                                   REVISED
                    IN THE UNITED STATES COURT OF APPEALS

                             FOR THE FIFTH CIRCUIT



                                 No. 95-20251



UNITED STATES OF AMERICA,
                                                    Plaintiff-Appellee,

                                       versus

JOHN C. RIDDLE,
                                                    Defendant-Appellant.




               Appeal from the United States District Court
                    for the Southern District of Texas

                                January 7, 1997

Before KING and HIGGINBOTHAM, Circuit Judges, and LAKE,* District
Judge.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

        John   C.   Riddle   appeals    his     convictions   for   bank   fraud,

misapplication of bank funds, making false entries, and conspiracy.
Although he argues a variety of points of error, we limit our

discussion to the trial court’s evidentiary rulings.                       We are

persuaded that the cumulative and interactive effect of four

rulings requires that we reverse the judgment of conviction and

remand for a new trial.




    *
     District Judge for the Southern District of Texas, sitting by
designation.
                                         I.

     Riddle opened Texas National Bank–Post Oak on May 7, 1984. He

was chairman of the board and co-trustee of a voting trust that

controlled a majority of the shares.                 Because of unusually high

opening day deposits totaling around $38 million, the Office of the

Comptroller of the Currency (“OCC”) initiated an examination of

TNB–Post Oak only sixty days after the bank was launched.                  An OCC

inspector, Gary Meier, discovered that the bank’s purchases of five

$800,000 loan participations violated its legal lending limit.

Meier expressed to the bank his concern that it was imprudently

relying    on      repurchase    agreements           without     inspecting   the

creditworthiness of the entities that had promised to repurchase

the participations if they went bad.                 He explained to Riddle and

the bank’s board that OCC regulations required banks to review loan

participations as thoroughly as if the bank were initiating the

loan.

     In March of 1985, ten months after opening TNB–Post Oak,

Riddle    opened    a   second   bank,       Texas    National    Bank–Westheimer

("TNB–W").      The criminal charges at issue in this case arose out of

Riddle’s relations with this second bank. As chairman, Riddle held

approximately ten percent of the bank’s stock.                   As with TNB–Post

Oak, a voting trust named Riddle as co-trustee.                  Riddle was not an

officer, but he exercised control over various board members.                  The

board declared that Riddle was not an executive officer.                   But in

November of 1985, the OCC concluded that the board’s declaration

was ineffective because Riddle in fact controlled the bank’s


                                         2
activities, including the activities of Victor C. Bane, the bank’s

president and loan officer.

     The OCC inspected TNB–W in September of 1985 and found a

number of problems.     Its loans-to-debt ratio was an unhealthy 105

percent. The most serious problem concerned loans to insiders. On

opening day, it granted a $400,000 unsecured loan to Riddle, which

immediately put the bank in violation of banking regulations as

well as its own policies.       The next month, Riddle had Bane issue a

$415,000 letter of credit to Rick Dover, Riddle’s real estate

development partner, to satisfy the lender behind one of Riddle’s

commercial real estate projects.                 Dover did not have to post

collateral, and in exchange Riddle granted a 15 percent interest in

the project to Dover.      According to the OCC, the bank failed to

keep proper documentation for transactions with businesses owned by

bank directors.      A full twenty-five percent of the bank’s gross

loans went to insiders or companies related to insiders.                The OCC

inspector discussed the loans-to-insiders violations with Riddle

and the board.    His report listed loans to Riddle in particular as

problematic.

     TNB–W lost money during its first six months.              To remedy this,

the board decided to pursue a strategy suggested by Bane: the bank

would raise    its   interest    rate       on   certificates   of   deposit   to

generate short-term assets.       The strategy worked as planned, and

between September 30, 1985, and December 31, 1985, TNB–W tripled

its assets.    To pay the interest on these certificates, the board

resolved to purchase loan participations.              Riddle suggested that


                                        3
TNB–W turn to Vernon Savings & Loan, a thrift operated primarily by

Don Dixon, the chairman of Dondi Corporation, Vernon’s controlling

shareholder.      Riddle had done personal business with Vernon and

Dixon in the past.    He did not disclose to the board, however, that

he   had   a   personal   business   interest   in   TNB–W’s   purchase   of

participations from Vernon.

      In addition to opening banks, Riddle was involved in real

estate development.       In September of 1984, Riddle and Dover formed

Hickory Creek Joint Venture to purchase a 1230-acre tract west of

Houston called Park Green.      They signed a note for $40 million.       In

the late spring of 1985, they bought an adjacent 230 acres with $13

million in financing.      Vernon bought 35 percent of the first loan;

Western Savings and Loan bought the other 65 percent.           Vernon and

Western also funded the second loan and took a pro rata profit

participation that would take effect upon sale of the property.

      By the fall of 1985, Riddle was having cash-flow problems and

wanted to sell the Park Green property. Another Houston developer,

John Ballis, expressed interest in buying Park Green and proposed

swapping Park Green for a piece of land known as the Superior Oil

tract, which was located closer to downtown Houston and thus was

more desirable for development. Ballis had deposited $1 million to

obtain an option to purchase the Superior Oil tract before December

23, 1985.      On September 24, Riddle and Dover signed a letter of

intent to purchase the Superior Oil tract from Ballis in exchange

for the Park Green property.




