
to make payments on delinquent customer loans to bring
them current and then omitting those loans as delinquent on
the bank’s call reports; and (3) incorrectly accounting for
two properties after selling them to a customer named
Ronald Coleman and approving a loan to reconcile the error
without disclosing that purpose to the internal loan
committee.
The jury found the defendants guilty of the conspiracy
count and 12 of the 18 false-entry counts. The district court
sentenced Heine to 24 months of imprisonment and Yates to
18 months of imprisonment.
II
Count 1 of the indictment charged the defendants with
violating 18 U.S.C. § 1349, which makes it a crime to
“conspire[] to commit any offense under this chapter”—
here, bank fraud. Bank fraud entails “knowingly execut[ing]
. . . a scheme or artifice . . . to defraud a financial
institution.” Id. § 1344. A scheme to defraud “must be one
to deceive the bank and deprive it of something of value,”
that is, money or property. Shaw v. United States, 137 S. Ct.
462, 469 (2016); see id. at 466; see also Kelly v. United
States, 140 S. Ct. 1565, 1571–72 (2020); Neder v. United
States, 527 U.S. 1, 20–21 (1999) (construing “scheme or
artifice to defraud” identically for the mail, wire, and bank
fraud statutes). And that property deprivation “must play
UNITED STATES V. YATES 11
more than some bit part in a scheme”—the loss to the victim
“must be an ‘object of the fraud,’” not a mere
“implementation cost[]” or “incidental byproduct of the
scheme.” Kelly, 140 S. Ct. at 1573–74 (quoting
Pasquantino v. United States, 544 U.S. 349, 355 (2005)).
The government told the jury that Heine and Yates
conspired to deprive the bank of three property interests:
(1) “accurate financial information in the bank’s books and
records,” (2) “the defendants’ salaries [and] bonuses,” and
(3) “the use of bank funds.” Heine and Yates assert that the
government also presented a fourth theory: that they sought
to increase the value of their stock in the bank. They
correctly point out that an increase in the value of stock that
they owned could not be the object of bank fraud because it
would not deprive the bank of any property interest. The
government does not attempt to defend the stock-value
theory but denies having presented one. Although the
government said in closing argument that Heine and Yates
“desired that their stock go up,” that passing comment was
offered merely as an explanation of the motive for some of
the defendants’ conduct, not as an independent theory of the
object of the scheme. We therefore confine our analysis to
the three theories that the government argued to the jury.
Reviewing de novo the district court’s denial of Heine’s
and Yates’s motions for judgment of acquittal, United
States v. Carey, 929 F.3d 1092, 1096 (9th Cir. 2019), we
hold that the government’s accurate-information and salarymaintenance theories are legally insufficient, see United
States v. Barona, 56 F.3d 1087, 1097–98 (9th Cir. 1995), and
that presenting those theories to the jury was not harmless,
see Skilling v. United States, 561 U.S. 358, 414 & n.46
(2010). We therefore vacate both defendants’ convictions on
count 1.
12 UNITED STATES V. YATES
A
The accurate-information theory was the cornerstone of
the government’s case. The indictment alleged that “[o]ne of
the purposes of the conspiracy”—and it specified only one—
“was to conceal the true financial condition of the Bank and
to create a better financial picture of the Bank” for the board
and regulators. In pretrial proceedings, the government
reiterated that “the primary purpose of the conspiracy . . .
was to conceal the information.”
That theory was also the first one the government
advanced in closing argument. In discussing the “something
of value” requirement, the government told the jury that the
defendants “sought to deprive” the bank and the board of
directors of “accurate financial information in the bank’s
books and records.” Without that information, the
government argued, the board could not properly “analyze
the risks posed by the various borrowers who are late.” To
drive home the point, the government displayed a
PowerPoint slide entitled “Something of Value,” which
asserted that the defendants “sought to deprive [the] Bank
and [the board of directors] of accurate financial information
. . . to make the Bank’s books and records look better.” The
slide underscored that the information was valuable because
the board “relies on the accuracy of financial records to
perform its duties.”
After the government’s closing argument, Heine
requested a curative instruction to the effect that “something
of value cannot be the accuracy of the information that was
the subject of the representation.” The government opposed
the instruction, saying, “We have always been clear that
[accurate information] is something that we think is
something of value.” The district court declined to give the
requested instruction or otherwise to instruct the jury on the
UNITED STATES V. YATES 13
meaning of “something of value.” In posttrial proceedings,
the government continued to defend its position that
“depriving the bank of information” is “something of value.”
The accurate-information theory is legally insufficient.
There is no cognizable property interest in “the ethereal right
to accurate information.” United States v. Sadler, 750 F.3d
585, 591 (6th Cir. 2014). Although a property right in trade
secrets or confidential business information can constitute
“something of value,” Carpenter v. United States, 484 U.S.
