                 United States Court of Appeals
                            For the Eighth Circuit
                        ___________________________

                                No. 12-3332
                        ___________________________

                             United States of America

                        lllllllllllllllllllll Plaintiff - Appellee

                                           v.

                               John Anthony Markert

                      lllllllllllllllllllll Defendant - Appellant
                                      ____________

                     Appeal from United States District Court
                    for the District of Minnesota - Minneapolis
                                   ____________

                             Submitted: June 14, 2013
                             Filed: October 22, 2013
                                 ____________

Before LOKEN, BRIGHT, and BYE, Circuit Judges.
                           ____________

LOKEN, Circuit Judge.

       Bank President John Markert approved five nominee loans by the bank to
friends and family of bank customer George Wintz. The proceeds were used to cover
a $1.9 million overdraft in a Wintz checking account at the bank caused by the
collapse of Wintz’s fraudulent check-kiting scheme. After the fraud was discovered,
Markert and Wintz were charged with bank fraud, 18 U.S.C. § 1344; five counts of
willful misapplication of bank funds by a bank officer, 18 U.S.C. § 656; and aiding
and abetting and conspiring to commit those offenses. After a lengthy trial and three
days of deliberations, the jury convicted Markert of willful misapplication but
acquitted him of bank fraud. The jury convicted Wintz of bank fraud but acquitted
him of aiding and abetting willful misapplication, and it acquitted Gregory Pederson,
the commercial loan officer involved in the transactions, of all charges. At
sentencing, the district court found that Markert’s offenses caused a loss equal to the
total amount of the five nominee loans (approximately $1.9 million), resulting in a 16-
level guidelines enhancement, and sentenced him to 42 months in prison. Markert
appeals his conviction, arguing there was insufficient evidence and jury instruction
error, and his sentence, challenging the court’s calculation of loss. We affirm the
conviction but agree loss was erroneously calculated and remand for resentencing.

                                  I. Background
       We summarize the evidence at trial viewed in the light most favorable to the
jury verdict. See United States v. Thomas, 422 F.3d 665, 667 (8th Cir. 2005). In
2007, Markert was named President and CEO of Pinehurst Bank (“Pinehurst” or “the
Bank”), a small bank in Saint Paul. Prior to joining Pinehurst, Markert was President
of Northstar Bank, a community bank with branches in suburban Roseville and White
Bear Lake. As Pinehurst’s President, Markert had unilateral authority to approve
loans up to $250,000 to any one customer. Loans totaling between $250,000 and
$500,000 required approval by a majority of a four-person Officer Loan Committee
(“OLC”) dominated by Markert and officers he recruited from Northstar. Loans
totaling over $500,000 required approval by the Bank’s Board of Directors.

      Markert brought to Pinehurst his long-time friend and bank customer, George
Wintz, the owner of trucking and warehouse entities named McCallum Transfer,
Triangle Warehouse, and Cue Properties. Wintz opened two business checking
accounts at Pinehurst, one for McCallum Transfer and one for Cue Properties; he left
Triangle Warehouse’s account with Northstar. Markert approved a series of loans to
Wintz, quickly reaching the $250,000 limit of his unilateral lending authority. Wintz

                                         -2-
soon reached the $500,000 limit of the OLC and sought additional loans. Markert
personally vouched for Wintz, informing the Board that he had been Wintz’s banker
for twenty-one years. The Board approved additional loans. By February 2009,
Wintz reached the Bank’s legal lending limit of nearly $1.2 million. JoAnn Crowley,
who had been Pinehurst’s Chief Financial Officer since the Bank opened in 2004,
repeatedly warned Markert that Wintz may be “kiting checks,”1 using a system that
allowed him to make deposits without coming to the bank. These concerns went
unheeded. Indeed, Markert fired Crowley.

      In early March, Northstar employees discovered that Wintz was kiting checks
between his accounts at the two banks. On Thursday, March 5, Northstar returned to
Pinehurst fifteen checks totaling nearly $1.9 million due to insufficient funds. Wintz
had drawn these checks on his Triangle Warehouse account at Northstar and deposited
them into his McCallum Transfer account at Pinehurst, which had credited the
deposits. With the deposit checks dishonored by Northstar, Pinehurst faced a nearly
$1.9 million loss on Wintz’s overdrawn McCallum Transfer account. On Saturday,
March 7, Markert and Wintz met with two of Wintz’s friends, both of whom had
previously lent Wintz money, to ask for additional loans. Without disclosing the
check-kiting, Markert advised that Wintz’s account at Pinehurst was overdrawn, and
he was over the Bank’s lending limit. Markert said the Bank could fail, ending
Markert’s banking career, unless Wintz came up with money to cover the overdraft.
The friends expressed sympathy but refused to lend Wintz more money.




      1
       Check kiting is a form of fraud designed to utilize the time, or “float,” needed
for one bank to collect on checks drawn on accounts at other banks. By transferring
funds between accounts at different banks using checks not supported by sufficient
funds, the kiter fraudulently inflates the account balances, enabling him to write
checks to third parties that the unsuspecting banks pay until the scheme is exposed.