                                      4
     At the end of October of 1985, Riddle sought funding for the

Superior Oil deal from Vernon and Dixon. Dixon explained, however,

that regulators had imposed growth restrictions on Vernon and

suggested      that   Riddle    find       another   lender    to   buy   loan

participations from Vernon so that Vernon could finance Riddle’s

project.    In October and November, Dixon and Riddle took a 3-week

European vacation, during which they explored ways to structure

transactions so that Vernon could fund the Superior Oil deal.               At

a November meeting at Dixon’s office, Riddle suggested that Vernon

buy 30 percent of the $78 million loan that Western would issue for

the Superior Oil purchase.       He explained that he would have TNB–W

buy $8.5 million in loan participations from Vernon. Woody Lemons,

Vernon’s president, expressed concern that this would violate bank

regulations governing loans to insiders.             But Riddle nevertheless

went forward with his proposal to the TNB–W board that it buy loan

participations from Vernon.       Riddle brought Bane to Dixon’s office

to work out the details of purchasing the loan participations.

     At November and December meetings, Riddle and Bane urged the

TNB–W   loan   committee   to   purchase      participations    from   Vernon.

TNB–W, however, did not have time to review the quality of the

loans, and Vernon did not include sufficient documentation to

support TNB–W’s purchase.       As it turned out, Vernon’s loans were

delinquent: Vernon had been paying the interest itself in order to

make the loans appear sound.

     Dixon and other Vernon officials were aware of Riddle’s scheme

and acted to see that TNB–W purchased enough participations to


                                       5
allow Vernon to fund the Superior transaction.                 On December 4,

TNB–W’s   loan   committee      recommended   that   TNB–W     purchase   seven

participations from Vernon.        In connection with the loans, Vernon

issued unconditional buyback letters, which guaranteed that Vernon

would pay in case the borrowers defaulted.           Both Vernon and TNB–W

hid these letters from regulators because, as far as the OCC was

concerned, they meant that Vernon had not really reduced its loan

portfolio after all.         TNB–W’s board approved the purchases on

December 17.     At the insistence of Riddle and Bane, the board also

approved the purchase of an additional $6 million in participations

from Vernon.

       Facing the December 23 deadline, Ballis bought the Superior

Oil tract for $64 million on December 17.               After forming the

Regents Park Limited Partnership, Riddle and Dover agreed to buy

the Superior Oil tract from Ballis for $63.1 million.             The closing

took place on December 23, and Ballis bought the Park Green

property for $64.4 million.        Vernon was to fund $23 million of the

$78 million loan that Riddle and Dover needed to finance the

Superior Oil purchase.       But on December 24, Dixon told Riddle that

Vernon would not send the money until TNB–W sent the $6 million

that   had   been   due   the   previous   week   for   loan    participation

purchases.     Bane purchased an additional 21 participations from

Vernon on behalf of TNB–W without approval of the TNB–W board and

wired over $9 million to Vernon during the last week of December.

During that same week, Vernon wired $10.9 million to Western to buy

a participation in Western’s loan to Riddle and Dover.


                                      6
      Bill Plyler, a TNB–W executive vice president, was suspicious

of Riddle’s behavior and asked the OCC to audit TNB–W in late

December of 1985 or January of 1986.                 The OCC was especially

worried about the high concentration of participations purchased

from Vernon and TNB–W’s rapid growth from $10 million to $32

million over the course of three months.              Several board members

confronted Riddle, who denied that his Superior loan from Vernon

had been contingent on TNB–W’s purchase of participations from

Vernon.   In part as a result of the board’s discovery of Riddle’s

conduct, Bane resigned in January, and Plyler replaced him as

president.    In the aftermath of Bane’s resignation, bank officials

discovered that Riddle had caused TNB–W to make a number of

imprudent loans for his own or his friends’ benefit.                     Plyler

insisted that Riddle write a letter to the OCC to explain TNB–W’s

decisions.         Riddle   complied,   but    the    government    ultimately

concluded that the letter contained a number of misrepresentations.

In   April,   an    OCC   examiner   found    that   76   percent   of   TNB–W’s

outstanding loans had become delinquent and recommended that the

bank be declared insolvent.

      Riddle resigned as chairman on June 12, 1986.           On November 13,

the OCC issued a cease-and-desist order for TNB–W to stop its

unsafe lending practices.            After Meier conducted a May, 1987,

examination, the OCC declared insolvency on May 28 and appointed

the FDIC as receiver.




                                        7
                                       II.

     A grand jury indicted Riddle and Bane on one count of bank

fraud under 18 U.S.C. § 1344, one count of misapplication of bank

funds under 18 U.S.C. § 656, three counts of making false entries

in violation of 18 U.S.C. § 1005, and one count of conspiracy in

violation of 18 U.S.C. § 371.