19, 26 (1987), “the right to make an informed business
decision” and the “intangible right to make an informed
lending decision” cannot, United States v. Lewis, 67 F.3d
225, 233 (9th Cir. 1995).
Recognizing accurate information as property would
transform all deception into fraud. By definition, deception
entails depriving the victim of accurate information about
the subject of the deception. But “[i]ntent to deceive and
intent to defraud are not synonymous.” United States v.
Yermian, 468 U.S. 63, 73 n.12 (1984) (quoting United
States v. Godwin, 566 F.2d 975, 976 (5th Cir. 1978) (per
curiam)). Rather, “the scheme must be one to deceive the
bank and deprive it of something of value.” Shaw, 137 S. Ct.
at 469.
The government conceded at oral argument that it was
no longer “defend[ing] that accurate information standing
alone is a cognizable interest.” Despite its repeated and
direct statements before the district court that accurate
information in itself constitutes “something of value,” the
government now argues that what it really meant was that
the defendants’ deception deprived the bank of its property
rights in restructuring delinquent loans and pursuing debt
collection. That was not the theory argued below, and we
cannot uphold the verdict on appeal “on a different theory
14 UNITED STATES V. YATES
than was ever presented to the jury.” McCormick v. United
States, 500 U.S. 257, 270 n.8 (1991).
For that reason, the government’s reliance on United
States v. Ely, 142 F.3d 1113 (9th Cir. 1997), is misplaced.
There, we held that the right to collect a debt can constitute
a cognizable property interest. See id. at 1119; see also
Pasquantino, 544 U.S. at 356. But here, the government
argued that Heine and Yates deprived the bank of its right to
accurate information, not its right to collect borrowers’
debts. The deprivation of that intangible right cannot support
the convictions.
B
The government also argued that Heine and Yates sought
to deprive the bank of their salaries and bonuses. Although
the indictment did not reference the theory, the government
raised it early in pretrial proceedings, arguing “that the
continuation of the benefits of employment . . . was a
purpose of the conspiracy.”
The government led with the theory in its opening
statement at trial, inviting the jury to ask, “Why would Dan
Heine and Diana Yates misrepresent the condition of the
bank?” The government’s answer: to receive their salaries
and other financial compensation. The government
reiterated the theory at closing argument, emphasizing that
Heine and Yates “sought to ensure” their salaries and other
financial compensation in light of their personal financial
difficulties.
When Heine requested a curative instruction on the
accurate-information theory after the government’s closing
argument, the government told the court that the defendants
“desired for the financial condition of the bank to look better
UNITED STATES V. YATES 15
than it was so that they could get their own salaries and
compensation” because “they were in a dire cash situation.”
And in posttrial proceedings, the government again
explained that “[w]ith respect to something of value,” its
“theory is the salary piece.”
Of course, salaries and “other financial employment
benefits” are both forms of “money.” United States v.
Ratcliff, 488 F.3d 639, 644 (5th Cir. 2007); accord United
States v. Del Valle, 674 F.3d 696, 704 (7th Cir. 2012). If
obtaining a new job or a higher salary is the object of a
defendant’s fraudulent scheme, then the deprivation of that
salary can in some circumstances support a fraud conviction.
See, e.g., United States v. Granberry, 908 F.2d 278, 280 (8th
Cir. 1990) (new job and salary from fraudulent job
application); United States v. Doherty, 867 F.2d 47, 55–56
(1st Cir. 1989) (Breyer, J.) (higher salary from a promotion
obtained under false pretenses).
But there is a difference between a scheme whose object
is to obtain a new or higher salary and a scheme whose object
is to deceive an employer while continuing to draw an
existing salary—essentially, avoiding being fired. The
history of the Supreme Court’s treatment of fraud in the
employment context demonstrates why that distinction
matters.
Before McNally v. United States, 483 U.S. 350 (1987),
federal courts had treated the breach of a duty owed to one’s
employer as a form of fraud, reasoning that it operated to
defraud the employer of the intangible right to the
employee’s honest services. See, e.g., United States v.
Bohonus, 628 F.2d 1167, 1172 (9th Cir. 1980); United
States v. Procter & Gamble Co., 47 F. Supp. 676, 678
(D. Mass. 1942). But in McNally, the Court “stopped the
development of the intangible-rights doctrine in its tracks,”
16 UNITED STATES V. YATES
construing the federal fraud statutes “as limited in scope to
the protection of property rights.” Skilling, 561 U.S. at 401–
02 (quoting McNally, 483 U.S. at 360). Dissenting alone on
this point, Justice Stevens argued that the Court’s distinction
made no sense because every time a person is “paid a salary
for his loyal services, any breach of that loyalty would
appear to carry with it some loss of money to the employer—
who is not getting what he paid for.” McNally, 483 U.S.
at 377 n.10 (Stevens, J., dissenting).
