United States District Court, D. Oregon
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.
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.
OPINION AND ORDER ON OBJECTIONS TO EXPERT WITNESS
MICHAEL H. SIMON, UNITED STATES DISTRICT JUDGE
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.
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. 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.
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.
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.
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.
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.
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.
Pretrial Disclosure of Expert Testimony in a Criminal
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
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
This summary must describe the witness's opinions, the
bases and reasons for those opinions, and the witness's
Fed. R. Crim. P. 16(b)(1)(C). Rule 16(d)(1) provides, in
Protective and Modifying Orders. At any time the
court may, for good cause, deny, restrict, or defer discovery
or inspection, or grant other ...