     Gary Meier, the OCC examiner who prepared reports on TNB–Post

Oak in 1984 and on TNB–W in 1987, was one of the prosecution’s

primary witnesses at trial.             Although he testified as a lay

witness,    the   prosecution      elicited   opinions       that   drew    on    his

expertise as a bank examiner.           The court admitted all four bank

examinations under Fed. R. Evid. 803(8)(B) as public reports

prepared as required by law from observations of officials other

than law enforcement personnel. Meier read from these examinations

in spite of the fact that he was not involved in the 1985 and 1986

examinations.        The   court    explained      that    Meier    had    personal

knowledge   of    the    reports   because    he    relied    on    them   when    he

conducted the 1987 examination.         The court disagreed with defense

counsel’s contention that Meier was testifying as an expert.

According to the district court, Meier was a “hybrid lay witness”

who could offer explanations of the four relevant bank examinations

under the guise of lay opinion testimony.                The court admitted his

statements about matters such as OCC policy and sound banking

practices under the rubric of Fed. R. Evid. 701.

     To    counter      Meier’s    testimony,      the    defense    offered      the

testimony of Stephen Huber, an expert in banking regulation who


                                        8
teaches law at the University of Houston.            After holding a proffer

hearing, however, the court barred Huber from testifying “based

primarily on Rule 403.”      Huber had no personal contact with Riddle

or Bane, and the court found that his testimony consisted largely

of   legal   conclusions    and     duplicative     explanations    of   banking

practices.

      The court made a variety of other contested evidentiary

rulings.     It admitted as exhibits a proffer letter and sworn

statement given by Dixon, who had been convicted and imprisoned for

bank fraud in his dealings with Vernon.           The defense read portions

of these documents during cross-examination, and the court granted

the government’s request to admit them in their entirety as prior

consistent statements under Fed. R. Evid. 801(d)(1)(B).               The court

also allowed the government to present evidence that Riddle and

Bane violated civil banking regulations in order to show that they

possessed    criminal      intent     when   they     urged   TNB–W      to    buy

participations from Vernon.         At trial, the defense objected to the

reports of bank examiners, to the cease-and-desist order, to much

of Meier’s testimony, and to portions of the testimony of Woody

Lemons and Bill Plyler, who served as officers at Vernon and TNB–W

respectively, on the grounds that the government improperly used

civil violations to establish criminal violations.                 Finally, the

court   allowed   the   government      to   introduce    evidence       of   four

unrelated loan transactions in which Riddle used his power at TNB–W

for his own personal gain.           The court admitted the evidence as

probative of a plan or motive under Fed. R. Evid. 404(b).


                                        9
     After seventeen days of trial, the jury returned verdicts of

guilty on all counts as to both defendants.       The court sentenced

Riddle to a total of ten years imprisonment and ordered him to pay

four million dollars in restitution.



                               III.

     This was a difficult trial.     The government chose methods of

proof that forced difficult trial rulings.    We are persuaded that

the trial tactics resulted in an unfair trial, despite the hard

work of the able trial judge to assure the fairness our courts must

deliver.

                                A.

     Before Meier began his testimony, the parties and the court

agreed that the prosecution had not designated him as an expert and

that he would not be offering expert testimony.      Counsel for the

government told the court that “what I want this witness to talk

about are the specific facts that he observed.”    This would include

such things as accounts of Meier’s interaction with bank officials

during his examinations and personal observations of bank records

and practices.

     With this assurance, the trial court allowed the government to

proceed. However, with each new trial day the government pushed to

squeeze as much as possible from this “lay witness.”    The result is

clear, certainly now, that during Meier’s two-and-a-half days on

the stand, he wielded his expertise as a bank examiner in a way

that is incompatible with a lay witness.     In connection with his


                                10
examination of TNB–Post Oak, Meier explained that “[a]ccording to

12 C.F.R. 32.5, when repayment is expected from only one source,

then all of the advances must be combined, again, coming from that

one source.”    Over the defense’s objections, Meier expressed his

opinion that it was not “prudent” for a bank to rely on repurchase

agreements issued by banks selling participations rather than on

the creditworthiness of borrowers.         The next day, Meier expressed

his view that bank officers should discuss OCC circulars when the

bank receives them and that the OCC expects officers such as Riddle

to know the contents of circulars.         The defense objected at length

to Meier’s testimony about the OCC’s position on whether a bank

director may bring loans to his bank.            In response, the court

reminded that Meier was not an expert, but that his reports had

been available for some time and that his testimony should come as

no surprise to the defense.          “Even if you do consider him an

expert,” the court noted, “it seems to me that we have satisfied

the requirements of the rule.”

       Meier continued to draw on his specialized knowledge as a bank

examiner.    He testified that it was imprudent “to have the buyback

letter stand separate and apart from the participation certificate

itself with neither referencing the other.” He asserted that TNB–W

violated OCC regulations when it failed to record the fact that

Riddle received proceeds from its purchase of participations.          He

even    speculated   that   unsafe   and    unsound   lending   practices,

including loans to insiders, caused TNB–W’s failure.




