In United States v. Calk, the Second Circuit (Calabresi, Lohier, Nathan) affirmed the conviction of Stephen Calk for one count of financial institution bribery and one count of conspiracy to commit financial institution bribery.  On appeal, the Second Circuit rejected Calk’s claims that (i) his actions were not “corrupt” for purposes of the financial institution bribery statute (often called the bank bribery statute), (ii) assistance in arranging an interview for a political appointment does not constitute a “thing of value” worth more than $1,000 under the financial institution bribery statute, and (iii) the district court should have excluded the testimony of a witness obtained through the improper use of a grand jury subpoena.  In the case of each argument, the panel seemed to recognize that the government’s case was flawed in significant ways, although in the end the Court affirmed.

Background

Calk was the Chairman and Chief Executive Office of The Federal Savings Bank (“TFSB”) and the principal shareholder of National Bancorp Holdings, Inc., which owns The Federal Savings Bank.  In 2016, Paul Manafort, a lobbyist, political consultant, and the chairman of the Trump Campaign, approached TFSB for a loan on several occasions, but routinely encountered technical and regulatory challenges with each loan application.  Instead of denying Manafort’s loan applications due to these issues, TFSB managed to resolve each challenge at Calk’s express instruction or consent, and Manafort was approved for three multi-million-dollar loans. 

In the original Indictment, the government charged a single count of bribery of a financial institution.  The government alleged that Calk took advantage of his position as the Chairman and CEO of TFSB and facilitated the approval of Manafort’s loan applications in exchange for Manafort’s political assistance in helping Calk in his efforts to secure a position within the Trump Campaign and, later, the Trump Administration.  In January 2017, Calk interviewed with the Trump Transition Team in New York City for the position of Under-Secretary of the Army, but ultimately was not appointed to this or any position in the Trump Administration.  Prior to trial, after presenting testimony from a single additional witness to the grand jury, the grand jury returned a superseding indictment containing a second count: conspiracy to bribe a financial institution.

After trial in the summer of 2021, the jury returned a verdict of guilty on one count of financial institution bribery in violation of 18 U.S.C. § 215(a)(2) and one count of conspiracy to commit financial institution bribery in violation of 18 U.S.C. § 371.  Calk was sentenced to 366 days’ imprisonment followed by two years of supervised release, along with a $1.25 million fine.

Appeal

In a matter of first impression, this case required the Second Circuit to interpret the scope of the financial institution bribery statute, which makes it illegal for “an officer, director, employee, agent, or attorney of a financial institution’ to ‘corruptly solicit[] or demand[] for the benefit of any person, or corruptly accept[] or agree[] to accept, anything of value from any person, intending to be influenced or rewarded in connection with any business or transaction of such institution.”  18 U.S.C. § 215(a)(2).  In particular, the Second Circuit determined what constitutes “corrupt,” what constitutes a “thing of value,” and how to determine whether a “thing of value” is greater than $1,000, which is necessary for a felony conviction under the financial institute bribery statute. 

“Corrupt” Conduct

The Second Circuit first considered what constitutes “corrupt” conduct for purposes of the financial institution bribery statute.  Calk argued that to prove he acted “corruptly” within the meaning of Section 215(a)(2), the Government had to demonstrate that he breached his duty to act in the bank’s best interest.  He also claimed that he did not act “corruptly” because his actions were ultimately beneficial to TFSB. 

The Second Circuit disagreed, holding that “‘corrupt’ conduct describes actions motivated by an improper purpose, even if such actions (a) did not entail a breach of duty, and (b) were motivated in part by a neutral or proper purpose, as well as by an improper purpose.”  Section 215(a)(2) protects the public’s trust in financial institutions, and focusing on whether the transaction at issue led to a profitable outcome for the financial institution takes too narrow a view of the statute’s intended purpose.  Thus, even though TFSB turned a profit on two of the Manafort loans, TFSB was improperly influenced to approve the loans in exchange for Manafort’s political assistance in securing Calk an interview with the Trump Transition Team.  “A profitable financial operation, like a correct judicial decision, if improperly influenced by bribery or corruption, can lead to an erosion of the public trust in the relevant institution that Congress sought to protect.”  Similarly, there is no requirement that one’s conduct be motivated purely by an improper purpose; rather, an improper purpose can be paired with a neutral or proper purpose and still be considered corrupt for purposes of the financial institution bribery statute.  In the Court’s view, even conduct motivated partly by a legitimate purpose and that led to no harm to the financial institution, still can support a charge of bank bribery. 

The Court also briefly rejected Calk’s related argument that the government adduced insufficient evidence that he “corruptly” solicited or accepted a thing of value, pointing to evidence that Calk expedited approval of Manafort’s loans despite being aware that Manafort had defaulted on prior loans and that some of his properties were in foreclosure.  This was sufficient evidence for the Court to conclude that the loans were made in exchange for Manafort’s support of Calk’s political aspirations.

“Thing of Value” Worth More Than $1,000

The Court next addressed Calk’s argument that his convictions must be reversed because a “thing of value” pursuant to 18 U.S.C. § 215(a)(2) must have “objective market value” and cannot be based on intangibles or items with subjective value to Calk himself.  The Court rejected Calk’s arguments, holding that “the ‘thing of value’ may cover subjectively valuable intangibles, such as political assistance, including endorsements, guidance, and referrals” and it “may be measured by its value to the parties, by the value of what it is exchanged for, or by its market value.”  The only question that mattered to the panel was whether the thing being provided had a subjective value to the defendant, and here it found sufficient evidence that “Calk assigned a high, subjective value to Manafort’s political assistance.”