The year after McNally, Congress enacted 18 U.S.C.
§ 1346, which criminalizes any “scheme or artifice to
deprive another of the intangible right of honest services.”
Read broadly, that statute would be too vague to satisfy the
Due Process Clause. See Skilling, 561 U.S. at 408–09. So to
avoid declaring the statute unconstitutional, the Court has
construed it to proscribe only the “core” of the pre-McNally
intangible-rights doctrine: “fraudulent schemes to deprive
another of honest services through bribes or kickbacks
supplied by a third party who had not been deceived.”
Skilling, 561 U.S. at 404. The Court has expressly rejected
the suggestion that section 1346 covers “undisclosed selfdealing by a public official or private employee—i.e., the
taking of official action by the employee that furthers his
own undisclosed financial interests while purporting to act
in the interests of those to whom he owes a fiduciary duty.”
Id. at 409–10.
In Skilling, for example, the government’s theory was
that Skilling had “conspir[ed] to defraud Enron’s
shareholders by misrepresenting the company’s fiscal
health, thereby artificially inflating its stock price,” and that
he had “profited from the fraudulent scheme . . . through the
receipt of salary and bonuses, . . . and through the sale of
approximately $200 million in Enron stock.” 561 U.S. at 413
UNITED STATES V. YATES 17
(ellipses in original). But because there was no allegation
“that Skilling solicited or accepted side payments from a
third party in exchange for making these
misrepresentations,” the Court thought it “clear” that he had
not committed honest-services fraud. Id.
Skilling’s rejection of the salary-maintenance theory is
persuasive here. To be sure, the government charged Heine
and Yates with conspiring to commit property fraud, not
honest-services fraud. But we do not believe the Court
intended “to let in through the back door the very
prosecution theory that [it] tossed out the front.” United
States v. Ochs, 842 F.2d 515, 527 (1st Cir. 1988). Permitting
the government to recharacterize schemes to defraud an
employer of one’s honest services—thereby profiting
“through the receipt of salary and bonuses,” Skilling,
561 U.S. at 413—as schemes to deprive the employer of a
property interest in the employee’s continued receipt of a
salary would work an impermissible “end-run” around the
Court’s holding in Skilling. Kelly, 140 S. Ct. at 1574.
It also would criminalize a wide range of commonplace
conduct. See McDonnell v. United States, 136 S. Ct. 2355,
2373 (2016) (noting a due-process concern with the prospect
of “prosecution, without fair notice, for the most prosaic
interactions”). Consider an employee who wastes time on
the Internet but then, to avoid being fired, falsely claims to
have been working productively. Presented with that
scenario at oral argument, the government declined to say
whether the employee would be guilty of federal fraud on a
salary-maintenance theory. The government’s hesitation is
understandable. Extending the fraud statutes in that way
would raise serious concerns about whether the offense is
defined “with sufficient definiteness that ordinary people
can understand what conduct is prohibited and . . . in a
18 UNITED STATES V. YATES
manner that does not encourage arbitrary and discriminatory
enforcement.” Skilling, 561 U.S. at 402–03 (quoting
Kolender v. Lawson, 461 U.S. 352, 357 (1983)).
We are not convinced that what Heine and Yates did is
meaningfully different—at least as it relates to their salaries
and bonuses—from the behavior of the Internet-surfing
employee. The government insists that the “defendants’
scheme went beyond an intent to maintain their salaries”
because “[t]he board of directors used a performance-based
system” of compensation; by making the bank’s
performance appear better than it actually was, Heine and
Yates obtained increased compensation. We agree that if an
employer offers a raise or a bonus tied to some specific
performance metric, an employee who lies about having
achieved that metric has deprived the employer of something
of value. But the evidence at trial showed that the defendants
were interested in receiving standard annual raises and endof-year bonuses that were based on the bank’s overall
financial condition, not on any specific metric they falsified
to obtain additional compensation. In practice, that seems
little different from deceiving an employer about working
productively. In any event, the government’s argument to the
jury did not distinguish between the maintenance of the
defendants’ existing salaries and the receipt of an increased
salary or bonus. As the government presented the case, it was
effectively an honest-services case dressed in the garb of
salary deprivation.
C
The government’s remaining theory was that—as the
government put it in its closing argument—Heine and Yates
“misled the bank and the board of directors for the use of
bank funds to continue their conspiracy.” The jury could
have understood that statement to refer to the accurate-
UNITED STATES V. YATES 19
information theory we have held not to be viable. And the
government said little more about the theory at trial.
