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, 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, Of Attorneys for
Defendant Diana Yates.
OPINION AND ORDER
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, or
transactions during the time when they were the two most
senior officers of The Bank of Oswego (“Bank”).
In this Opinion and Order, the Court resolves the following
motions filed by Defendants Heine and Yates: (1) Defendant
Yates's Motion for Evidentiary Hearing on Willful
Spoliation of Evidence and Adverse Inference Jury Instruction
(ECF 558); (2) Defendant Yates's Motion to Dismiss and
Alternative Motion for Jury Instruction (ECF 574), which
Defendant Heine joins (ECF 590 at 4); (3) Defendant
Heine's Renewed Motion for Severance (ECF 598), which
Defendant Yates joins and provides additional arguments (ECF
682); (4) Defendant Heine's Motion to Dismiss (ECF 590);
and (5) Defendant Heine's Third Motion for a Bill of
Particulars (ECF 592).Defendant Yates requests an evidentiary
hearing for her first motion and oral argument for her
second. Defendant Heine does not request oral argument. After
reviewing all of the pending motions, all supporting
memoranda and declarations, all memoranda and declarations in
opposition, and all reply memoranda and declarations, the
Court does not believe that an evidentiary hearing is
warranted or that oral argument will be helpful on any of the
motions addressed in this Opinion and Order. For the reasons
that follow, these motions are denied.
and Yates co-founded the Bank in 2004. The Bank is a
financial institution engaged in the business of personal and
commercial banking and lending. The Bank is headquartered in
Lake Oswego, Oregon. Heine 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 (“Board”). Heine left the Bank
in September 2014. Yates 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 on March 22, 2012.
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 (“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's deposits are insured by the Federal Deposit
Insurance Corporation (“FDIC”), and the Bank is
subject to regular monitoring and examinations by the FDIC.
For example, federal regulations require the Bank to file
with the FDIC what are commonly known as “Call
Reports” on a quarterly basis. A Call Report contains
information about the Bank's financial position and is
divided into a number of schedules. One of the schedules,
known as “Schedule RC-N, ” requires disclosure of
the correct value of outstanding loans.
March 9, 2017, a federal grand jury returned a 19-count
Superseding Indictment against both Heine and Yates, alleging
misconduct related to their activities with the Bank. ECF
The Superseding Indictment charges Heine and Yates with one
count of conspiring to commit bank fraud, in violation of 18
U.S.C. § 1349, and 18 counts of making false bank
entries, reports, or transactions, in violation of 18 U.S.C.
§§ 1005 and 2. The Superseding Indictment alleges that
between September 2009 and September 2014, Heine and Yates
conspired to defraud the Bank through materially false
representations and promises. The Superseding 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 (including the FDIC), and the public. According to
the Superseding 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, all in an effort to conceal the
Bank's true financial condition.
Superseding Indictment against Heine and Yates alleges the
following five schemes that purportedly advanced the alleged
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 (A Avenue Property).
From October 2010 through May 2011, Heine and Yates recruited
a Bank employee, D.W., to facilitate a straw buyer purchase
of real property located at 952 A Avenue, Lake Oswego, Oregon
97034 (“A Avenue Property”) for the purpose of
concealing a loss to the Bank. Heine and Yates gave D.W. 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 D.W. funded the purchase
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 623 at 4-11, ¶¶ 13-26. The Superseding
Indictment further alleges that Heine and Yates knowingly
made 18 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 12-13.
Superseding Indictment also names Geoffrey Walsh
(“Walsh”) as a person who played a role in the
alleged conspiracy. Walsh was the former Senior Vice
President of Lending at the Bank. Id. at ¶ 13.
On May 2, 2012, the Bank, acting through Heine, terminated
the employment of Walsh for cause, in part based on
Walsh's alleged misconduct concerning lending practices.
On June 11, 2012, Heine called the Federal Bureau of
Investigation (“FBI”) to report alleged criminal
activity by Walsh. In July 2013, a federal grand jury
indicted Walsh in a separate case for 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 in the Walsh Criminal
Action 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 Superseding Indictment against
Heine and Yates. Walsh is awaiting sentencing.
ON PENDING MOTIONS
Defendant Yates's Motion for Evidentiary Hearing on
Willful Spoliation of Evidence and Adverse Inference Jury
Yates moves for an evidentiary hearing on willful spoliation
of evidence and for an adverse inference jury instruction
“stating that the Bank, acting through Dan Heine and
others, destroyed documents that contained favorable evidence
for Ms. Yates.” ECF 558 at 2. In her motion, Yates does
not seek a remedy against the Government, but adds that she
“might do so after the evidentiary hearing.”
Id. at 12 n.5.
to Yates, when she resigned from the Bank, she left behind
her contemporaneous work papers for the period relevant to
the Superseding Indictment. In addition, Yates contends that
Walsh kept a file or notebook that contained negative
information about every Bank employee during his tenure.
According to Yates:
It is likely that Ms. Yates's work papers and Mr.
Walsh's notebook contained highly relevant evidence. The
work papers are perhaps the best source of documentary
evidence of what Ms. Yates knew at the time, and that she was
not part of a “conspiracy” to defraud the Bank.
Walsh's notebook almost certainly contains ...