New or Increased Risk of Loss "Affect" Banks in Wire Fraud Cases

Benjamin Franklin said only two things in life are certain: death and taxes. Regarding the latter, one should also add, don't mess with the IRS.

Someone should have told Willena Stargell.

Stargell formed her own business, Liberty Bell Tax Services, performing tax preparation services for clients. Based on evidence presented at trial, the government claimed that Stargell filed fraudulent tax returns, and obtained refund anticipation loans ("RALs") from banks, based on the returns containing false statements. At issue were 143 tax returns, with Stargell seeking a total of $598,657.00 in refunds. The IRS refunded $276,331.47 to Stargell before they caught on.

Stargell was convicted of several counts of wire fraud affecting a financial institution pursuant to 18 U.S.C. § 1343. On appeal, she argued that the government failed to prove that her actions "affected a financial institution" pursuant to the federal code. The Ninth Circuit did not agree.

Defining "Affects" for Purposes of 18 U.S.C. § 1343

The government argued that because a bank could not recoup the losses of money given in RALs when the IRS stopped a tax refund, that loss affected a financial institution. Stargell argued that on two counts, the bank did not actually lose any money. The court had to determine whether actual loss was necessary, or if the mere risk of loss was enough to have an "effect" on the financial institution.

The Ninth Circuit noted that the Tenth and Seventh Circuits defined "affects" (as defined in a similar statute) to include "new or increased risk of loss to financial institutions." Here, the court noted that banks normally have an RAL loss rate of less than 1%, where Stargell's fraudulent scheme resulted in a 79.9% loss rate. The Ninth Circuit held that "new or increased risk of loss is sufficient to establish that wire fraud 'affects' a financial institution within the meaning of 18 U.S.C. § 1343."

Practical Implications

The Ninth Circuit's Stargell decision makes it much easier for the government to prove a claim of wire fraud. Now, a new or increased risk of loss is sufficient to show that a financial institution was affected. The Ninth Circuit leaned heavily on the sister circuit's interpretation of the word "affect" as applied to a different statute. So, we can take this to mean that Stargell has further implications for similar statues that use the word "affect" as well.

Related Resources:

• Mail and Wire Fraud Conviction Affirmed (FindLaw's U.S. D.C. Circuit Blog)
• Ninth Circuit Court of Appeals Upholds Convictions of Woman Who Was Preparer of Sham Tax Returns (Metropolitan News-Enterprise)
• Fen-Phen Fraud Lawyers Lose Sixth Circuit Appeal (FindLaw's U.S. Sixth Circuit Blog)