Although it presented extensive evidence of the defendants’
misuse of bank funds, the phrase we have just quoted was its
only plausible reference to the possibility that depriving the
bank of funds might have been the object of the conspiracy.
Assuming it was such a reference and not merely a repeat
of the accurate-information theory, we agree with the
government that a bank has a property interest in its funds
and that it “has the right to use [its] funds as a source of loans
that help the bank earn profits.” Shaw, 137 S. Ct. at 466. In
addition, a bank’s right to its funds extends to the “right to
decide how to use” those funds. Carpenter, 484 U.S. at 26.
So the fraudulent diversion of a bank’s funds for
unauthorized purposes certainly could be the basis for a
conviction under section 1344.
Although the bank fraud statute “demands neither a
showing of ultimate financial loss nor a showing of intent to
cause financial loss,” Shaw, 137 S. Ct. at 467, it does demand
that the use of bank funds be an object of the scheme, Kelly,
140 S. Ct. at 1573–74. Heine and Yates emphasize that the
government argued below that the object of the fraud was
“to give the false appearance that The Bank of Oswego was
performing better than it was,” so that Heine and Yates could
maintain their salaries and bonuses at a time when they faced
personal financial difficulties. Relying on the Supreme
Court’s decision in Kelly, they insist that any effect on bank
funds was merely an “incidental byproduct” of their scheme.
Id. at 1573. And because the trial took place before Kelly was
decided, the jury instructions did not reflect Kelly’s
elaboration of the requirement that money or property be the
object of the scheme.
20 UNITED STATES V. YATES
We need not consider whether or how Kelly might affect
this case. Instead, even assuming that the bank-funds theory
was presented to the jury and was valid, we still must
overturn the conspiracy conviction because the
government’s reliance on the accurate-information and
salary-maintenance theories was not harmless. As we have
explained—and as the government concedes with respect to
the accurate-information theory—both theories were legally
invalid. The Supreme Court has held that “constitutional
error occurs” when a jury “returns a general verdict that may
rest on a legally invalid theory.” Skilling, 561 U.S. at 414;
see Yates v. United States, 354 U.S. 298 (1957); United
States v. Garrido, 713 F.3d 985, 994 (9th Cir. 2013);
Barona, 56 F.3d at 1097–98. To determine that a
constitutional error was harmless, we “‘must be able to
declare a belief that it was harmless beyond a reasonable
doubt,’ in that it ‘did not contribute to the verdict obtained.’”
United States v. Holiday, 998 F.3d 888, 894 (9th Cir. 2021)
(quoting Chapman v. California, 386 U.S. 18, 24 (1967)).
That standard is not satisfied here. As we have already
recounted at length, the accurate-information and salarymaintenance theories did not make up just a few stray lines
on a PowerPoint slide at closing argument; they were the
focus of the entire prosecution from beginning to end. The
indictment charged the object of the conspiracy only as
“conceal[ing] the true financial condition of the Bank.”
Although the defendants were alleged to have made
“unauthorized transfers of Bank proceeds,” they did so,
according to the indictment, “[t]o achieve” their goal of
depriving the bank of accurate information regarding its
financial condition. The government repeatedly defended
the accurate-information and salary-maintenance theories
before the district court. In its closing argument, the
government’s explanation of “the reason why the
UNITED STATES V. YATES 21
defendant[s] sought to deceive the bank” devoted all but half
of a sentence to those theories. By contrast, the government
referenced the bank-funds theory only once, commenting
that “throughout the course of the conspiracy,” Heine and
Yates “misled the bank and the board of directors for the use
of bank funds to continue their conspiracy”—itself a
statement that could be interpreted, consistent with the
indictment, as arguing that the defendants used bank funds
only to further their accurate-information and salarymaintenance objectives. And the jury instructions, although
correct so far as they went, did nothing to define “something
of value” to preclude conviction under the government’s
invalid theories, despite the defendants’ request for an
instruction on that issue. In sum, the entire district court
proceedings “were permeated with the prohibited . . .
theor[ies].” Garrido, 713 F.3d at 998; see also id. at 996–98
(evaluating the harmlessness of an invalid legal theory by
examining the indictment, jury instructions, and closing
arguments).
And the evidence of guilt was hardly so overwhelming
as to ensure that the jury could not have found in favor of the
defendants in the absence of the errors. See United States v.
Perez, 962 F.3d 420, 442 (9th Cir. 2020). To the contrary,
the evidence would have permitted the jury to find that Heine
and Yates’s scheme aimed to deprive the bank not of its
funds, but instead—just as the government argued
throughout the case—of their salaries and of accurate
information about the bank’s financial condition.