                                         -3-
     What Markert did next formed the basis for his misapplication conviction. By
Monday, March 9, Wintz had persuaded five friends and family members to sign
documents obligating them to repay the following loans by Pinehurst Bank:

      C      William McDonald, Wintz’s friend and former banker at
             Northstar, borrowed $200,000. McDonald was led to believe that
             Wintz needed a short-term loan to make payroll. Wintz’s
             overdraft and check-kiting were not disclosed.

      C      Julianne Lenertz, Wintz’s former girlfriend, borrowed $350,000,
             ostensibly to pay taxes owing from her sale of a business to Wintz
             in 2007 that Wintz had agreed to pay. Lenertz testified she knew
             nothing about the terms of the loan.

      C      Lance Edlin, Lenertz’s brother, borrowed $350,000, believing he
             was co-signing a loan to help pay his sister’s tax debt. He knew
             nothing of Wintz’s overdraft or check-kiting.

      C      Nancy Cook, Wintz’s long-time secretary, borrowed $500,000 in
             the name of Triangle Logistics, a company that Wintz “gave” to
             Cook in 2004. Cook testified that she agreed to borrow money
             but did not know why Wintz needed it. She did not know the
             amount of the loan or the interest rate before arriving at the Bank
             on March 9.

      C      Debra Strom, Wintz’s daughter, borrowed $500,000 in the name
             of Win Properties, another Wintz-owned company. Wintz made
             her President of Win Properties so she could sign loan documents.

Although the nominal borrowers signed loan documents obligating them to repay,
each understood that Wintz was the real borrower and would be responsible for the
principal and interest payments. Markert with the assistance of his allies on the OLC
prepared and closed the five nominee loans on Monday, March 9. Disguised as
investments in Cue Properties, the loan proceeds were first funneled into Wintz’s Cue

                                         -4-
Properties account, then immediately re-directed and credited to his McCallum
Transfer account. After discussions with Markert on March 9, the Bank’s new CFO
did not post the checks returned by Northstar that would have caused a $1.9 million
overdraft until March 10. No overdraft was recorded because by then the loan
proceeds had infused the account with sufficient funds.

       That week, the Board of Directors met for its monthly meeting. The five
nominee loans were included in the monthly information packet, but nothing linked
them to Wintz. Markert attended the meeting but did not tell the Board about Wintz’s
near-overdraft or his check-kiting activities. There was also evidence that Markert
and his OLC allies backdated the loan documents and concealed the nominee loans
from the member of the OLC who was not part of Markert’s inner circle. In January
2010, during a routine audit of bank files, an auditor uncovered the true purpose of the
five nominee loans. Markert was immediately terminated. Bank regulators reviewed
the Bank’s loans to Wintz and determined it must book an additional $2.2 million of
reserves for the increased loss exposure, which rendered the Bank insolvent. Three
months later, regulators closed Pinehurst Bank.

                                    II. Discussion

       Markert was convicted of being an officer of a federally insured bank who
“willfully misapplie[d] any of the moneys, funds or credits of such bank.” 18 U.S.C.
§ 656. Conviction of a bank officer under this statute requires proof that he
“wil[l]fully misapplied funds for the benefit of himself or another person, for the
purpose of defrauding or injuring the bank.” United States v. Barket, 530 F.2d 181,
186 (8th Cir. 1975), cert. denied, 429 U.S. 917 (1976). On appeal, Markert argues that
he was wrongly convicted because five nominee loans he caused the Bank to approve
were simply “a series of intrabank transfers” in which (i) the Bank never lost control
of the loan proceeds, and (ii) the effect of the transactions was to benefit, not to harm
the Bank financially. Based on this interpretation of the transactions, Markert argues

                                          -5-
that the evidence was insufficient, and the district court’s instructions erroneous, on
the essential elements of willful misapplication and intent to defraud. We address
these two challenges in turn, reviewing questions of statutory interpretation de novo.
See United States v. Reed, 668 F.3d 978, 982 (8th Cir. 2012).

      A. Willful Misapplication. It has been a crime to embezzle or “willfully
misapply” the funds or credits of a federally-chartered or regulated bank since 1864.
See Act of June 3, 1864, § 55, 13 Stat. 116. Because willful misapplication, unlike
embezzlement, had no settled technical meaning at common law, the Supreme Court
prescribed an important limitation on this potentially elastic term in United States v.
Britton, 107 U.S. 655, 666-67 (1883):

      We think the willful misapplication made an offense by this statute
      means a misapplication for the use, benefit, or gain of the party charged,
      or of some company or person other than the [banking] association.
      Therefore, to constitute the offense of willful misapplication, there must
      be a conversion to his own use or the use of some one else of the moneys
      and funds of the association by the party charged.

Applying this standard, the Court in Britton dismissed certain counts of the indictment
because they “charge[d] maladministration of the affairs of the bank, rather than
criminal misapplication of its funds.” Id.

