Lost amid the flurry of the Supreme Court’s end of term decisions on recess appointmentscell phone privacy and contraception coverage is the Court’s dip into the federal bank fraud statute, 18 U.S.C. § 1344, in Loughrin v. United States. We no doubt share your surprise that the Twitterverse didn’t take to the streets in uproar over the Loughrin decision. Yet, notwithstanding the lack of attention, the decision merits more than simply a passing reference as it expands the reach of the federal bank fraud statute.

Let’s jump into it. Loughrin foraged for checks in residential mailboxes and then forged the checks, changing the payee to retailers, including Target. He used the checks to purchase merchandise, and then, shortly thereafter, walked back inside the store to return the goods for cash. When his scheme was uncovered, the government charged Loughrin with bank fraud. The federal bank fraud statute provides:

Whoever knowingly executes, or attempts to execute, a scheme or artifice–

  1. to defraud a financial institution; or
  2. to obtain any of the money, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution by means of false or fraudulent pretenses, representations or promises;

shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

18 U.S.C. § 1344. Loughrin argued unsuccessfully at trial that to be convicted under § 1344(2) requires proof of an intent to defraud a financial institution. He contended that his intent to defraud ran only to Target and not to the banks on which the checks were drawn and thus he could not be convicted.

In a unanimous decision, the Court rejected Loughrin’s argument, holding that the government need not prove such an intent. The reasoning: that sections (1) and (2) are distinct and thus, while there must be an intent to defraud a financial institution in a prosecution of section (1), there need not be such an intent for section (2).

Perhaps more significant, however, is the Court’s subsequent divided discussion on the implications of this holding. Although Justice Kagan (for the majority) and Justice Scalia (with Justice Thomas) agree that the holding should not turn every fraud using a check into a federal offense, that is the extent of their agreement. Ultimately, Justice Kagan focuses on the “by means of” language of § 1344(2), concluding that the bank fraud statute reaches only where the fraudster’s deception is transmitted to the financial institution. In this case, the falsity – the altered check – was presented to the bank and thus was the instrumentality of collecting the funds. In contrast, Justice Kagan rejected application of the bank fraud statute to a hypothetical of a buyer using a check to purchase a knock-off Louis Vuitton bag from someone claiming it was legitimate. In that case, the bank’s involvement is, as Justice Kagan says, “wholly fortuitous” and the lie (that the bag is real) never makes it to the bank. This “by means of” textual limitation is, however, too much for Justice Scalia, who contends that the Court should leave this discussion “for another day.”

Future days will indeed be necessary before the breadth of the bank fraud statute plays out. That said, the Court’s refusal to impose an “intent to defraud a financial institution” on subsection (2) of the bank fraud statute opens the door for additional federal prosecutions.