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United States v. Heine

United States District Court, D. Oregon

February 2, 2017

DAN HEINE and DIANA YATES, Defendants.

          Billy J. Williams, United States Attorney, and Claire M. Fay, Michelle Holman Kerin, and Quinn P. Harrington, Assistant United States Attorneys, United States Attorney's Office for the District of Oregon, Of Attorneys for the United States of America.

          Jeffrey Alberts and Mark Weiner, Pryor Cashman, LLP, 7 Times Square, New York, NY 10036; Caroline Harris Crowne and Michael C. Willes, Tonkon Torp, LLP, Of Attorneys for Defendant Dan Heine.

          Janet Lee Hoffman, Kelsey R. Jones, Andrew T. Weiner, Katherine Feuer, and Douglas J. Stamm, Janet Hoffman & Associates, LLC, Matthew J. Kalmanson, Hart Wagner, LLP, 1000 SW Broadway, Suite 2000, Portland, OR 97205. Of Attorneys for Defendant Diana Yates.



         Defendants Dan Heine (“Heine”) and Diana Yates (“Yates”) are charged with conspiring to commit bank fraud and making false bank entries, reports, and transactions during the time when they were the two most senior officers of The Bank of Oswego. A four-week jury trial is set to begin on May 2, 2017. Pursuant to Rule 16 of the Federal Rules of Criminal Procedure, all parties requested written summaries of the expert witness testimony that each party intends to present at trial. After those summaries were exchanged, the parties raised objections to some of the anticipated expert witness testimony. This Opinion and Order addresses the parties' objections.


         As alleged in the Indictment (ECF 1), Heine and Yates co-founded The Bank of Oswego (the “Bank”) in 2004. Based in Lake Oswego, Oregon, the Bank is a financial institution engaged in the business of personal and commercial banking and lending.[1] Heine previously served as the Bank's President and Chief Executive Officer (“CEO”). As President and CEO, Heine supervised and managed the Bank's affairs and operations. Heine also was a member of the Bank's Board of Directors (the “Board”). Heine left the Bank in September 2014. Yates previously served as the Bank's Executive Vice President and Chief Financial Officer (“CFO”). As CFO, Yates was responsible for ensuring the Bank's compliance with federal and state regulations. Yates also was the Secretary of the Board. Yates resigned from the Bank in March 2012 after disagreements with Heine.

         Both Heine and Yates were responsible for ensuring that the Bank operated in a sound and safe manner and for keeping the Board informed about the Bank's financial condition and the adequacy of the Bank's policies, procedures, and internal controls. Additionally, Heine and Yates were members of the Bank's Internal Loan Committee (the “ILC”). The duties of the ILC included approving loans that were outside the authority of individual Bank loan officers, ensuring the quality of the Bank's loan portfolio and minimizing risks in that portfolio.

         The Bank is subject to regular monitoring and examinations by the Federal Deposit Insurance Corporation (“FDIC”). For example, federal regulations require the Bank to file with the FDIC on a regular basis Consolidated Reports of Condition and Income for a Bank with Domestic Offices Only, commonly called “Call Reports.” A call report contains data about the Bank's financial position and is divided into a number of schedules. One of these schedules, known as “Schedule RC-N, ” requires disclosure of the correct value of outstanding loans.

         On June 23, 2015, a federal grand jury returned a 27-count Indictment against Heine and Yates, alleging misconduct related to their activities with the Bank. The Indictment charges Heine and Yates with one count of conspiring to commit bank fraud, in violation of 18 U.S.C. § 1349, and 26 counts of making false bank entries, reports, and transactions, in violation of 18 U.S.C. § 1005. The Indictment alleges that beginning in September 2009, Heine and Yates conspired to defraud the Bank through materially false representations and promises. The Indictment further alleges that one of the purposes of the conspiracy was to conceal the true financial condition of the Bank from the Board, the Bank's shareholders, the Bank's regulators, and the public. According to the Indictment, Heine and Yates reported false and misleading information about loan performance, concealed information about the status of foreclosed properties, made unauthorized transfers of Bank proceeds, and failed to disclose material facts about loans to the Board, shareholders, and regulators.

         The Indictment alleges the following five schemes to advance the conspiracy's purpose of falsely creating a healthier appearance of the Bank's finances than actually existed:

1. Payments Made on Delinquent Loans. Heine and Yates made payments, using Bank proceeds, on behalf of Bank customers who were delinquent on their loans. The payments sometimes were made without the knowledge or consent of the Bank's customer. The payments were made so that the delinquent loans would not appear in the Call Reports. On March 31, 2011, Yates transferred funds from a Bank customer's business checking account to the customer's personal loan account, which was delinquent, without the customer's consent. Heine and Yates's alleged practice of paying delinquent loans with Bank or other proceeds hid delinquent loans that otherwise would have been included in the Call Reports and reported to the Board.
2. Wire Transfer and Loan to Bank Customer M.K. Between July 2010 and September 2010, Heine and Yates permitted to be made an unsecured draw in the amount of $675, 000 for Bank customer M.K. and then approved a $1.7 million loan for the benefit of M.K. in order to conceal the unsecured draw and to pay other Bank borrowers' delinquent loans. Yates approved the unsecured draw.
3. Straw Buyer Purchase. From October 2010 through May 2011, Heine and Yates recruited a Bank employee, Daniel Williams (“Williams”), to facilitate a straw buyer purchase of real property located at 952 A Avenue, Lake Oswego, Oregon 97034 (the “A Avenue Property”) for the purpose of concealing a loss to the Bank. Heine and Yates gave Williams two checks totaling $267, 727.89 from the Bank's cash account to purchase the A Avenue Property. Yates falsely represented in transactional documents that Williams funded the purchase personally.
4. Other Real Estate Owned (“OREO”) Properties Sold to Bank Customer R.C. From March 2010 through June 2013, Heine and Yates removed two properties from the Bank's OREO account after the properties were sold to a Bank borrower, R.C., even though the sales did not meet the requirements to remove the properties from the account. Heine and Yates did not require R.C. to make any down payment and provided R.C. with full financing from the Bank for both properties. As a result of the transactions, the properties were no longer reported on the Call Reports as OREO assets. On January 24, 2011, FDIC examiners questioned the validity of the removal of the properties from the Bank's OREO account and advised Heine and Yates that the purchases did not meet the minimum equity requirements needed to remove the properties. Yates advised the FDIC examiners that R.C. was going to make down payments for the two homes, which would then permit the Bank properly to remove the properties from the OREO account. On January 31, 2011, Yates prepared two memos to each of the R.C. loan files that falsely stated R.C. was willing to make a 15 percent down payment on the properties. Heine and Yates represented that R.C. paid down payments for the properties, when in fact no payment was received by the Bank.
5. Misrepresentations to Shareholders. From September 2009 through September 2014, Heine and Yates caused the Bank to misrepresent to the Bank's shareholders the Bank's “Texas Ratio, ” which is a measure of the Bank's credit troubles and potential for bank failure, thus misrepresenting the true extent of the Bank's delinquent loans.

ECF 1 at 4-11, ¶¶ 13-26. The Indictment further alleges that Heine and Yates knowingly made 26 false entries in the books, reports, and statements of the Bank with the intent to injure and defraud the Bank. Heine and Yates allegedly did so by omitting material information about the true status and condition of loans and assets from the Call Reports and reports to the Board. Id. at 12-14.

         The Indictment also names Geoffrey Walsh (“Walsh”) as a person who played a role in the alleged conspiracy. Walsh previously was the Senior Vice President of Lending at the Bank. In May 2012, the Bank, acting through Heine, terminated the employment of Walsh for cause, in part based on Walsh's alleged misconduct concerning lending practices. In July 2013, Walsh was indicted in a separate case and charged with conspiracy to commit wire fraud, wire fraud, and conspiracy to make false entries in bank records, among other charges. United States v. Walsh, Case No. 3:13-cr-00332-SI-1 (D. Or.) (“Walsh Criminal Action”). On July 22, 2015, Walsh pleaded guilty to certain charges alleged in a superseding indictment and second superseding information. In Walsh's plea agreement, he accepted responsibility for his role in many of the same acts described in the Indictment against Heine and Yates. Walsh is awaiting sentencing.


         A. Pretrial Disclosure of Expert Testimony in a Criminal Case

         Rule 16 of the Federal Rules of Criminal Procedure governs pretrial discovery in a criminal case by both the government and a defendant. Rule 16(a)(1)(G) states:

Expert Witnesses. At the defendant's request, the government must give to the defendant a written summary of any testimony that the government intends to use under Rules 702, 703, or 705 of the Federal Rules of Evidence during its case-in-chief at trial. If the government requests discovery under subdivision (b)(1)(C)(ii) and the defendant complies, the government must, at the defendant's request, give to the defendant a written summary of testimony that the government intends to use under Rules 702, 703, or 705 of the Federal Rules of Evidence as evidence at trial on the issue of the defendant's mental condition. The summary provided under this subparagraph must describe the witness's opinions, the bases and reasons for those opinions, and the witness's qualifications.

Fed. R. Crim. P. 16(a)(1)(G) (emphasis added). Rule 16(b)(1)(C) provides:

Expert Witnesses. The defendant must, at the government's request, give to the government a written summary of any testimony that the defendant intends to use under Rules 702, 703, or 705 of the Federal Rules of Evidence as evidence at trial, if-
(i) the defendant requests disclosure under subdivision (a)(1)(G) and the government complies; or
(ii) the defendant has given notice under Rule 12.2(b) of an intent to present expert testimony on the defendant's mental condition.
This summary must describe the witness's opinions, the bases and reasons for those opinions, and the witness's qualifications.

Fed. R. Crim. P. 16(b)(1)(C). Rule 16(d)(1) provides, in relevant part:

Protective and Modifying Orders. At any time the court may, for good cause, deny, restrict, or defer discovery or inspection, or grant other ...

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