Significantly, the jury returned a split verdict and deliberated
for four days—facts that weigh against a finding of harmless
error. United States v. Obagi, 965 F.3d 993, 998 (9th Cir.
2020); United States v. Velarde-Gomez, 269 F.3d 1023,
1036 (9th Cir. 2001) (en banc). Thus, we are unable to say
22 UNITED STATES V. YATES
beyond a reasonable doubt that the invalid legal theories did
not contribute to the jury’s verdict.
Bank executives considering engaging in fraud should
take no comfort from this result. Our decision in no way
limits the scope of sections 1344 and 1349 or the
government’s ability to bring prosecutions under those
statutes. We hold only that when the government devotes the
bulk of its presentation to two legally invalid theories of
guilt—the most prominent of which, it bears repeating, the
government now admits was invalid—we will not affirm a
general verdict simply because, had we been on the jury, we
might have found the defendants guilty on a third theory.
III
Heine and Yates argue that because the conspiracy count
is invalid, their convictions on the false-entry counts must be
vacated as well. We agree.
The district court instructed the jury that it could find the
defendants guilty of making false entries as principals, as
aiders and abettors, or as co-conspirators. Specifically, the
court instructed that “[e]ach member of a conspiracy is
responsible for the actions of the other conspirators
performed during the course and in furtherance of the
conspiracy,” as long as those actions “fell within the scope
of the unlawful conspiracy or agreement and could
reasonably have been foreseen.” Under Pinkerton v. United
States, 328 U.S. 640 (1946), that instruction correctly stated
the law. But Pinkerton liability depends on the existence of
a cognizable conspiracy; without a valid conspiracy count,
the Pinkerton theory cannot be a basis for the other
convictions. Emphasizing that point, Heine and Yates
argued in the body of their opening brief that the invalidity
of the conspiracy conviction “requires reversal of the false
UNITED STATES V. YATES 23
bank entry counts because . . . the convictions may have
been based on the jury’s conclusion that each count was a
reasonably foreseeable consequence of the (invalid)
conspiracy count,” rather than on a conclusion that Heine
and Yates had any personal involvement in the false-entry
offenses.
If the evidence at trial made it clear “beyond a reasonable
doubt that the jury in this case would have convicted . . .
based on principal or aider-and-abettor liability,” then the
Pinkerton instruction would have been harmless. United
States v. Manarite, 44 F.3d 1407, 1414 n.9 (9th Cir. 1995);
see United States v. Castaneda, 16 F.3d 1504, 1511–12 (9th
Cir. 1994). But despite the defendants’ express challenge to
the Pinkerton instruction as applied in the absence of a valid
conspiracy conviction, the government did not argue in its
brief before us that the instruction so applied was harmless.
The government did not overlook the point because the
defendants’ argument was somehow hidden; the defendants
stated that they were appealing their convictions “for one
count of conspiracy to commit bank fraud . . . and 12 counts
of making false bank entries,” and they presented their
argument in a section of their brief entitled, “[t]he district
court’s error in permitting the government to pursue invalid
theories of guilt requires reversal on all counts.” (emphasis
added; capitalization omitted).
As a general rule, we decide only the issues presented to
us by the parties. See United States v. Sineneng-Smith, 140 S.
Ct. 1575, 1579 (2020). That rule reflects our limited role as
neutral arbiters of legal contentions presented to us, and it
avoids the potential for prejudice to parties who might
otherwise find themselves losing a case on the basis of an
argument to which they had no chance to respond. See id.
Harmless error is no exception to that general rule. See
24 UNITED STATES V. YATES
United States v. Rodriguez, 880 F.3d 1151, 1163 (9th Cir.
2018). Accordingly, we have held that a claim of harmless
error is subject to forfeiture, and that we will not consider it
when, as in this case, the government does not “advance a
developed theory about how the errors were harmless.” Id.
(quoting United States v. Murguia-Rodriguez, 815 F.3d 566,
572–73 (9th Cir. 2016)).
Although we have discretion to consider harmless error
sua sponte, it would be inappropriate to do so here. In
deciding whether to consider a forfeited argument of
harmless error, we consider “the length and complexity of
the record,” “whether the harmlessness of an error is certain
or debatable,” and “the futility and costliness of reversal and
further litigation.” Rodriguez, 880 F.3d at 1164 (quoting
United States v. Brooks, 772 F.3d 1161, 1171 (9th Cir.
