Sixth Circuit vacates bank fraud conviction

Sixth Circuit vacates bank fraud conviction

Seal Us court of appeals
In a surprising development, the 6th Circuit Court of Appeals ordered that a Tennessee businessman’s conviction for bank fraud be vacated. The 6th Circuit in the case, U.S. vs. Parkes, held that the jury convicted Timothy Parkes with insufficient evidence of guilt beyond a reasonable doubt. The 6th Circuit also held that the lower court improperly excluded motive evidence critical to the defense. 

Mr. Parkes’ business made car floor mats and, in the course of conducting that business, borrowed money from a local bank. The business suffered enormous losses when a new manufacturing process failed, resulting in the mats melting in intense summer sun. The business eventually decided to begin importing its mats from China, and essentially acted as a distributor. This decision allowed the business to keep going, but it still owed more than $2 million to the bank. 

The bank also honored bounced checks of the business, essentially converting those amounts into new loans. Soon the loan size exceeded lending limits. To avoid FDIC scrutiny, the bank president falsified entries on its books to make it appear that the amount loaned had gone to several different shell companies. Prosecutors charged Mr. Parkes with participating in the scheme based on a vague fax from the business to the bank. However, there was no evidence that Mr. Parkes was the author of the fax, which was subject to a few alternate explanations. In addition, although the bank president pleaded guilty pursuant to a plea agreement requiring cooperation, the government never introduced his testimony to establish that Mr. Parkes intended that fraudulent bank entries be made.

What the jury did not hear was that the bank president had been embezzling from the bank for years. He may have made the false entries on his own to avoid triggering FDIC scrutiny of his own malfeasance. In addition, the jury did not hear how the bank president had concealed loans exceeding limits from other businesses. Critically, of course, this would have explained to the jury why the bank president might have done this for Mr. Parkes’ business without Mr. Parkes’ intending that it be done. 

The lower court excluded all of this, saying that telling the jury that the bank president was an embezzler would discredit any testimony that he might give. The 6th Circuit held that it was relevant to Mr. Parkes’ defense in that it spoke to his motive, or lack thereof. The Court of Appeals also held that the relevance of an item has to be judged in relation to the specific issues present in the case. What may be unfairly prejudicial in one case could be pertinent in another. 

The 6th Circuit, acting through Judges Ray Kethledge, Jane Branstetter Stranch, and District Judge James Gwin, ordered that Mr. Parkes’ conviction be vacated, and that an acquittal be entered.

Click here to view the full opinion.

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