       True to Britton, many decisions of this court and our sister circuits have
observed that “the gist of the offense of willful misapplication is the conversion of
funds of a federally insured bank by [a bank officer] either to his own use or to the use
of a third person, with the intent to injure or defraud the bank,” without limiting the
offense to any common law or statutory definition of “conversion.” Barket, 530 F.2d
at 186-87; see Dow v. United States, 82 F. 904, 906 (8th Cir. 1897) (“conversion in
some form”); Johnson v. United States, 95 F.2d 813, 817 (4th Cir. 1938) (“conversion
[of deposited loan proceeds] in some form”); United States v. Beran, 546 F.2d 1316,

                                          -6-
1320 (8th Cir. 1976) (“Conversion of bank funds . . . is encompassed within the
definition of criminal misapplication.”), cert. denied, 430 U.S. 916 (1977). As we
summarized this principle in United States v. Mohr, “‘Misapplication’ under 18
U.S.C. § 656 covers unauthorized and improper conduct, typically conversion of bank
funds for personal use by a bank officer or third party.” 728 F.2d 1132, 1134 (8th
Cir.) (emphasis added), cert. denied, 469 U.S. 843 (1984). The district court quoted
this passage in instructing the jury on the five counts of willful misapplication.

       1. Sufficiency of the Evidence. Overstating the extent to which prior cases have
limited willful misapplication to the customary legal definition of “conversion,”
Markert argues the trial evidence was insufficient because the government failed to
prove “that the defendant at least temporarily deprive[d] the bank of the possession,
control, or use of its funds.” United States v. Duncan, 598 F.2d 839, 858 (4th Cir.),
cert. denied, 444 U.S. 871 (1979). The Bank never lost control of its funds, he asserts,
because the five nominee loans were structured so that the nominal borrowers never
controlled the loan proceeds, and “[n]ot a penny of the proceeds” was withdrawn from
the Bank or depleted its assets. “This was a series of bookkeeping entries and nothing
more,” Markert concludes, a classic example of maladministration of the Bank’s
affairs, rather than criminal misapplication of its funds. We disagree.

        We assume, and the government more or less concedes, the legal premise that
willful misapplication required proof that the Bank lost some degree of control over
the funds or credits alleged to be misapplied, whether or not the nominee loan
proceeds were, in a technical sense, converted. But that being so, Markert’s argument
is, on this trial record, factually unsound. His focus on the nominee borrowers’ lack
of control is simply irrelevant. As the Supreme Court explained in Britton, willful
misapplication occurs when a bank officer converts the bank’s funds (in some
manner) to his use, “or the use of some one else,” with intent to defraud the bank.
Here, as in other cases where nominee loans were used to camouflage fraudulent
transactions, the “some one else” was the real borrower, check kiter Wintz, not the

                                          -7-
nominee borrowers. The loan proceeds were unquestionably funds of the Bank. So
the relevant question is, did Wintz have temporary control over those proceeds when
they were credited to his McCallum Transfer account? No, argues Markert, because
no money ever left the Bank when the proceeds were used to avoid the impending
overdraft in that account.

      This contention defies common sense and the realities of commercial banking.
When a bank makes a loan and deposits the proceeds in a customer’s checking
account, the customer acquires use and control of the funds, subject to the terms and
conditions of the account relationship. Here, Wintz gained control of the nominee
loan proceeds deposited into his account, but his pre-existing contractual relations
gave the Bank immediate right to these funds. The Bank had paid third parties to
honor checks previously written on the McCallum Transfer account, leaving that
account with insufficient funds to cover the checks returned by Northstar. Under
these circumstances, the Bank was contractually entitled to use the nominee loan
proceeds to repay itself. Wintz, of course, immediately benefitted by avoiding a large
overdraft that would have severely damaged his business and financial interests.

       When the Bank paid third parties funds that the loan proceeds were used to
repay is irrelevant to the willful misapplication analysis. For example, in United
States v. Mullins, where the defendant bank officer used cashier’s checks, rather than
new loans, to conceal a check-kiting scheme, the court concluded that the government
proved willful misapplication of the amounts of the checks, finding “no merit” in the
contention “that the funds were lost long before the issuance . . . of these cashier’s
checks.” 355 F.2d 883, 886 (7th Cir.), cert. denied, 384 U.S. 942 (1966).2 Likewise,
Markert willfully misapplied loan proceeds for the control and benefit of customer
Wintz. Compare United States v. Ness, 665 F.2d 248, 249, 251 (8th Cir. 1981). As

      2
        The dissent asserts that this opinion “does not cite to a single case that mirrors
the facts we have before us.” In our view, Mullins is factually indistinguishable. No
two complex fraud cases will ever be “mirror” images of each other.

                                           -8-
we noted over a century ago, “it is not always necessary that money should be actually
withdrawn from a bank, to constitute a criminal misapplication of its funds . . . .”
Rieger v. United States, 107 Fed. 916, 930 (8th Cir.), cert. denied, 181 U.S. 617
(1901); accord United States v. Rickert, 459 F.2d 352, 354 (5th Cir. 1972) (“It is not
necessary . . . that cash actually leave the bank.”).