2014)). Here, the record is long and complex, the product of
a trial that featured 43 witnesses and 584 exhibits. Perhaps a
review of the record would reveal that the Pinkerton
instruction was indeed harmless with respect to some of the
counts even though the conspiracy conviction cannot stand,
but the answer is hardly certain: While Heine and Yates were
personally involved in making the reports charged as false
entries, they disputed the extent to which they understood
the true facts, were duped by Walsh, or actually made any
misstatement in response to the specific questions asked. It
would be unfair to Heine and Yates to resolve those disputes
on the basis of a theory that was not advanced by the
government and that they have not had an opportunity to
address. Nor is there any basis for remanding to give the
government an opportunity for a do-over after it made the
strategic choice not to address all of the defendants’
arguments in its appellate brief.
UNITED STATES V. YATES 25
IV
Heine and Yates argue that insufficient evidence
supports their false-entry convictions on counts 7–9, 13, and
15. Although we have already vacated all of the convictions,
we still must consider the sufficiency of the evidence on
these counts. A finding of insufficient evidence, unlike a
determination that the Pinkerton instruction could have been
erroneously applied in light of the invalidity of the
conspiracy conviction, would bar retrial. See United States
v. Gergen, 172 F.3d 719, 724–25 (9th Cir. 1999); United
States v. Bibbero, 749 F.2d 581, 585–86 (9th Cir. 1984).
Both defendants preserved their challenges to counts 7–
9, so we review those convictions de novo. The government
argues that our review on counts 13 and 15 is for plain error
only. It is correct as to Heine. Although Heine moved for a
judgment of acquittal at the conclusion of the government’s
case on the ground that insufficient evidence supported his
false-entry charges, he “failed to renew [his] motion[] for
judgment of acquittal at the close of all the evidence” on this
point. United States v. Winslow, 962 F.2d 845, 850 (9th Cir.
1992). Yates, however, renewed her challenge to the
sufficiency of the evidence on all counts in her motion for
judgment of acquittal after the close of evidence.
Accordingly, our review of Yates’s convictions on counts 13
and 15 is de novo. See United States v. Boykin, 785 F.3d
1352, 1359 (9th Cir. 2015).
We may reverse a conviction for insufficient evidence
only if, viewing the evidence in the light most favorable to
the government, no rational trier of fact could “find the
essential elements of the crime beyond a reasonable doubt.”
United States v. Stoddard, 150 F.3d 1140, 1144 (9th Cir.
1998). As relevant here, the elements of the offense under
section 1005 are (1) making a false entry in bank records or
26 UNITED STATES V. YATES
causing a false entry to be made, (2) knowing the entry was
false at the time it was made, and (3) intending that the entry
injure or deceive a bank or public official. United States v.
Wolf, 820 F.2d 1499, 1504 (9th Cir. 1987). The only
challenge here is to the first element.
A
An entry is false if it “represent[s] what is not true or
does not exist.” United States v. Darby, 289 U.S. 224, 226
(1933) (quoting Agnew v. United States, 165 U.S. 36, 52
(1897)). Conversely, the offense of false entry “is not
committed where the transaction entered actually took place,
and is entered exactly as it occurred.” Coffin v. United
States, 156 U.S. 432, 463 (1895). That is so “even though it
is a part of a fraudulent or otherwise illegal scheme.” United
States v. Erickson, 601 F.2d 296, 302 (7th Cir. 1979); accord
United States v. Hardin, 841 F.2d 694, 699–700 (6th Cir.
1988); United States v. Manderson, 511 F.2d 179, 181 (5th
Cir. 1975).
Coffin’s rule is subject to two important qualifications.
First, an entry is false, for purposes of section 1005, if it
omits material information or “vital fact[s]” requested by a
bank or regulator, even if the entry, on its face, is literally
true. Ely, 142 F.3d at 1119. For example, a loan application
that “d[oes] not reflect either the true borrower or the actual
purpose” of a loan omits material information and is
therefore false for purposes of section 1005. Wolf, 820 F.2d
at 1504. Thus, we held that the indictment in Ely stated an
offense because it alleged that the defendants gave only a
partial answer that omitted key facts when asked for the
purpose of the loan they sought; they said that they sought a
loan to obtain an “injection of capital to enable expansion of
business enterprises,” while their real reason was to be able
UNITED STATES V. YATES 27
to make payments on their existing debts. Ely, 142 F.3d
at 1119.
Second, an entry is false if it records a transaction that is
itself “false and fictitious, concocted for the very purpose of
distorting [a] financial statement”—as opposed to a
transaction that is merely a part of some broader fraudulent
or illegal scheme. United States v. Gleason, 616 F.2d 2, 29
(2d Cir. 1979); accord Erickson, 601 F.2d at 302. In Darby,
for example, the Supreme Court held that a bank entry that
recorded a promissory note bearing a signature known to be
forged was false because “[n]o note with such a signature
had been discounted by the bank.” 289 U.S. at 226. As
Justice Cardozo colorfully put it, “Verity was not imparted
to the entry by the simulacrum of a signature known to be
spurious.” Id. The entry was just as false as if “dollars known
to be counterfeit . . . ha[d] been entered in the books as cash,”
and it meant that “upon an inspection of [the] bank, public
officers and others would [not] discover in its books of
account a picture of its true condition.” Id.
