Problematic Jury Instructions, but No Harm No Foul, US v. Laurance H. Freed (7th Cir., 2019)
Mr. Laurance Freed got into some trouble trying to keep his rather costly real estate business in business. He did so by making material misrepresentations to bankers, lenders, and the City of Chicago. And he did so repeatedly, it appears. So much so that the Government ultimately tried and convicted him of bank fraud (18 U.S.C. §1344), mail fraud (18 U.S.C. §1341), wire fraud (18 U.S.C. §1343), and making false statements to a financial institution (18 U.S.C. §1014).
Freed was the president and CEO of Joseph Freed and Associates (“JFA”), a real estate company. He also created and managed other real estate ventures including, for purposes of this case, Uptown Goldblatts Venture (UGV). UGV was developing a building in the Uptown neighborhood and he received special financing from the City to do so (to encourage building in maybe a distressed area). Freed received two notes from this special financing: one for $4.3 million and one for $2.3 million. Each year UGV had to file a statement indicating that it was not in default on any loans and it had not entered into any transactions that would harm its ability to meet its financial obligations.
Freed then took out a loan, in 2002, from a bank that was secured, in part, by the $2.4 note. This agreement provided that the attachment of any security interest or lien to the collateral used to secure the loan would be a default of the agreement. In 2006, two other of Freed’s entities entered into a loan agreement with a bank consortium for a $105 million line of credit. To secure this, they pledged two properties, Evanston Plaza and the Streets of Woodfield, as collateral. Freed also personally secured $50 million of the loan. Then UGV entered into an agreement to become a borrower of the line of the credit and pledged the $2.4 million note as collateral. UGV represented that it owned the note free of encumberances despite the fact it was pledged to the bank (remember, 2002?). In 2008, the bank sent an email to Freed reminding him the note was collateral in the still-outstanding loan. He sent this to his lawyer who told him the note was double-pledged—to the bank and for access to the line of credit. This constituted a default under the bank agreement.
By 2008, Freed had withdrawn millions of dollars from the Streets of Woodfield to meet obligations on various properties and projects. After the resignation of the CFO due to these financial irregularities, JFA then failed to make its payment on the line of credit (which then constituted a default), and failed to pay approximately $900K of taxes that were due.
Freed then sought a $10 million loan modification and spoke to some bankers about it. He made representations that were not, in fact, truthful. He claimed the Streets of Woodfield could serve as collateral for the modification but didn’t disclose that $3.6 had been withdrawn from the property. He also indicated that Evanston Plaza could serve as collateral, but did not mention the $900K in unpaid taxes. And lastly, he indicated a project note was available to serve as collateral and worth $2.4 million. He did not disclose it was already being used as collateral for two other loans, and was therefore essentially worthless.
Bank of America agreed to provide the loan modification and Freed signed the agreement in 2009. This is when the house of cards began to collapse. Once the funds were distributed, Freed withdrew $273,000, and then in the next few weeks, $1.3 million. Then, the bank found out that its project note had been double-pledged. Then, it became clear he had misled the City when he claimed that none of his entities were in default in signed affidavits he provided to the City in 2008, 2009, and 2010.
On appeal, Freed complains of his jury charges. Since trial counsel did not object, the Court reviewed under the plain error standard. The district court charged the jury with the “willfully causing” pattern instruction which corresponds to 18 U.S.C. §2(b) which stated, “Whoever willfullycauses an act to be done which if directly performed by him or another would be an offense against the United States, is punishable as a principle.” The court, however, instructed the jury as follows: “If the defendant knowinglycauses the acts of another then the defendant is responsible for those acts as though he personally committed them.” As the Court acknowledges, “[t]he difference between the use of willfully in the statute and knowingly in the jury instructions is obviously problematic.”
The problem for Freed, though, is that the government did not rely on a theory of aiding and abetting. Indeed, their theory was that Freed was the principal in this scheme and that he did all of these illegal acts all by himself. He was in charge of the whole operation. As the Court indicates, had the government used an aiding and abetting theory, this appeal may have turned out entirely differently. This is just a reminder that, even though there may be a significant legal error at the trial level, our courts will look long and hard to make sure it actually impacted the outcome of the case before it reverses a jury verdict.
The Court additionally upheld the sufficiency of the evidence to support Freed’s convictions.