       That the Bank suffered harm encompassed by the willful misapplication
provision in § 656 is evident in other ways as well. By lending money to Wintz
through nominees and concealing that fact from the Board of Directors, Markert
caused the Bank to lend Wintz and his companies $2.2 million more than its federally
regulated lending limit allowed. The government presented testimony that lending
limits protect a bank’s financial safety by reducing the risk caused by committing too
much capital to a single borrower. “Violation of state law or bank policy may indicate
[willful] misapplication.” Mohr, 728 F.2d at 1134; accord United States v. Clark, 765
F.2d 297, 303 (2d Cir. 1985) (nominee loans above the bank’s lending limits pose
sufficient “risk of pecuniary loss” to constitute misapplication); United States v.
Dougherty, 763 F.2d 970, 972-73 (8th Cir. 1985) (using unapproved bankers’
acceptances to conceal overdrafts was willful misapplication). Markert caused loan
proceeds to be used for a purpose that the Board would not (and indeed could not)
have approved. See United States v. Crabtree, 979 F.2d 1261, 1267 (7th Cir. 1992),
cert. denied, 510 U.S. 878 (1993); United States v. Woods, 877 F.2d 477, 480 (6th
Cir. 1989) (“the bank was effectively deprived, without its consent, of control over its
funds for an additional twenty-two months. That deprivation of control is sufficient
to constitute misapplication of bank funds.”); United States v. Shively, 715 F.2d 260,
265-66 (7th Cir. 1983) (willful misapplication “must require that the bank’s money
have been used for a purpose that the bank would not have agreed to had it known
what the purpose was”), cert. denied, 465 U.S. 1007 (1984).

     United States v. Michael, 456 F. Supp. 335, 342 (D.N.J. 1978), on which
Markert relies, is distinguishable because the court granted a motion to dismiss counts

                                          -9-
in an indictment charging willful misapplication, whereas here we have a full trial
record. To the extent categorical statements in that opinion are contrary to our
construction of the willful misapplication offense, we find Michael unpersuasive and
decline to follow it. We have long held that withdrawal of funds from the victim bank
is not a necessary element, so long as the requisite intent to defraud is proved.

       2. A Misapplication Instruction Issue. Without objection, the district court
instructed the jury that the five willful misapplication counts in the indictment
required the government to prove that Markert “willfully misapplied the moneys or
funds belonging to or intrusted to the custody or care of Pinehurst Bank . . . . with
intent to defraud Pinehurst Bank.” The court further instructed:

            The phrase “willfully misapplies” means the unauthorized, or
      unjustifiable or wrongful use of a bank’s funds. Misapplication includes
      the wrongful taking or use of money of the bank by a bank officer or
      employee for his own benefit or for the use and benefit of some other
      person.

             “Misapplication of bank funds” covers unauthorized and improper
      conduct,3 typically conversion of bank funds for personal use by a bank
      officer or a third party.

Markert argues the court erred when it instructed that “willfully misapplies” means
“the unauthorized or unjustifiable or wrongful use of a bank’s funds.” He posits that,
by failing to instruct that willful misapplication requires proof that the Bank at least
temporarily lost control or possession of its funds, the instruction included imprudent

      3
        We have questioned the Eighth Circuit Model Jury Instruction that defines
“misapplication” to include “unauthorized” conduct because simply using bank funds
without authorization may lack the necessary mens rea. United States v. Robertson,
709 F.3d 741, 745 n.3 (8th Cir. 2013), interpreting 18 U.S.C. § 1163, a statute
modeled on § 656. But that concern is not present here because the instructions
clearly required the jury to find that Markert acted with intent to defraud.

                                         -10-
loans that do not involve the essential element of conversion, “thereby improperly
criminalizing bad banking.” Markert acknowledges that our review is for plain error
because he did not object to this instruction. See United States v. Gill, 513 F.3d 836,
852 (8th Cir.), cert. denied, 555 U.S. 1080 (2008).

       We conclude that the district court’s willful misapplication instruction was not
error, much less plain error, primarily for the reasons we reject Markert’s challenge
to the sufficiency of the evidence on this issue. As we have explained, the evidence
plainly showed that the Bank lost control of the nominee loan proceeds when they
were deposited into Wintz’s McCallum Transfer checking account at the Bank. The
court instructed the jury that, to convict Markert, it must find that he misapplied bank
funds and did so with intent to defraud the Bank. At Markert’s request, the court
further instructed that “[g]ood faith is a complete defense to each charge of . . .
misapplication of bank funds,” and that “evidence which establishes only that a person
made a mistake in judgment or an error in management . . . does not establish
fraudulent intent.” When considered as a whole, these instructions defined the
essential elements of the offense and sufficiently guarded against a conviction based
on negligence, poor judgment, or “technical” violations of banking practices or
regulatory requirements. The jury necessarily found, based on more than sufficient
evidence, that Markert willfully and surreptitiously misapplied the nominee loan
proceeds for the use and benefit of the real borrower, George Wintz, with the intent
to defraud the Bank.

       B. Intent to Defraud. Though no longer expressly stated in the statute, all courts
agree that intent to defraud or injure the bank remains an essential element of the
willful misapplication offense under 18 U.S.C. § 656. See, e.g., Barket, 530 F.2d at
186. Markert again argues insufficiency of the evidence and jury instruction error as
to this element of the offense.