                                     11
      Under Fed. R. Evid. 701, a lay opinion must be based on

personal perception, must “be one that a normal person would form

from those perceptions,” and must be helpful to the jury.            Soden v.

Freightliner Corp., 714 F.2d 498, 510-12 (5th Cir. 1983) (quoting

Lubbock Feed Lots, Inc. v. Iowa Beef Processors, 630 F.2d 250, 263

(5th Cir. 1980)).          We have allowed lay witnesses to express

opinions that required specialized knowledge.          In Soden, a witness

in   charge   of   truck   maintenance   testified   that,   based    on   his

experience, step brackets caused the punctures in a fuel tank that

had been brought into his repair yard.        We held that the district

court did not abuse its discretion when it allowed the plaintiff to

introduce such lay opinion testimony.        “No great leap of logic or

expertise was necessary for one in Lasere’s position to move from

his observation of holes in Freightliner fuel tanks at the location

of the step brackets, and presumably caused by them, to his opinion

that the situation was dangerous.”         Id. at 512.       Other circuits

have construed Rule 701 even more broadly.           See Wactor v. Spartan

Transp. Corp., 27 F.3d 347, 351 (8th Cir. 1994) (admitting under

Fed. R. Evid. 701 the opinions of lockmen, “based as they were upon

their years of personal experience, their personal inspection of

the lockline, their participation with Wactor in the stoppage of

the barges, and their positions as the sole eyewitnesses to the

wrapping, fouling, and breaking of the line”); Williams Enterprises

v. Sherman R. Smoot Co., 938 F.2d 230, 233-34 (D.C. Cir. 1991)

(allowing an insurance broker who had personal knowledge of an

insured’s business to offer lay opinion testimony on the cause of


                                    12
an increase in the insured’s premiums); United States v. Fowler,

932 F.2d 306, 312 (4th Cir. 1991) (admitting lay opinion evidence

as to whether a certain government official would know whether

classified budget documents were available to contractors).

     Meier, however, went beyond the lay testimony in Soden, as

well as the testimony in cases from other circuits.     He did not

merely draw straightforward conclusions from observations informed

by his own experience.    Instead, he purported to describe sound

banking practices in the abstract.    He told the jury how the OCC

viewed certain complex transactions.     And he asserted a causal

relationship between Riddle’s alleged wrongdoing and the ultimate

failure of TNB–W.   He functioned not as a witness relaying his own

observations so much as a knowledgeable bank examiner who could

provide the jury with an overview of banking regulations and

practices and who could authoritatively condemn Riddle’s actions.

He did not offer testimony that a lay person would have been able

to offer after conducting the examinations.     The district court

erred in allowing Meier’s testimony under Fed. R. Evid. 701.

     The government insists that Meier was nothing more than a fact

witness because his review of TNB–W files and the 1985 and 1986

examinations gave him personal knowledge of their contents.    It is

true that “[t]he modern trend favors the admission of opinion

testimony, provided that it is well founded on personal knowledge

and susceptible to specific cross-examination.”   Teen-Ed, Inc. v.

Kimball Int’l, Inc., 620 F.2d 399, 403 (3d Cir. 1980).    Based on

this rule, Meier could draw specific conclusions from his work on


                                 13
the 1984 and 1987 examinations, such as that Riddle did not heed

Meier’s 1984 advice on self-dealing.         See United States v. Leo, 941

F.2d 181, 192-93 (3d Cir. 1991) (allowing an auditor to relate the

basis for his opinion that the defendant had altered purchase order

dates in a government contract); United States v. Grote, 632 F.2d

387, 390 (5th Cir. 1980) (allowing an IRS official to compare a

defendant’s tax returns by characterizing some as “acceptable” and

some as “unacceptable”), cert. denied, 454 U.S. 819 (1981).                 But

latitude under Rule 701 does not extend to general claims about how

banks should conduct their affairs.          Meier’s opinions that TNB–W

operated imprudently and that its imprudence caused it to fail

depend on an expert’s understanding of the banking industry.

      The   government    also   contends   that    Meier’s     opinions   were

admissible because the prosecution identified him as a witness long

before trial and provided his reports to the defense.               At trial,

however, the government made a point of presenting Meier as a fact

witness rather than as an expert.          “[A] party cannot seek to have

a witness certified as an expert on appeal when the party did not

seek to have the witness qualified as an expert before the district

court.” Leo, 941 F.2d at 192 (citing United States v. Hoffner, 777

F.2d 1423, 1425 n.1 (10th Cir. 1985)).

                                     B.

      The defense proposed to offer Stephen Huber, a professor at

the   University   of    Houston   Law    Center,   to   show   that   banking

regulations did not require Riddle to disclose his interest in the

Vernon participations and that Riddle and TNB–W adhered to industry


                                     14
standards when it purchased loans from other banks.                     The court

ultimately acknowledged that Meier was mistaken when he stated that

12 C.F.R. pt. 31 required Riddle to report that the purchase of

participations from Vernon would allow Vernon to finance the

Superior Oil deal.        As Professor Huber explained at the hearing,

the regulations do not apply when a bank buys participations from

a thrift.

       The government, then, had to prove that Riddle knew that he

was   doing     something    wrong      even   though    he   was   committing   no

regulatory violation.           Much of Meier’s testimony was an effort to

convince the jury that Riddle encouraged the TNB–W board to engage

in    unsafe    lending     practices     when    he    encouraged    it    to   buy

participations from Vernon.          Had he been allowed to testify, Huber

would    have    told     the    jury    that    TNB–W    handled     the   Vernon

participations in the way that any other bank would have handled

them.    According to Huber, it is difficult for banks buying small

loan participations to acquire documentation from the borrower, so

they routinely rely on buyback letters issued by the selling bank.

       After more than two weeks of testimony, it is understandable

that the court would be wary of allowing the defense to present an

expert witness to testify about the proper interpretation of

regulations and to make general statements about banking practices.

But after giving Meier extensive leeway, the court abused its

discretion in refusing to allow Huber to testify regarding Riddle’s

knowledge that he was doing something wrong in not making the

disclaimer to the board.            Testimony that other banks would have


                                          15
made the same decision to buy the Vernon participations would have

supported Riddle’s contention that any failure to disclose his

interest was not deceitful or even intentional.             With Huber’s

testimony, the defense could have countered some of the damaging

opinions offered by Meier and contained in the OCC examinations.

The loss of Huber’s testimony handicapped the ability of the

defense to tell the jury its own version of how banks operate and

what precautions bankers such as Riddle know they should take.

                                     C.

      According to Riddle, the district court admitted into evidence

a variety of documents that prejudiced the jury.             Among other

things, Riddle objects to the admission of portions of the four

bank examinations, a proffer letter from Dixon’s attorney, and

transcripts of Dixon’s proffer statements.

      During Meier’s testimony, the court ruled that it would admit

those portions of the OCC reports that Meier read from or discussed

during his direct examination.       Riddle argues that the reports are

inadmissible hearsay.       We assume for the sake of argument that the

reports were “matters observed pursuant to duty imposed by law as

to which matters there was a duty to report” and that bank

examiners are not “police officers” or “other law enforcement

personnel.” Fed. R. Evid. 803(8)(B). See United States v. Copple,

827   F.2d   1182,   1189   (8th   Cir.   1987)   (“[Admitting   an   FDIC]

investigation is not improper merely because it seeks evidence that

by its nature could be relevant to a civil as well as to a

potential criminal proceeding.”), cert. denied, 484 U.S. 1073


                                     16
(1988); United States v. Quezada, 754 F.2d 1190, 1194 (5th Cir.

1985) (admitting a warrant of deportation under Rule 803(8)(B)

because it was “prepared in a routine, non-adversarial setting”

rather      than    “from   the   arguably      more    subjective    endeavor    of

investigating        a   crime    and     evaluating     the     results   of   that

investigation”).

      But even if the reports fall under a hearsay exception, Riddle

has a strong argument that their contents prejudiced him and that

some of the reports were not relevant.                 The government’s asserted

purpose in offering the reports was to show that investigators told

Riddle in 1984 that banks should not rely on repurchase agreements

to assure the creditworthiness of loan participations and told him

in   1985    that    bank   officers      may   not    take    advantage   of   their

positions to obtain loans.          We agree that these facts are relevant

to Riddle’s knowledge that his plan to use TNB–W to free up funds

for the Superior Oil project was a violation of law or that he had

some other duty to disclose his project.                       Unfortunately, the

reports conveyed statements and implications that conveyed much

more information to the jury.

      All four reports include sections entitled “Violations of Law

and Regulation.”         The 1984 report limits its criticism of TNB–Post

Oak to its violation of lending limits when it purchased five

$800,000     participations       from    the   same    bank.      Later   reports,

however, contain longer lists of violations and more pointed

criticism      of    TNB–W.       Among    other      regulatory    and    statutory

violations, the 1985 report cites the bank for violation of 12


                                           17
C.F.R. pt. 215.5(c)(3) for the $400,000 loan to Riddle.         The cover

letter to the 1986 report makes an ominous diagnosis:

     Significant law violations were disclosed involving
     insiders.    These included infractions of the legal
     lending limits and repeat violations involving loans to
     insiders, Regulation O. Directors are reminded of their
     potential liability for losses sustained on credits
     exceeding legal limitations.    Satisfactory procedures
     must be implemented to prevent future violations.

The report mentions Riddle in connection with violations of 12

U.S.C. § 375a and 12 C.F.R. pt. 215.5(c)(3).       And the cover letter

to the 1987 report announces that

     [t]he condition of the bank was found to be extremely
     critical. . . . The extremely critical condition of the
     loan portfolio is the direct result of the poor credit
     underwriting standards of the previous management in
     conjunction with insider abuse, suspected fraudulent loan
     transfers, and the rapid and extended deterioration in
     the Houston area economy.