Applying that reasoning, we held in Hargreaves v.
United States, 75 F.2d 68 (9th Cir. 1935), that a bank
executive caused a false entry to be made when he directed
an uncompensated strawman to obtain a loan from the bank
without disclosing that the loan was for the executive’s
private benefit. See id. at 70, 72. The entry was false because
the transaction it memorialized—involving a strawman who
likely would not have qualified for the loan, never intended
to repay it, and immediately gave the proceeds to the
defendant—was itself fictitious. See id.; see also United
States v. Krepps, 605 F.2d 101, 109 (3d Cir. 1979).
28 UNITED STATES V. YATES
B
Counts 7–9, 13, and 15 charge that Heine and Yates
omitted certain loans from the bank’s past-due loan balance
on its quarterly call reports after arranging for third parties
to make the delinquent payments. Heine and Yates argue that
they were correct not to report the loans as past due—and
thus that the call reports were not false—because the bank
had received real payments on the loans. In their view, it is
irrelevant whether a third party or the borrower made the
payment.
The pertinent schedule to the FDIC’s call reports asks for
three pieces of information: a bank’s aggregate total of loans
past due for 30–89 days, the aggregate total of loans past due
for 90 days or more, and the aggregate total of nonaccruing—that is, delinquent—loans. In other words, it asks
for three numbers. The form does not call for a narrative
response, allow for comment, request a breakdown of the
particular loans that are past due, or ask for the source of a
payment on any of the underlying loans. The FDIC’s
detailed instructions for completing the schedule require a
loan “to be reported as past due when the borrower is in
arrears two or more monthly payments.”
The government’s FDIC witness, Assistant Regional
Director Paul Worthing, confirmed at trial that the FDIC’s
instructions do not require a bank to disclose the source of a
payment on a loan or state that a loan remains past due if it
is paid by someone other than the borrower. Worthing also
conceded that there is no rule or regulation that would
prevent a third party—including a bank employee—from
making a loan payment on a customer account as a gift. He
testified only that the FDIC would find such transactions
“problematic” or “improper.”
UNITED STATES V. YATES 29
1
Counts 7–9 relate to loans to three bank customers:
Howard Abrams, Edward Duffy, and Robert Goodman. The
loans would have been delinquent, but Kehoe, another bank
customer, made the required payments. We conclude that
insufficient evidence supports the convictions on those
counts.
The government emphasizes that Kehoe made the
payments using the proceeds of a loan that he himself had
obtained from the bank. But unlike the loans in Hargreaves
and Krepps, the loan to Kehoe was a real loan that was
approved by the board of directors, not a fictitious loan
disbursed for the defendants’ pecuniary gain. The loan
application disclosed that some of the proceeds would be
used for “hard money loans for non-consumer needs.” And
the board was aware that Kehoe loaned money to bank
customers, including Abrams, before it approved the loan.
Once the loan was issued to Kehoe, the money was
Kehoe’s to use as he wished. He could invest it, spend it on
himself, or use it to make payments on other bank
customers’ loans. It is irrelevant that the customers were
unaware of the payments (or, in the case of Duffy, apparently
opposed to them)—the bank was entitled to payment, and
the customers had no right to refuse to make timely
payments on valid loans. When Kehoe made the payments,
the bank received real money, and the loans were no longer
delinquent. It was not false to report them as current. Nor is
there evidence that the loan Kehoe used to make the
payments was in arrears. So reporting the loans on which he
made payments as up to date did not conceal a net arrearage
in the funds lent by the bank.
30 UNITED STATES V. YATES
The government insists that “a ‘past due’ loan means a
loan where the borrower had stopped making payment,”
suggesting that a loan might still be past due if someone else
made the payment. That view is contradicted by Worthing’s
testimony, which confirms that if a loan is current, no rule
requires it to be reported as past due simply because the
payment came from a third party. Indeed, the government
conceded at oral argument that, had the payment come from
a borrower’s grandmother, the entry would not have been
false. Kehoe may not have been anyone’s grandmother, but
the schedule did not ask whether the payment had been made
by the borrower, by the borrower’s grandmother, or by a
hard-money lender; it asked only whether the payment had
been made. It had. It may be that the FDIC would benefit
from knowing whether a borrower was personally
responsible for making a loan payment so that it can better
evaluate the soundness of a bank’s lending practices. If so,
the agency can revise its call report instructions to ask for
that information. The agency could also ask, although the
schedule at issue here did not, whether the payment was
made from the proceeds of another loan made by the bank—
but even on the current schedule, any arrearage in that loan
would have had to be included in the report.