                                          -11-
        1. Sufficiency of the Evidence. Markert argues the evidence was insufficient
to prove that he acted with the requisite intent to defraud or injure the Bank because
intent to defraud requires proof of probable loss to the Bank, and the trial evidence
demonstrated that the nominee loan proceeds benefitted the Bank because they (i)
avoided a costly overdraft condition in Wintz’s McCallum Transfer account, and (ii)
left the Bank at least some recourse against the five nominee borrowers. We disagree.
First, the contention is legally unsound. As we have explained, knowing violation of
rules designed to protect a bank’s financial safety and stability, such as legal lending
limits, when done with the intent to deceive the bank (for example, to protect one’s
employment or to conceal bank fraud by a customer), falls squarely within the offense
of willful misapplication of bank funds. Second, the contention is factually unsound.
Markert committed the Bank’s loan reserves to nominee loans the Board of Directors
and bank regulators would not have approved, to avoid an overdraft condition
resulting from the real borrower’s fraudulent check-kiting, a transaction that clearly
created a probable risk of further loss to the Bank.

       Intent to defraud “exists if a person acts knowingly and if the natural result of
his conduct would be to . . . defraud the bank even though this may not have been his
motive.” Beran, 546 F.2d at 1321 (quotations omitted). That Markert intended or
hoped to help Pinehurst avert an overdraft loss does not establish that he lacked an
intent to defraud, though it may evidence lack of an intent to injure. Markert did
much more than negligently approve imprudent nominee loans. He helped Wintz
deceive the nominee borrowers, backdated loan documents, concealed the nominee
loans from the fourth member of the OLC, and falsely structured the transactions as
investments in Cue Properties to conceal the true purpose of the loans from both the
putative borrowers and the Bank’s Board of Directors. All this is more than sufficient
evidence for the jury to find the requisite intent to defraud. “The fact that [Markert]
did not personally profit from his criminal conduct is not a legal excuse for his
action.” Dougherty, 763 F.2d at 972.



                                         -12-
       2. The Intent to Defraud Instruction. Without objection, the district court
defined the phrase “intent to defraud” to mean “to act knowingly with intent to
deceive or cheat, for the purpose of causing a financial loss to someone else or
bringing about a financial gain to the defendant or another.” On appeal, Markert
argues the court plainly erred when it failed to instruct that, to find an intent to
defraud, the jury must find that Markert’s actions subjected the bank to increased risk
of pecuniary loss. We disagree. The court’s instruction was consistent with Eighth
Circuit Model Criminal Jury Instruction 6.18.656 and with the instruction we
approved in Dougherty, 763 F.2d at 973. In addition, the court instructed that “[g]ood
faith is a complete defense to each charge of . . . misapplication . . . because it is
inconsistent with the intent to defraud, which is an element of those charges.” There
was no error, plain or otherwise.

       C. The Nominee Loan Instruction. Count 2 of the indictment charged Markert
and his co-defendants with bank fraud. As 18 U.S.C. § 1344(1) requires, Count 2
alleged “a scheme and artifice to defraud Pinehurst Bank” by issuing and concealing
five loans to “straw borrowers . . . commonly known as a ‘nominee loan’ scheme.”
The district court addressed this allegation in Jury Instruction No. 20:

              Count Two . . . charges that the scheme to defraud . . . was
      accomplished through nominee loans. Nominee loans are loans in which
      the nominal borrower was actually obtaining the money for a third
      party’s benefit. The mere transfer of a loan’s proceeds to a third party
      is not illegal. However, such a loan may be unlawful when the borrower
      and the bank officer fail to state the real borrower and recipient of the
      funds, thereby obtaining the loans by means of false pretenses when
      doing so with the intent to defraud the bank.

Markert joined Wintz’s timely objection and pursues the issue on appeal, so we
review this instruction for abuse of discretion, recognizing the district court has wide
latitude, so long as the entire charge, when considered as a whole, fairly and
adequately contains the applicable law. See, e.g., United States v. Bevans, 496 F.2d

                                         -13-
494, 499 (8th Cir. 1974). Applying this standard, Instruction No. 20 was plainly a
correct portion of the instructions relating to the bank fraud charges in Count 2. It
carefully tracked our description of “nominee loans” in United States v. Willis, 997
F.2d 407, 410 n.2 (8th Cir. 1993), cert. denied, 510 U.S. 1050 (1994), a bank fraud
case, with the addition -- encouraged by defense counsel at the instruction conference
-- of the significant proviso, “when doing so with the intent to defraud the bank.”

       On appeal, Markert of course shifts our focus away from Count 2, a charge of
which he was acquitted. Rather, he now argues that this instruction was an abuse of
the district court’s discretion in instructing the jury on the willful misapplication
charges (Counts 3-7) because it failed to instruct that a defendant does not act with
intent to defraud unless he knows that the nominal borrower lacks the financial ability
to repay the nominee loan. In instructing on Counts 3-7, the court explained:

            Counts Three through Seven charge that the misapplication of
      bank funds was accomplished by the approval and disbursement of bank
      funds for five nominee loans to borrowers of George Wintz. I have
      already defined “nominee loans” in Jury Instruction No. 20.

There was no objection to this instruction. Nor was the issue of the nominee
borrowers’ ability to repay ever raised at the instruction conference. Therefore, our
review of the nominee loan instruction as it relates to Counts 3-7 is for plain error.