The Court also turned aside Calk’s contention that the assistance offered by Manafort was not worth more than $1,000.  The Court’s ruling was unusual in a significant regard:  in little more than a sentence, the Court rejected the government’s argument that the assistance was more than $1,000 because Calk spent $1,800 to travel to New York for his interview with the Trump Team.  This was the government’s central argument at trial and on appeal.  The panel recognized that this argument did not withstand scrutiny, as the $1,800 only measured how Calk valued the interview and his decision to stay at a luxury hotel. 

Despite finding the government’s argument to be devoid of merit, the panel still affirmed.  The Court reasoned that Calk placed a great subjective value on Manafort’s political assistance in pursuit of an appointment to a position in the Trump Administration, as demonstrated by his willingness to put the health of TFSB, the financial institution of which he was the chairman and CEO, at risk by putting millions of dollars of its resources on the line by approving Manafort’s loans.  Calk overlooked the various regulatory and technical obstacles in Manafort’s loan applications in order to better his chances at receiving an appointment in the Trump Administration.  This, according to the Second Circuit, was sufficient to establish that Manafort’s political assistance was indeed a “thing of value” worth more than $1,000 under Section 215(a)(2).

Grand Jury Proceedings

Finally, Calk challenged the government’s use of a grand jury subpoena issued to a witness, retired Army Major General Randall Rigby, long after Calk had already been indicted on one count of financial institution bribery.  The government identified Rigby as a potential witness months before Calk was initially indicted, but Rigby refused to meet with the government on an informal basis.  Only as Calk’s trial date was quickly approaching nearly two years into the case did the Government issue a subpoena to Rigby seeking his grand jury testimony. 

Calk claimed that the government impermissibly issued the grand jury subpoena to Rigby so it would have a preview of Rigby’s testimony if it called him as a trial witness, allowing the government to be better prepared for trial.  This would have been a violation of the rule that the grand jury may not be used to investigate indicted crimes.  According to the government, the grand jury subpoena was intended to support its investigation into a conspiracy charge, which eventually formed the basis of the second count of Calk’s superseding indictment. 

The Second Circuit recognized that this was an unusual use of the grand jury and agreed that “Calk presented valid reasons to question the propriety of the grand jury subpoena.”  This is an indication of the strength of Calk’s claim.  However, the Court concluded that these reasons were insufficient to overcome the presumption of regularity afforded to grand jury proceedings.  The Government pointed to evidence showing that prior to Rigby’s testimony, it carried doubts as to the viability of the conspiracy claim because it doubted its ability to establish that there was a “meeting of the minds” between Manafort and Calk.  Additionally, the Government submitted an affidavit in which it explained that “because the Government did not wish to create a litigation risk by causing further delay, it did not pursue the conspiracy count until the district court issued its final adjournment.”  In light of this affidavit, the Second Circuit concluded that “[t]he otherwise suspicious timing of the Rigby subpoena, therefore, reflected instead the prosecution’s ongoing doubts regarding the viability of the conspiracy claim.”  Most of all, the panel concluded that the fact that the grand jury did return a superseding indictment after Rigby’s testimony “len[t] further plausibility to the Government’s claim that the grand jury proceeds and the Rigby subpoena were part of a proper ongoing investigation.”

Commentary

It is not hard to imagine this close case having ended with a reversal on appeal.  The panel sat with the case for more than six months before deciding it, after a lively oral argument with extensive questioning of both counsel. 

To begin with, this case involved what seemed like a stretch of the bank bribery statute to cover a most unusual set of facts.  It will not often be the case that charges are brought when a bank makes a money-good loan in exchange for assistance in getting a job interview for a bank executive.  Not everything needs to be made into a federal case, and the type of corruption alleged here is not what ordinarily gives rise to bank bribery charges.  Indeed, as the panel seemed to appreciate, the evidence that Calk acted contrary to the bank’s interest was not overwhelming, and the transactions were ultimately profitable for the bank.  In addition, there was evidence that Calk’s decision to make the loan was motivated in part by a desire to see the bank profit from extending loans to Manafort, who was paying interest on these loans.  The Court also outright rejected the government’s argument about how to value Manafort’s assistance, concluding correctly that it should not matter that Calk’s trip to New York cost him $1,800 in travel expenses.  A contrary ruling—that the interview was not worth $1,000 or more—would mean that Calk would have faced a felony only due to the fortuity of his apparent penchant for luxury travel.

All of this suggests that the case was not brought to protect the public’s confidence in the integrity of financial institutions, as the panel suggested at one point.  After the mortgage crisis of 2008, it is hard to imagine that Calk’s prosecution would restore that diminished faith.  Rather, the case was brought because the charges related to the notorious and corrupt Trump campaign manager, Paul Manafort.  If the case had involved a bank manager who gave a money-good loan in order to help his son get an interview to work as an intern for a publishing house, one wonders if the government would ever have brought the case in the first place.

On the last issue discussed by the panel, the New York Council of Defense Lawyers (of which one of the authors of this blog post is a member) submitted an amicus brief to express serious concern with the government’s use of the grand jury.  The Court did recognize that Calk had a point here:  the timing of the Rigby subpoena was suspicious.  Rigby refused to meet with the government informally, and so the prosecutors tried to persuade him to meet by threatening him with a grand jury appearance.  Everyone agreed that Rigby’s testimony was inconsequential and did not “change the course of the investigation.”  Indeed, the conspiracy count did not “directly incorporat[e] any of Rigby’s testimony.”  So why, in the face of all of this suspicious background, did the Court take an affidavit from a prosecutor as sufficient to reject the claim of grand jury abuse?  One can only hope that prosecutors will take this decision as a warning not to use the grand jury to investigate indicted offenses in the future.