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 Supplemental Motion to Dismiss (ECF 697); and (2)
Defendant Heine's Motion to Vacate the Third Trial
Management Order and Compel the Government to Provide
Discovery (ECF 699), which Defendant Yates joins (ECF 710).
After reviewing these motions, as well as all supporting
memoranda and declarations, all memoranda and declarations in
opposition, and all reply memoranda and declarations, the
Court heard oral argument on April 10, 2017. For the reasons
that follow, Defendant Yates's Supplemental Motion to
Dismiss (ECF 697) is denied and Defendant Heine's Motion
to Vacate the Third Trial Management Order and Compel the
Government to Provide Discovery (ECF 699), which Defendant
Yates joins (ECF 710), is granted in part and denied in part.
The Underlying Case
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.
Materials Seized from Geoffrey Walsh and Held for Inspection
at the FBI
partial support of Yates's motion to dismiss, Yates's
counsel asserts in a declaration:
In August 2016, the U.S. attorney's office moved some of
Geoff Walsh's files from the FBI's office to their
own office. Based on a misrepresentation, my office
understood that the government had copied and produced the
relevant information to defense counsel from those files. It
had not. Following counsel's visit to the U.S.
attorney's office in February 2017, the government