       The district court’s definition of “nominee loans,” taken verbatim from our
opinion in Willis, was unobjectionably simple -- “Nominee loans are loans in which
the nominal borrower was actually obtaining the money for a third party’s benefit.”
What is more complex and can be debatable is defining when the use of nominee
loans gives rise to criminal liability. Bank fraud and willful misapplication of bank
funds are distinct offenses, but each has the essential element of intent to defraud. The
district court properly included that element in Instruction No. 20 and then included
intent to defraud in its further instructions on Counts 3-7. Thus, the nominee loan

                                          -14-
instruction in no way diluted the court’s instruction that the jury must find intent to
defraud to convict Markert of willful misapplication.

       We disagree with Markert’s assertion that a nominee borrower’s ability to repay
always establishes the lack of intent to defraud. For example, when a bank officer
uses nominee loans to conceal that he will use the proceeds for his own interests, “the
financial condition of the putative borrower is irrelevant.” United States v. Steffen,
641 F.2d 591, 597 (8th Cir.), cert. denied, 452 U.S. 943 (1981). The evidence in this
case presented an analogous situation -- use of nominee loans to conceal that the true
borrower had exceeded his lending limits.4 We agree with Markert that the nominee
borrower’s ability and intent to repay will be relevant in some cases. Compare United
States v. Brennan, 994 F.2d 918, 923 (1st Cir. 1993), with United States v. Parsons,
646 F.2d 1275, 1279-80 (8th Cir. 1981). But in our view, the evidence in this case
strongly suggested that the nominal borrowers’ ability to repay their loans was not
essential to the question whether the scheme resulted in the willful misapplication of
the loan proceeds. There was strong evidence the nominal borrowers were deceived
about the purpose of the loans, did not know the loan terms, and some rather clearly
lacked the ability to repay. As the district court’s instructions, considered as a whole,
fairly and adequately presented the essential elements of the willful misapplication
offense, we conclude there was no error, plain or otherwise, in the manner in which
the court incorporated its nominee loan bank fraud instruction into the willful
misapplication offenses charged in the indictment.

                              III. The Sentencing Issue

     Prior to sentencing, the Revised Presentence Investigation Report
recommended, without explanation, a finding that Markert’s willful misapplication


      4
      Moreover, although Markert did not receive the loan proceeds, there was
evidence he viewed the transactions as necessary to preserve his employment.

                                          -15-
offenses caused a loss equal to the total amount of the five nominee loans, nearly $1.9
million, resulting in a 16-level increase under the advisory Sentencing Guidelines.
See U.S.S.G. § 2B1.1(b)(1)(I). The government’s sentencing memorandum supported
this recommendation on two grounds: (1) numerous cases have held that loss in
check-kiting cases is calculated in this fashion, and Wintz’s check-kiting was relevant
conduct in Markert’s offense; and (2) “the amount of loss in misapplication and
fraudulent loan cases is the amount of funds misapplied,” citing United States v.
Hulshof, 23 F.3d 1470 (8th Cir. 1994). Markert’s sentencing memorandum argued,
as he argues on appeal, that both the actual loss to the Bank resulting from the
nominee loan transactions, and the loss he intended to inflict, were zero. As the
Bank’s loss caused by Wintz’s completed check-kiting had already been incurred, he
explained, the net loss -- “the difference between what the victim paid and what the
victim recovered” -- was zero. If anything, he argued, the nominee loans improved
the Bank’s financial position.

       At sentencing, over Markert’s objection, the district court adopted the loss
figure recommended in the PSR, explaining:

      The misapplication of the bank funds through the nominee loan scheme
      was used to avoid detection or responsibility of an underlying check kite
      which totaled $1.8 million. The amount of funds misapplied is the
      amount of the loss in a misapplication case and here those nominee loans
      totaled $1.8 million.

This 16-level increase produced an advisory guidelines range of 87 to 108 months.
The court varied downward and sentenced Markert to 42 months in prison. He
appeals the fraud loss determination. We review the district court’s fact findings for
clear error and its interpretation of the advisory guidelines de novo. See United States
v. Holthaus, 486 F.3d 451, 454 (8th Cir.), cert. denied, 552 U.S. 939 (2007).
Although the court granted a substantial downward variance, the 16-level increase, if
it was procedural guidelines error, cannot be deemed harmless.

                                         -16-
        In defending the district court’s ruling that the amount of funds misapplied
equals the amount of actual loss in a willful misapplication case, the government cites
only one § 656 decision, Hulshof. That case is distinguishable because the misapplied
funds at issue were not the proceeds of new loans by the victim bank. More
importantly, Hulshof was decided before the Sentencing Commission adopted
extensive revisions to the guidelines and commentary governing the calculation of
loss for theft and fraud offenses, revisions intended to resolve several issues that had
split the circuits. See U.S.S.G. App. C., Vol. II, Amend. 617, at 130-86. Under the
revised guideline, “actual loss” is now defined as “the reasonably foreseeable
pecuniary harm that resulted from the offense.” U.S.S.G. § 2B1.1, comment.
(n.3(A)(i). “Actual loss” under the revised guideline is a “net loss” concept based
upon “the difference between what the victim paid and what the victim recovered plus
any other forms of reasonably foreseeable pecuniary harm that resulted from the
offense.” United States v. Hartstein, 500 F.3d 790, 798 n.3 (8th Cir. 2007), cert.
denied, 552 U.S. 1102 (2008); § 2B1.1 comment. (n.3(E)); accord United States v.
Smith, 951 F.2d 1164, 1167 (10th Cir. 1991). As the Sentencing Commission
explained:

      The loss definition also provides for the exclusion from loss of certain
      economic benefits transferred to victims, to be measured at the time of
      detection [of the offense]. This provision codifies the “net loss”
      approach that has developed in the case law . . . . This crediting
      approach is adopted because the seriousness of the offense and the
      culpability of a defendant is better determined by using a net approach.
      This approach recognizes that the offender who transfers something of
      value to the victim[] generally is committing a less serious offense than
      an offender who does not.