In this and in many of the other transactions at issue,
Heine and Yates displayed an economy with the truth that is
not much to their credit. But in the absence of any
requirement to disclose the omitted information, what is true
of perjury is true here as well: “[W]hen a statement is
literally true, it is, by definition, not false and cannot be
treated as such . . . , no matter what the defendant’s
subjective state of mind might have been.” United States v.
Aquino, 794 F.3d 1033, 1036 (9th Cir. 2015) (first alteration
in original) (quoting United States v. Castro, 704 F.3d 125,
139 (3d Cir. 2013)). Even if a transaction “is a part of a
UNITED STATES V. YATES 31
fraudulent or otherwise illegal scheme,” it is not false to
report it as it occurred. Erickson, 601 F.2d at 302.
Perhaps the government could have charged that
Kehoe’s loan application was false for omitting material
information about how he intended to use the money once
he received it. See Ely, 142 F.3d at 1119. But that is not what
it charged. It charged only that the aggregate total of past due
loans on the call report was false for omitting the Abrams,
Duffy, and Goodman loans from the total. Because the
underlying loan payments made by Kehoe were not
themselves fictitious, that entry was not false.
2
Similarly, insufficient evidence supports a finding of
falsity on count 15, which involved a loan to another bank
customer, Chris Guettler, for which Walsh made a payment
using his own money. As Worthing testified, no FDIC rule
or regulation prohibited Walsh’s conduct. That Yates
instructed the bank’s controller to change the transaction’s
description to say “[s]omething more generic” is evidence of
her intent to deceive concerning the nature of the transaction,
but it has no bearing on whether the call report itself,
requiring only a report of the aggregate amount of past due
loans, was false. Because the required payment had been
made, the call report correctly omitted Guettler’s loan
balance from the bank’s aggregate total of past due loans,
and it was not false. We also conclude that, in light of the
instructions for completing the call report and Worthing’s
testimony, the insufficiency on count 15 is plain, and the
error affected Heine’s substantial rights. See United States v.
Olano, 507 U.S. 725, 732 (1993).
32 UNITED STATES V. YATES
3
Count 13 is different. That count involved a loan to Chris
Dudley, a former NBA player and Oregon gubernatorial
candidate. To prevent his loan from being delinquent, Yates
directed that a payment be made without Dudley’s
knowledge from his political campaign account, called the
“Friends of Chris Dudley” account. Dudley did not give
permission for the bank to take funds out of his campaign
account to make the payment.
We agree with the Seventh Circuit that “entries recording
unauthorized transactions involving the [bank] accounts of
customers without the knowledge or consent of the customer
or the institution” are false because the underlying
transactions are fictitious. United States v. Marquardt,
786 F.2d 771, 779 (7th Cir. 1986). Yates did not just make a
payment on Dudley’s loan without his knowledge or
approval, as Kehoe did for Abrams, Duffy, and Goodman.
That would not have been sufficient to show falsity. Instead,
Yates caused money to be taken out of the Friends of Chris
Dudley account without Dudley’s knowledge or approval to
be used for an unauthorized purpose. The transaction was a
sham; once Dudley found out about it, he could have
demanded that it be reversed and that the money be returned
to him. So reporting that money as a payment on Dudley’s
loan when the money should have remained in Dudley’s
account and could have been recovered from the loan
account was not truthful. The payment was not what it was
necessarily represented to be—an irrevocable commitment
by the payor to depart with funds and allow the bank to keep
the money in payment of an outstanding loan. And given that
the transaction was performed on the final business day of
the quarter, the jury could have found that it was “concocted
UNITED STATES V. YATES 33
for the very purpose of distorting [a] financial statement”—
that quarter’s call report. Gleason, 616 F.2d at 29.
At trial, Heine and Yates emphasized that the promissory
note for Dudley’s loan included a right of setoff “[t]o the
extent permitted by applicable law” in all of Dudley’s
accounts with the bank, meaning that the bank had
authorization to take funds from those accounts to pay his
loan balances. But Dudley testified that the right of setoff
applied only to his personal accounts and did not extend to
the “Friends of Chris Dudley” account. As no bank records
showed otherwise, the jury could have believed Dudley’s
testimony and concluded that the transaction was indeed
unauthorized and therefore subject to being reversed.
Outcome: Heine and Yates challenge various evidentiary rulings
and assert that the district court erred in calculating the
bank’s losses for sentencing purposes. Having vacated all of
the convictions, we do not consider those arguments.
VACATED and REMANDED.
Plaintiff's Experts:
Defendant's Experts:
Comments: