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United States v. Heine

United States District Court, D. Oregon

August 11, 2017

UNITED STATES OF AMERICA,
v.
DAN HEINE and DIANA YATES, Defendants.

          Billy J. Williams, United States Attorney, and Claire M. Fay, Michelle Holman Kerin, and Quinn P. Harrington, Assistant 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.

          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, Of Attorneys for Defendant Diana Yates.

          OPINION AND ORDER ON OBJECTIONS TO REBUTTAL EXPERT TESTIMONY

          Michael H. Simon United States District Judge.

         Defendants Dan Heine (“Heine”) and Diana Yates (“Yates”) are charged in this criminal action 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 (the “Bank”). The parties have filed summaries of their anticipated expert witness testimony and anticipated rebuttal expert witness testimony. The Court previously addressed the parties' objections to each other's expert witness summaries. ECF 565. This Opinion and Order addresses the parties' objections to each other's rebuttal expert witness summaries.

         BACKGROUND

         Heine and Yates co-founded the Bank in 2004. Until August 2016, the Bank had been a financial institution engaged in the business of personal and commercial banking and lending, headquartered in Lake Oswego, Oregon.[1] The Bank is insured by the Federal Deposit Insurance Corporation (“FDIC”). Heine previously served as the Bank's President and Chief Executive Officer. Heine also was a member of the Bank's Board of Directors (“Board”). Heine left the Bank in September 2014. Yates previously served as the Bank's Executive Vice President and Chief Financial Officer. Yates also was the Secretary of the Board. Yates resigned from the Bank on March 22, 2012.

         On June 24, 2015, a federal grand jury indicted Heine and Yates for conduct related to their time with the Bank. On March 9, 2017, a federal grand jury returned a Superseding Indictment (the “Indictment”), which 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. §§ 2 and 1005.[2] ECF 623. As alleged in the Indictment, between September 2009 and September 2014, 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 public, and the Bank's regulators, including the Federal Deposit Insurance Corporation, which insured the Bank's deposits. 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, all in an effort to conceal the Bank's true financial condition.

         The 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 Bank's 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 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 623 at 4-11, ¶¶ 13-26. The 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 the Bank's loans and assets. Id. at 12-13.

         The 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, 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 to certain charges. In his plea agreement, Walsh accepted responsibility for his role in many of the same acts alleged in the Indictment against Heine and Yates. Walsh is awaiting sentencing.

         STANDARDS

         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 ...

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