App. C. - Vol. II, Amend. 617, at 183; accord § 2B1.1 comment. (background).

       The government’s actual loss contention as adopted by the district court ignored
this change in the revised loss guideline by failing to acknowledge that the monetary

                                         -17-
value of the nominee loans the Bank received in exchange for the misapplied
proceeds, measured at the time the misapplication offense was detected, must be
credited against actual loss.5 The government has the burden to prove actual loss by
the preponderance of the evidence. The trial record reflected considerable effort by
the Bank to obtain repayment of the nominee loans, either by the nominal borrowers
or by Wintz. The net value of those loans, measured at the time their nominal nature
was detected, may be difficult to measure. “The court need only make a reasonable
estimate of the loss.” § 2B1.1, comment. n.3(C). But here no attempt was made to
determine what value to credit in the actual loss calculation. A remand is required.

       In a footnote to its appeal brief, the government alternatively contended that
Markert’s actual loss should be the amount of the “float” when Wintz’s check-kiting
scheme unraveled, a finding we upheld in an earlier case of check-kiting fraud, United
States v. Whitehead, 176 F.3d 1030, 1042 (8th Cir. 1999). We reject this contention.
We did not adopt this as a categorical rule in Whitehead. More importantly, Markert
was not charged with a check-kiting offense, and he was acquitted of the charge that
he conspired with Wintz to commit bank fraud.

       Under the revised guideline, the amount of loss continues to be the greater of
actual or intended loss. See U.S.S.G. § 2B1.1, comment. (n.3(A)). Here, in response
to Markert’s contention that the intended loss was zero because he had no subjective
intent to harm the Bank, the government on appeal disclaimed any reliance on an
intended loss theory. Thus, the issue turns on its flawed calculation of actual loss.

      We affirm Markert’s conviction and remand for resentencing.




      5
       By contrast, a defendant’s repayment of funds after the discovery of a fraud
offense is not relevant to sentencing. See U.S.S.G. § 2B1.1 comment. (n.3(E)); United
States v. Stennis-Williams, 557 F.3d 927, 930 (8th Cir. 2009).

                                        -18-
BRIGHT, Circuit Judge, dissenting.

      I concur with the majority’s decision to remand for resentencing, but write
separately to express my strong disagreement with the majority’s conclusion that the
evidence was sufficient to support John Markert’s conviction. Markert’s actions did
not deprive Pinehurst Bank of any possession, control, or use of its funds. Therefore,
I respectfully dissent. Because Markert’s crime is unproved, I would reverse his
conviction and release him from prison.

       I will briefly summarize the facts. George Wintz, through companies he
controlled, engaged in a check-kiting scheme involving Pinehurst Bank (the Bank)
and North Star Bank, rapidly transferring funds between the two banks to artificially
inflate his account balances. By the time the defendant Markert was notified of this
activity, approximately $1.9 million hung in the balance. Markert sought a way to
cover Wintz’s impending overdraft. The Bank had previously reached its lending
limit to Wintz and his companies, meaning it could not lend to any of them directly.
In an attempt to save the Bank, Markert arranged five “nominee” loans to cover the
$1.9 million overdraft. Five individuals agreed to take out loans from the Bank, but
to allow the loan proceeds to be immediately transferred to Wintz through his
company accounts.

       In January 2010, an audit of the Bank revealed that Markert had issued the
nominee loans to cover the overdraft resulting from Wintz’s check-kiting scheme.
The Government indicted Markert on various counts, including one count of bank
fraud in violation of 18 U.S.C. § 1344 and five counts of willful misapplication of
bank funds by a bank officer in violation of 18 U.S.C. § 656. A jury convicted him
of the five counts of misapplication of funds, but acquitted him of bank fraud. The
district court sentenced Markert to 42 months in prison. He appeals.



                                        -19-
      Markert’s conviction should not stand.

       The relevant law is as follows. In order to prove a crime of misapplication of
bank funds under 18 U.S.C. § 656, the Government was required to prove that
Markert converted the funds of a federally insured bank for the benefit of himself or
another person, with the intent to injure or defraud the bank. United States v. Barket,
530 F.2d 181, 186-87 (8th Cir. 1975), cert. denied, 429 U.S. 917 (1976); see United
States v. Beran, 546 F.2d 1316, 1320 (8th Cir. 1976) (“Conversion of bank funds for
personal use, or for the use of another individual or corporation, is encompassed
within the definition of criminal misapplication.”), cert. denied, 430 U.S. 916 (1977).
In order to establish the conversion on which misapplication depends, the Government
must prove either “actual loss” or “that the defendant at least temporarily deprive[d]
the bank of the possession, control or use of its funds.” United States v. Duncan, 598
F.2d 839, 858 (4th Cir. 1979), cert. denied, 444 U.S. 871 (1979); see Dow v. United
States, 82 F. 904, 906 (8th Cir. 1897) (“To complete a misapplication of the funds of
the bank, it was necessary that some portion thereof should be withdrawn from the
possession or control of the bank, or a conversion in some form should be made
thereof, so that the bank would be deprived of the benefit thereof.”). As clearly stated,
there must be a conversion.

