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United States v. Litos

United States District Court, N.D. Indiana, Hammond Division

May 28, 2014

UNITED STATES OF AMERICA
v.
MINAS LITOS, et al.

OPINION AND ORDER

PHILIP P. SIMON, Chief District Judge.

The government alleges in this wire fraud prosecution that the defendants committed mortgage fraud by lining up property buyers, then misrepresenting information on loan applications submitted to banks and secretly providing the down payment funds and paying kickbacks to buyers. Defendant Minas Litos intends to argue at trial that, under Bank of America's (the predominant bank victim in this case) policies, the allegedly false information on the applications was disregarded, so even if the information was false, it couldn't possibly have influenced the Bank's decisions to issue the risky loans. To that end, Litos wants the government to turn over any evidence that it may possess indicating that the defrauded banks didn't consider and never intended to consider the allegedly false information in deciding whether to approve the loans. Litos would use these documents to argue that any false information on the applications wasn't material. Magistrate Judge Rodovich denied Litos's motion, and Litos has now appealed that ruling to me.

Because I agree with Judge Rodovich that how these banks actually used the false information relates to reliance, not to materiality, I deny Litos's request. I further deny his request because it appears to seek information possessed by governmental agencies outside of those involved in this prosecution, and those materials are therefore not considered to be in the possession of the government in this case for the purpose of Brady disclosure.

Background

According to the indictment, the defendants Minas Litos and Adrian Tartareanu co-owned and controlled two companies that bought and sold residential properties located mostly in Gary, Indiana. (DE 1 ¶ 1.) Tartareanu's wife, Daniela, was the office manager for one of the companies. (DE 1 ¶ 2.) The defendants convinced people to buy properties by telling them that they didn't have to put up a downpayment and the rental income would cover future costs. (DE 1 ¶ 5.) The scheme involved obtaining home loans from banks by concealing material information in various ways including: 1) submitting false information on applications; 2) providing down payments to buyers through another company Litos owned (and signing closing documents that said they hadn't done that); 3) moving money into buyers' accounts to make them appear more creditworthy; and 4) paying secret kickbacks to buyers. (DE 1 ¶ 6.) Each of the three defendants allegedly attended home closings and signed documents saying the down payments hadn't been funded by the seller. (DE 1 ¶ 2.) The fraudulently-obtained loans totaled over $2.5 million, all of which basically went down the drain when nearly all of the buyers eventually defaulted on the loans. (DE 1 ¶ 7.)

The indictment charges the defendants with one count of conspiracy to commit wire fraud under 18 U.S.C. § 1349 (DE 1 at 3), and sixteen substantive counts of wire fraud under 18 U.S.C. § 1343. (DE 1 at 4-5.)

Litos sought an order requiring the government to provide evidence in its possession indicating that Bank of America didn't consider, and in fact never intended to consider, the allegedly false information as it reviewed loan applications. (DE 42.) There is special emphasis on Bank of America because "[f]ifteen out of sixteen substantive counts lodged against [Litos] here involved loans with" Bank of America, and because the United States has filed a civil case against that bank in North Carolina. However, Litos has added in briefing subsequent to the initial motion that he also seeks information on whether the other relevant banks involved in this case cared about false statements. (DE 68 at 3.) Here is specifically what he said: "Defendant aimed his request initially at [Bank of America] because the government lawsuit against [Bank of America] on its face suggests that the government has access to exculpatory and impeaching evidence relevant to defendant's defense; but the defendant suspects that other banks identified as victims in the conspiracy count were likely operating similarly, and evidence the government has that they were approving loans without caring about the allegedly false statements would be similarly relevant." Id.

In an order addressing several pretrial disclosure issues, Judge Rodovich denied Litos's motion because the information he seeks would bear on what Bank of America actually, subjectively did with the false information, not the objective nature of the information, and actual reliance isn't a required element of materiality. (DE 67 at 2-5.) Litos objects to that decision, arguing that the Seventh Circuit's recent decision in United States v. Phillips, 731 F.3d 649 (7th Cir. 2013), is controlling and that it requires a contrary finding. (DE 68.) The matter is now before me on Litos's appeal of Judge Rodovich's ruling.

Discussion

It should go without saying that prosecutors have a duty to turn over any evidence that is favorable to the defense. United States v. Morales, Nos. 12-3558, 13-1103, 2014 U.S.App. LEXIS 5500, at *1 (7th Cir. Mar. 25, 2014) (citing Brady v. Maryland, 373 U.S. 83 (1963)). Brady therefore mandates that the government disclose "exculpatory material known to the government but not to the defendant. " United States v. Mahalick, 498 F.3d 475, 478 (7th Cir. 2007) (emphasis in original) (quoting United States v. Dawson, 425 F.3d 389, 393 (7th Cir. 2005).

To determine whether the evidence sought here is exculpatory, one must first understand the charges in the indictment. Section 1343 prohibits using interstate wires to obtain money or property through a fraudulent scheme or through false or fraudulent representations. "To obtain a conviction for wire fraud under section 1343, the Government must demonstrate: (1) the defendant's participation in a scheme to defraud; (2) the defendant's intent to defraud; and (3) the defendant's use of the... wires... in furtherance of the fraudulent scheme.'" United States v. Roberts, 534 F.3d 560, 569 (7th Cir. 2008) (ellipses in original) (quoting United States v. Radziszewski, 474 F.3d 480, 484-85 (7th Cir. 2007)) (additional citations omitted).

A scheme to defraud must involve material falsehoods. Neder v. United States, 527 U.S. 1, 20, 25 (1999). Neder was a case - like this one - brought under the wire fraud statute wherein the defendant was accused of fraudulently obtaining bank loans through a variety of false statements. The Supreme Court held that materiality is an element of federal fraud statutes (wire, mail and bank fraud) and the Court went on to define materiality as follows: "[A] matter is material if: (a) a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question; or (b) the maker of the representation knows or has reason to know that its recipient regards or is likely to regard the matter as important in determining his choice of action, although a reasonable man would not so regard it." Id. at 22 n.5 (quoting Restatement (Second) of Torts § 538 (1976)).

The Seventh Circuit has defined "materiality" similarly: "[a] statement is material if it would be capable of influencing the decisionmaker's decision;... there is no requirement that the statement must in fact influence the decisionmaker (that would be reliance). [] Thus, the proper inquiry addresses not the defendant's ability to influence, but rather the nature of the statements made." United States v. Reynolds, 189 F.3d 521, 525 (7th Cir. 1999) (finding no error where the district court in fact barred the defendant from presenting evidence that the bank would not have relied on his representations). What this means is that no one needs to actually be deceived to make out a federal fraud case. United States v. Yoon, 128 F.3d 515, 525 (7th Cir. 1997); see also Roberts, 534 F.3d at 571 ("The materiality inquiry addresses the nature of the statements made rather than the defendant's actual ability to influence the VA's decision to grant veterans' benefits." (italics in original) (citing Reynolds, 189 F.3d at 525)).

The Seventh Circuit Pattern Jury Instructions confirm this notion of materiality. "A false or fraudulent pretense, representation, or promise, ... is material' if it is capable of influencing the decision of the person... to whom it was addressed. It is not necessary that the false or fraudulent pretense, representation, promise, omission, or concealment actually have that influence or be relied on by the alleged victim, as long as it is capable of doing so." Seventh Circuit Pattern Jury Instructions Criminal, 18 U.S.C. §§ 1341 & 1343, Definition of Material ...


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