That report included descriptions of violations of TNB–W’s legal

lending limits that contributed in part to the appointment of an

FDIC receiver.

     Introducing   these   documents    into   evidence   did   more   than

provide the jury with evidence that Riddle knew that he should have

come clean with the TNB–W board.    It provided the jury with a four-

year history of Riddle’s banking endeavors that tied him to dozens

of regulatory violations.      It gave the jury reason to connect

Riddle’s 1985 scheme with two gloomy reports issued after his

allegedly criminal conduct was complete.       At bottom, it put Riddle

at the center of a spectacular bank failure.      But Riddle was not on

trial for being an ineffective or even a corrupt banker.         He was on

trial for using his position as a TNB–W officer to convince the


                                   18
TNB–W board to purchase participations from Vernon that would help

him personally and disregarding his duty to disclose his personal

interest in the deal.      The reports — as well as much of Meier’s

testimony drawn from them — were of little probative value on that

score in comparison to the danger of prejudicing, confusing, or

misleading the jury.       See Fed. R. Evid. 403.          Indeed, it is

difficult to understand how the 1987 examination was relevant at

all; its primary purpose seems to have been to allow Meier to

testify based on the 1985 and 1986 reports, which he relied on in

preparing the 1987 report.       We said in United States v. Christo,

614 F.2d   486,   492   (5th   Cir.   1980),   that   “[t]he   government’s

evidence and argument concerning [regulatory] violations . . .

impermissibly infected the very purpose for which the trial was

being conducted — to determine whether Christo willfully misapplied

bank funds with an intent to injure and defraud the bank, not

whether Christo violated a regulatory statute prohibiting the bank

from extending him credit in excess of $5,000.”         The same principle

applies in this case.     The trial court abused its discretion when

it allowed the government to admit extensive evidence about the

OCC’s appraisal of TNB–W’s general health and its failure to comply

with regulations from its inception to its demise.1

     1
      Riddle also calls our attention to the court’s decision to
admit the cease-and-desist order issued against TNB–W on November
13, 1986. The transcript discloses that the court did admit the
order, but the court decided not to send it back with the jury.
The record is unclear on whether the jury ever actually saw the
order. Nevertheless, Plyler testified that the bank received the
order and that it meant that TNB–W had to “stop . . . continuing
with unsafe lending practices.” As we indicated in Christo, 614
F.2d at 495, the mention of irrelevant cease-and-desist orders is

                                      19
     Riddle also objects to the admission of two documents in which

Dixon connects Riddle with banking violations.     The first is a

letter and accompanying memorandum that Dixon’s attorney sent to an

Assistant United States Attorney in which Dixon offers to provide

information about criminal abuses by bank insiders.    The unusual

offer lists seventeen institutions, twenty-nine individuals, and

twenty generic situations involving banking violations.    It does

not, however, indicate which institution or individual corresponds

to which situation.   Thus, Riddle’s name appears as an individual

who could have been involved in a number of crimes at a number of

institutions.   The second is Dixon’s sworn statement used in the

grand jury investigation of Riddle.

     The government moved to admit the letter and memorandum and

the sworn statement under Fed. R. Evid. 801(d)(1)(B) as a prior

consistent statement to rebut the defense’s suggestion that Dixon

fabricated his testimony in order to cut short the prison term he

was serving.    The defense objected that the statement was not

proper rebuttal because Dixon had the same motive to fabricate when

he made the statement and sent the letter as he had in court.

According to the defense, admission under Rule 801(d)(1)(B) would

require a statement made before Dixon had any motive to reduce his

time in prison by pleasing the government.

     At the time of trial, our law did not impose this requirement.

United States v. Parry, 649 F.2d 292, 296 (5th Cir. Unit B 1981).


highly prejudicial. Even if the jury never laid eyes on the order
itself, the government’s reference to the order during Plyler’s
direct examination was ill-advised and should not have been made.

                                20
The   Supreme   Court,   however,    has   since    instructed   that   Rule

801(d)(1)(B) “permits the introduction of a declarant’s consistent

out-of-court statements to rebut a charge of recent fabrication or

improper influence or motive only when those statements were made

before the charged recent fabrication or improper influence or

motive.”    Tome v. United States, 115 S. Ct. 696, 705 (1995).

Consequently, admitting the statement and the letter was an error.

      Apart from the court’s action under Rule 801, admitting the

letter   and    memorandum   was    inflammatory.      According   to    the

memorandum, “many, if not most, of the activities described herein

expose these Insiders to significant criminal culpability.”              By

associating Riddle with more than two dozen alleged white-collar

criminals and a score of criminal scenarios, the memorandum could

easily suggest that Riddle regularly kept company with, as the

memorandum puts it, “good old boys” who make a habit of stealing

from banks.     The trial court erred in admitting such a suggestive

and prejudicial document.

                                     D.

      Nine government witnesses spent at least part of their time on

the stand discussing four unrelated TNB–W loans that supposedly

showed that Riddle systematically withheld information from the

bank in order to direct loan proceeds for his personal benefit.           As

required by United States v. Robinson, 700 F.2d 205, 213 (5th Cir.

