Bank Fraud · Evidence

What Is a False Statement Material to a Bank Loan?

How materiality differs from reliance and loss, and which loan records help explain the statement a lender received.

By Heath Hyde · East Texas and statewide

Mr. Heath Enix ‘Heath’ Hyde
Eligible to Practice in Texas
Attorney at Law
Bar Card Number: 00796807
TX License Date: 11/01/1996

Primary Practice Location: Sulphur Springs, TX and Dallas, TX
214 Connally St Ste A
Sulphur Spgs, TX 75482-2612

Direct answer: In a bank fraud case, materiality asks whether a false representation had a natural tendency to influence, or was capable of influencing, the decision. It is a different question from whether the bank relied on the statement or ultimately lost money. The Supreme Court recognized materiality as an element of federal bank fraud in Neder v. United States.

Do not confuse § 1344 with § 1014. The latter is a separate false-statement offense, and materiality is not one of its elements. That is the holding of United States v. Wells. Have your bank fraud defense lawyer check the statute cited in each count and the instructions that apply to it.

Before comparing revenue figures, read the question on the application and the headings on the spreadsheet.

A difference between those figures is not necessarily a falsehood. Give counsel the original application and spreadsheet, the broker’s draft, and the emails showing which figures you corrected or approved. A later bank summary may leave out the labels. Whether the applicant knowingly misrepresented the figures still has to be examined.

The opinion in Neder gives a concrete example. One construction loan required advance sales of 20 condominium units. Neder represented that he had met the condition, but had funded buyers’ down payments himself and arranged for the money to return to him. The presale representation concerned a stated lending condition, not an incidental detail on the form.

Look at the effective date printed on the lending policy. If the manual came out after your loan closed, it won’t tell you much about the rules the loan officer was actually working under. Keep it if it’s the only version you have. Then tell your lawyer the earlier policy is missing, so it can be requested. The approval, and any written exception, belong in the same folder.

Deposition topics: Counsel handling a Texas or federal financial crimes case can use the file to prepare questions for the relevant bank witnesses, whether in an available deposition or another appropriate examination:

• Who entered the disputed number, and who reviewed it?
• Which lending criteria applied on the application date?
• What exception, if any, did the bank approve?
• What other information was already in the lender’s file?
• When did the decision maker receive the disputed statement?

A witness may say that “everything mattered.” Which entry in the committee notes supports that answer? What did the written policy require? Counsel can put those records to the witness instead of leaving the answer at that level of generality. Also check the rest of the loan file for disclosures. Information already supplied elsewhere may bear on the alleged deception; its effect on materiality needs legal analysis.

Advanced analysis: The draw was approved on Tuesday. The email with the disputed attachment went out Thursday. On paper that looks helpful, and sometimes it is. Preserve the timestamps before anything else. Your lawyer then has to run down whether some later decision, such as the actual release of the money, came after Thursday. The same goes for whether anyone at the bank had already seen the attachment by some other route. The government must identify the decision the statement could have influenced. A two-day gap is a reason to dig into the sequence, nothing more by itself.

For an automated decision, identify the rule or software criteria used at the time. For a manual exception, look for the approval and the reason recorded for it. An expert should distinguish potential influence from actual reliance and from later financial loss, instead of treating them as three names for one issue.

If the bank skipped a check it should have made, tell counsel and preserve the record. Poor underwriting is not permission for an applicant to knowingly lie. The representation’s potential influence still has to be examined as part of the federal bank fraud defense.