What, a Fraud?: 9th Circuit Finds Evidence of Ability to Repay Irrelevant in Fraud Trial

Assume that defendants are charged with defrauding investors. Should those defendants be able to present evidence that they had the money to repay the investors as circumstantial evidence that they had the ability to repay the investors? That was the question addressed by the Ninth Circuit in its recent opinion in its recent opinion in  United States v. Sawyer, 2014 WL 4401951 (9th Cir. 2014).

In Sawyer, Kevin and Tamara Sawyer,

a husband and wife, were charged in a twenty-one count indictment with conspiracy, wire fraud, bank fraud, making false statements to a financial institution, and money laundering. The charges stem[med] from alleged real estate investment fraud and mortgage fraud schemes.

Prior to trial, the judge granted the prosecution’s motion in limine excluding evidence of defendants’ ability to repay the investors in the schemes, prompting the defendant to enter conditional guilty pleas.

After they were convicted, the defendants appealed, claiming that the court erred in deeming this evidence inadmissible. The Ninth Circuit disagreed, concluding that

evidence of defendants’ intent or ability to repay as irrelevant under Federal Rule of Evidence 401. The ability to repay is irrelevant because to prove fraud, the government only needed to show that the Sawyers intended to deceive investors about where and how they intended to use the money. The Ninth Circuit, as well as every other circuit court to address the issue, has determined that a defendant’s intent to repay his or her victims is not a defense to criminal fraud charges. See United States v. Treadwell, 593 F.3d 990, 997 (9th Cir.2010) (“The intent to induce one’s victim to give up his or her property on the basis of an intentional misrepresentation causes ‘harm’ by depriving the victim of the opportunity to weigh the true benefits and risks of the transaction, regardless of whether or not the victim will suffer the permanent loss of money or property.”); United States v.. Oren, 893 F.2d 1057, 1062 (9th Cir.1990) (“[O]ne defrauds another when he causes him to be ‘deprive[d] … of property by means of false … representations.” ’) (quoting Carpenter v. United States, 484 U.S. 19, 27 (1987) (alteration in original)); United States v. Benny, 786 F.2d 1410, 1417 (9th Cir.1986) (“While an honest, good-faith belief in the truth of the misrepresentations may negate intent to defraud, a good-faith belief that the victim will be repaid and will sustain no loss is no defense at all.”). Whether they could pay investors back is irrelevant because it does not make a fact of consequence (intent to deceive) more or less probable than it would be without the evidence. 

Moreover, the court concluded that

Even if evidence of the Sawyers’ ability to repay were relevant, it was excludable under Federal Rule of Evidence 403 because the probative value of the proffered evidence was substantially outweighed by the danger that the jury would be confused or misled. In the district court’s words, admitting the evidence would have likely “confuse[d] the jury” and “give[n] them a chance to commit error.”

-CM