1983), the court conducted bench conferences on whether this

evidence had probative value and whether it was unduly prejudicial.

The prosecution viewed the loans as evidence of “other crimes,


                                     21
wrongs, or acts” that showed Riddle’s “motive, opportunity, intent,

preparation, plan, knowledge, identity, or absence of mistake or

accident.”    Fed. R. Evid. 404(b).           For its part, the court stated

that “it’s relevant to motive, to plan, the way he did business,

the things he did.”

     In the first loan, Jim Hague borrowed $350,000 from TNB–W to

buy an apartment complex that Riddle owned and wanted to sell.

Regulators viewed the loan as an illegal extension of credit to

Riddle, but they also concluded in the 1986 examination report that

the violation was a result of a misunderstanding of regulations and

thus was not willful or intentional. TNB–W also loaned $300,000 to

Architects    Alliance,    Inc.,   and       took   an   interest   in   accounts

receivable    and   inventory      as    collateral.          Riddle     was   the

architectural firm’s primary client and owed it more than $500,000.

Riddle also owed thousands of dollars to Richard Weems, who had

done extensive mowing and landscaping work at some of Riddle’s

properties.    At Riddle’s suggestion, Weems borrowed $20,000 from

TNB–W to keep up with operating expenses while waiting for Riddle

to pay his debt.    A fourth extension of credit went to Rick Dover,

Riddle’s real estate partner, who obtained a $415,000 letter of

credit as collateral on a loan issued by a Florida bank to fund the

development of a shopping center.

     The government explained during its closing argument that

these extraneous loans showed “that this was the way that John

Riddle did business.      That tells you about his mental state when he

was entering into the loan participations for the Superior purchase


                                        22
deal.” In other words, the 404(b) evidence was relevant because it

established that Riddle consistently withheld information from the

bank   that   he    knew    he   had    an     obligation   to   disclose.       The

government’s 404(b) theory is in agreement with our analysis in

United States v. Beechum, 582 F.2d 898, 911 (5th Cir. 1978) (en

banc), cert. denied, 440 U.S. 920 (1979):

            Where the issue addressed is the defendant’s intent
       to commit the offense charged, the relevancy of the
       extrinsic offense derives from the defendant’s indulging
       himself in the same state of mind in the perpetration of
       both the extrinsic and the charged offenses.         The
       reasoning is that because the defendant had unlawful
       intent in the extrinsic offense, it is less likely that
       he had lawful intent in the present offense.

The government must present enough evidence to permit a reasonable

jury to conclude by a preponderance of the evidence that Riddle’s

intent in connection with the four extraneous loans was criminal.

United States v. Anderson, 933 F.2d 1261, 1269 (5th Cir. 1991);

United States v. Guerrero, 650 F.2d 728, 734 (5th Cir. Unit A

1981).    Riddle is charged with bank fraud, misapplication of bank

funds, and false entries in the records of a bank, all of which

require     proof    that    the       defendant     knew   he    was   making     a

misrepresentation.         See United States v. Kington, 875 F.2d 1091,

1097 (5th Cir. 1989) (following the rule that in misapplication

cases, “the government must prove that the defendant knowingly

participated in a deceptive or fraudulent transaction” (emphasis in

original) (quoting United States v. Adamson, 700 F.2d 953, 965

(Former 5th Cir. Unit B) (en banc), cert. denied, 464 U.S. 833

(1983))).     In this case, that means that the extraneous loans must



                                          23
make it more likely that Riddle intentionally kept the TNB–W board

in the dark on his personal interest in having TNB–W extend credit.

     Our review of the record convinces us that the government did

not meet its burden.      At most, the evidence suggests that Riddle

took improper advantage of his position to encourage TNB–W to

extend credit unwisely and for the benefit of his non-banking

endeavors.   The    OCC   itself   found   that   any   violation   Riddle

committed in connection with the Hague loan was unintentional.

Walter Beard, a TNB–W director, offered undisputed testimony that

the TNB–W board “had to know” that Architects Alliance had done

extensive work for Riddle because Architects Alliance designed

TNB–W’s building.    And the government’s evidence does not reveal

any deception in Riddle’s role in generating the loan to Weems or

the letter of credit to Dover.     As far as the record is concerned,

Riddle simply suggested that various business associates apply for

loans at TNB–W.    Some of Riddle’s associates needed money because

he was unable to keep up with his debts, but that does not by

itself mean that Riddle intended to deceive or defraud the bank.

David Hall, a partner at Architects Alliance, testified that Victor

Bane instructed him to submit his firm’s records of accounts

receivable in a format that excluded Riddle’s name because “it

might reflect poorly” on Riddle if TNB–W knew that Riddle owed so

much money to Architects Alliance.      The insinuation, of course, is

that Bane was acting under Riddle’s instructions.        Riddle may also

have used Bane to hide his debt to Weems and his involvement in

real estate ventures with Dover to convince TNB–W to extend credit.


