Former Bank of Oswego CEO asks U.S. District Court to dismiss fraud case
Federal prosecutors have dropped eight of the 27 counts against former Bank of Oswego CEO Dan Heine and CFO Diana Yates in a case that claims the two conspired to hide bad loans from the financial institution's board of directors, shareholders and regulators.
A superseding 19-count indictment, which was filed in U.S. District Court in Portland on Thursday, retains one charge of conspiracy to commit bank fraud but eight fewer allegations of making false bank entries, reports and transactions.
If convicted, Heine and Yates still face a maximum of 30 years in prison for each count, as well as the forfeiture of any money or property obtained as a result of the violations.
The revised list of charges comes exactly three weeks after Heine's attorney, Jeffrey Alberts of the New York law firm Pryor Cashman LLP, filed a motion asking the court to split the cases against Heine and Yates, in part because of what Alberts calls "a lack of evidence against Dan Heine."
Three days after he filed that motion, Alberts asked the court to dismiss the indictment against his client completely, citing prosecutorial misconduct that he called "outrageous" and "prejudicial."
"This misconduct began during the government's investigation, continued during the government's presentation of the case to the grand jury and the arrest of Mr. Heine, and has carried into the litigation of this case," Alberts' motion claims.
Short of dismissal, Alberts urged the court on Feb. 20 to reject specific counts that are "based on no evidence, false evidence and/or improper questioning before the grand jury." The government's superseding indictment was filed with the court on March 9.
Three assistant U.S. attorneys are listed on the indictment as prosecutors in the case: Claire M. Fay, Michelle Holman Kerin and Quinn P. Harrington. On Friday, Kerin told The Review that prosecutors would have no comment beyond a response filed with the court on March 8 that "rebuts and refutes" the arguments contained in Alberts' motions.
Most of the allegations contained in those motions have already been "extensively and tirelessly" argued in court and decided against Heine and Yates, the government's response says, and it asks the court to dismiss them without oral argument.
Alberts' motion to dismiss the entire case focuses on the coordination between regulators from the Federal Deposit Insurance Corporation (FDIC), investigators for the FBI and the U.S. Attorney's Office as it relates to the grand jury that indicted Heine and Yates. Alberts claims the agencies not only violated federal rules of criminal procedure but also concealed those violations.
"While aware that the FDIC was investigating the same transactions as the grand jury, the prosecution team took documents that it obtained through a grand jury subpoena and improperly shared these documents with the FDIC for use in the civil investigation and to advance its own criminal investigation," the motion claims.
During the course of that investigation, the motion says, the FDIC issued a subpoena to Heine, compelling him to testify and be questioned under oath without telling him that the government was contemplating charges against him and without informing him that his statements could be used against him in a later criminal trial — a violation of Heine's Fifth Amendment rights, the motion says.
"Despite knowing that Mr. Heine was represented by counsel," the motion says, "the government repeatedly sought to circumvent Mr. Heine's counsel and improperly question Mr. Heine outside the presence of counsel, both by making recorded calls to Mr. Heine during which he was questioned without the knowledge of his counsel and by questioning him at length outside the presence of counsel following his arrest."
The motion calls into question the government's behavior during Heine's "controlled" arrest in Florida in late June 2015. Rather than taking Heine to federal court, where a judge and his attorneys would be present, agents drove him to "a separate building with a video camera set up and questioned him at length outside the presence of his counsel, despite Mr. Heine's repeated requests to remain silent until counsel was present," the motion says.
It also questions the validity of the arrest warrant that the government used to arrest and question Heine, saying it was "obtained through a blatantly unlawful grand jury proceeding" that prevented grand jurors from properly finding probable cause for an arrest.
The motion singles out the 21-minute-long grand jury testimony of FDIC Special Agent Michael Wixted, who "gave one- or two- sentence summaries of his opinions as to each of these counts, unmoored to any evidence whatsoever."
Wixted's testimony contained "no documentary evidence and no testimony, hearsay or otherwise, concerning observations of anyone with personal knowledge of the matters he tersely described to the grand jury," the motion says. "He also failed to provide any detail" regarding his conclusions — some of which were "simply false," the motion says — and the government presented no "factual evidence whatsoever" to back up some of Wixted's conclusions.
"This is egregiously unjust," the motion says, "and is but one example in a grand jury presentation rife with misconduct and error."
That misconduct alone — including an alleged failure by the government to present any factual evidence to support Wixted's testimony on any of the eventual counts against Heine — warrants dismissal of the indictment, the motion says, because it made it impossible for the grand jury to properly do its job.
The "improper" sharing of information between government agencies also constitutes improper behavior worthy of dismissal, the motion says, as does the handling of Heine's arrest and subsequent questioning.
In its response, the government says there was no abuse of the grand jury process. Grand juries can properly indict suspects on the basis of hearsay, evidence seized in violation of the Fourth Amendment or evidence obtained in violation of the Fifth Amendment, the government says. Unreliable evidence is not a sufficient reason to dismiss an indictment, the response contends, and prosecutors have no obligation to disclose "substantial exculpatory evidence" to a grand jury.
In any event, the response says, the grand jury was not misled and no false testimony was presented to it that would warrant judicial interference in what is supposed to be an independent process.
"Far from being confused or dependent, this grand jury conducted portions of the examination of the witnesses and scrutinized the evidence presented in their quest to find probable cause," prosecutors say. "No fair reading of the transcripts shows otherwise."
The government's response also rejects the allegations of collusion between agencies, saying "there was no government misconduct before the grand jury and no misconduct by the government outside of the grand jury sufficient to dismiss the indictment."
The original 27-count grand jury indictment, which was unsealed on June 24, 2015, and the superseding indictment filed this week allege a complex scheme to hide bad loans from the Bank of Oswego's board of directors, shareholders and regulators from September 2009 through 2014 in an effort to portray the bank's financial condition as much better than it was.
The indictments accuse Heine and Yates of using bank or third-party proceeds to make payments on customers' delinquent loans, mischaracterizing assets in reports to the bank's board of directors and the FDIC, and concealing information about loans made to bank insiders.
The indictments also allege that Heine and Yates made false entries in the bank's reports to the FDIC and to the board of directors about the status of various loans and transactions, although the newest indictment drops eight of the original 26 counts.
Heine has denied any wrongdoing in the past, telling The Review in April 2016 that "the notion that I was personally involved in a scheme or scandal to conceal problem loans and delinquencies from the bank's examiners is preposterous."
Heine told The Review that when he discovered "internal irregularities," he reported them to the board and to federal and state regulators, and said bank officials then "fully cooperated" with the government's two-year investigation.
Alberts now has two weeks to respond to the government's arguments. Unless U.S. District Court Judge Michael Simon agrees to split the cases or to dismiss them entirely, Heine and Yates are scheduled to stand trial in Portland beginning May 2.