       Here, the Government did not prove that Markert converted funds. The Bank
suffered no actual loss because it retained all the funds from the nominee loans, nor
did the Bank ever lose control of the funds at issue. On March 9, 2009, Markert
distributed three of the loans into the nominee borrowers’ checking accounts, then to
Wintz’s Cue Properties account, and finally to Wintz’s McCallum Transfer account.
The other two nominee loans were transferred directly into the Cue Properties account
and then to the McCallum Transfer account. The chain of transactions was only a
bookkeeping matter and was recorded in a matter of seconds. If, as here, “control”
over the funds is so short in time that one cannot practically exercise any control at all,



                                           -20-
it follows that the bank is not deprived of the “possession, control or use of its funds”
that is required for a conversion.

        Cognizant that the nominee borrowers lacked any control over the funds, the
majority now supports the conviction with a theory that was never advanced by the
Government—that Wintz, not the nominee borrowers, had temporary control over the
proceeds when they were credited to his McCallum Transfer account. This control,
the majority contends, is sufficient to establish a conversion. However, in its brief,
the Government is crystal clear in its view that Markert converted the funds at the time
they were distributed to the nominees, not to Wintz. In its brief, the Government
states:

             Here, conversion of bank funds within the meaning of this Court’s
      precedents was established. Markert caused the Bank to commit its
      capital, and disburse from its general funds $1.9 million in new loans.
      He caused the loan proceeds to be disbursed to Wintz’s nominees, in
      violation of the Bank’s policy and state lending requirements.
      Conversion occurred at the time of disbursement, at which point the
      nominees, not the Bank, had possession and control of the funds.

(Gov. Br. at 35-36.) (emphasis added). Later in its brief, the Government again insists
that Markert converted the funds because “the nominee borrowers gained control over
the loan proceeds as soon as they received them.” (Gov. Br. at 40.) I take the
majority’s shift in focus to whether Wintz exercised control over the funds as a tacit
recognition that the Government has not and cannot prove its theory of conversion to
the nominee borrowers to support Markert’s conviction.

      Ironically, the majority’s new theory fares no better than the Government’s
theory. The majority now contends that a conversion occurred when Wintz gained
control of the $1.9 million in loan proceeds at the time they were distributed into his
McCallum Transfer account. I disagree. At the time the proceeds were distributed in


                                          -21-
Wintz’s McCallum Transfer account, there was approximately $1.9 million of
overdraft “in float” due to Wintz’s check-kiting scheme. But as the majority observes,
Wintz’s preexisting contractual relations gave the Bank “immediate right” to
possession, control, and use of the funds at the time they were deposited in the
McCallum Transfer account, which is held by Pinehurst Bank. The Government’s
own financial analyst agreed that the proceeds from the nominee loans “came into
[the] account and zeroed it.” (Trial Tr. 40.) Given these circumstances, Wintz could
have never practically exercised control over any funds given that the deposit of funds
in his account resulted in a zero balance. Thus, no balance, no access, and no
conversion occurred.

      As final notes, I would observe that the majority does not cite to a single case
that mirrors the facts we have before us. Moreover, there was no evidence that
Markert actually injured the Bank. The evidence is to the contrary, and the jury’s
acquittal of Markert on one count of bank fraud (Count 1) should negate any support
for a determination that the bookkeeping entries directed by Markert in any way
defrauded the Bank.

       For the reasons stated, I would reverse Markert’s conviction for misapplication
of bank funds under 18 U.S.C. § 656 because the evidence was insufficient to
establish a conversion. I would be remiss if I did not also express my view that, on
remand for resentencing, the district court should acknowledge the true degree of
actual loss in this case: zero. There was no loss to the Bank, and Markert did not




                                         -22-
enrich himself during the processing and distribution of the nominee loans. Simply
put, we have enough people in jail for too long a time.6 Markert should no longer be
one of them.
                       ______________________________




       6
        In his remarks to the American Bar Association’s House of Delegates on
August 12, 2013, Attorney General Eric Holder emphasized “that too many
Americans go to too many prisons for far too long, and for no truly good law
enforcement reason.” Eric Holder, Attorney General of the United States, United
States Department of Justice, Remarks at the Annual Meeting of the American Bar
Association’s House of Delegates (Aug. 12, 2013), available at
http://www.justice.gov/iso/opa/ag/speeches/2013/ag-speech-130812.html. Attorney
General Holder explained that widespread incarceration is unsustainable because it “imposes
a significant economic burden—totaling $80 billion in 2010 alone—and it comes with human
and moral costs that are impossible to calculate.” Id. Given these substantial economic and
moral costs, I agree with the Attorney General that we must ensure that our criminal justice
system is “targeting the most serious offenses” and “prosecuting the most dangerous
criminals.” Id. Even if I were to assume that Markert was rightly convicted, his case does
not fall into either category.

                                           -23-