                                   24
But without evidence from government witnesses, we are not willing

to allow the jury to make such an attenuated inference.

      The government’s 404(b) evidence certainly makes Riddle out to

be   an irresponsible        banker    who       paid   little    attention   to   OCC

warnings.     But Riddle was not on trial for irresponsibility.                    He

was on trial for bank fraud, misapplication of bank funds, and

making false entries.        Even if illegal, Riddle’s extraneous self-

serving banking practices are irrelevant under Rule 404(b) unless

they tend to show that he systematically withheld vital information

from the TNB–W board.        By allowing the jury to consider these four

loans, the     trial    court   made       the    mistake    of   treating    general

evidence of poor banking as if it were evidence of Riddle’s

criminal intent to mislead TNB–W’s board of directors.

      Even if the extraneous loans were relevant to the government’s

case against Riddle, they failed to meet the second prong of the

Beechum test: “the evidence must possess probative value that is

not substantially outweighed by its undue prejudice and must meet

the other requirements of rule 403.”                    Beechum, 582 F.2d at 911.

Unduly prejudicial extraneous evidence often plays on the jury’s

emotions unfairly, but “[p]rejudice can result from any of the

significant factors set out in Rule 403, of which inflamed passion

is only one.”       United States v. Zabaneh, 837 F.2d 1249, 1265 (5th

Cir. 1988).     These other factors include confusion of the issues

and misleading the jury, Fed. R. Evid. 403, and they are especially

troubling    when     they   take     up     a    significant      portion    of   the

government’s case. See Zabaneh, 837 F.2d at 1265-66 (remanding for


                                           25
Robinson findings where a “substantial portion” of the evidence

involved extrinsic offenses and registering concern that “[o]ne

witness’s testimony pertained in its entirety to such an offense”).

      The court’s limiting instructions can “substantially reduce”

the danger of prejudice, United States v. Buchanan, 70 F.3d 818,

831-32 (5th Cir. 1995), cert. denied, 116 S.Ct. 1340 (1996), but in

this case    they   did    not   counteract   the   prejudicial     effect    of

allowing government witnesses to testify about the extraneous loans

for a total of more than a full day.          The government called James

Hague, David Hall, and Richard Weems for the sole purpose of

explaining how Riddle had wronged them in connection with the

extraneous loans.        In each instance, it was clear that the witness

had a gripe against Riddle that had nothing to do with the charged

offense.     Rick Dover, Walter Beard, William Plyler, and bank

examiner Meier also went into the details of the loans.                      The

government analyzed each loan individually during its closing

argument to remind the jury that Riddle was “manipulating people

and   the   bank   for    his   personal   benefit.”    And   the   1986     OCC

examination contained detailed descriptions and criticisms of the

Hague and Architects Alliance loans.

      When extraneous activity receives such intense, unfocused

attention, it is too likely that the jury will “feel that the

defendant should be punished for that activity even if he is not

guilty of the offense charged.”            Beechum, 582 F.2d at 914.          In

explaining relevance under the general category of “the way he did




                                      26
business, the things he did,” the court itself demonstrated that

the evidence of extraneous loans is powerful not so much because it

tends to establish Riddle’s motive or scheme, but because it paints

Riddle as lacking the character of an upstanding businessman.2    The

government’s extensive and undiscriminating use of the extraneous

loans was misleading to the jury, not because the jury was not

discerning but because the evidence was offered in such a large and

unchecked way that its permissible limited use was overwhelmed.



                                  IV.

     We have found four errors:    allowing Meier to testify as a lay

witness, barring the testimony of Professor Huber, admitting the

OCC bank examinations and the Dixon documents, and admitting

testimony about four extraneous loans.       We ask now whether these

errors were so harmful that they mandate reversing the conviction.

     Turning these rulings in a different direction would have

produced a very different trial.        Instead of hours of testimony

about extraneous loans, Professor Huber would have given his

opinion that Riddle and TNB–W operated in the way that any bank


      2
       Riddle makes much of the trial court’s statement from the
bench that “it’s relevant to the issue of the character, the
government has to prove intent, knowledge, motivation, opportunity,
all those things, and it’s not inflammatory, it’s not unduly
prejudicial if you weigh it in terms of what the government has to
prove, so I’m going to let it in.”      According to Riddle, this
indicates that the court improperly admitted the evidence as
general character evidence. We do not base our decision on the use
of the word “character.” It appears that the court merely changed
its direction of the sentence mid-stride; we will not interpret
judges uncharitably when they make extemporaneous remarks from the
bench.

                                  27
would have operated.   Instead of reading the OCC’s and Dixon’s

claims that Riddle violated banking regulations, the jury would

have focused on the narrow question of Riddle’s intent when he kept

silent about his interest in the Vernon participations. Looking at

the cumulative effect of the errors, we are persuaded that they are

not harmless and require a new trial.    We express no view as to

whether any one of the errors standing alone would be sufficient to

justify reversal.

     The judgment of conviction of John C. Riddle is reversed, and

the case is remanded for a new trial.

     REVERSED and REMANDED.




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