On March 17, 1994, a federal grand jury in Dallas, Texas indicted four men on charges of defrauding investors of nearly $1 million in the purchase of a savings and loan in Florida. One of the investors was former Dallas Cowboys quarterback Gary Hogeboom.
John Carney, James Fisher, David Hughes and Jeff Noebel were charged with bank fraud, mail fraud, and wire fraud, as well as conspiracy and making false statements to the Federal Home Loan Bank Board and the Office of Thrift supervision.
The indictment alleged that in 1987 the four men decided to raise $4 million in equity to buy Bayside Savings and Loan Association in Port Charlotte, Florida. They planned to raise $875,000 of the money by selling shares of their company, U.S. Savings Associates, to investors.
The idea to purchase a savings and loan was spurred by the Home Loan Bank Board, which was seeking private investors because so many institutions were failing. To induce investment, bankrupt institutions were allowed to recognize “regulatory goodwill” as an asset. This good will created artificial capital for the savings and loans without requiring investors to contribute as much cash.
The defendants promised some of the investors that their company, U.S. Savings Associates, would, as a condition of purchase, refinance their homes at lower interest rates. Among the investors was Hogeboom, who put up $100,000. Savings Associates promised repurchase agreements if the homes were not refinanced.
The investment was problematic from the beginning. Savings Associates soon discovered that the values of investors’ homes had fallen significantly and that refinancing would require large cash payments by the owners.
Then, in 1989, Congress passed a bill which eliminated the goodwill asset. That reduced Bayside’s capital base from about $4 million to $800,000. In addition to reducing operating capital, investors became anxious and some sought to exercise the repurchase agreements. But Savings Associates no longer had surplus capital and could not make good on the agreements. Investors began to sue.
The 1994 grand jury indictment alleged that the investors lost their money because of fraud by the defendants.
The defendants claimed the indictment was retaliation for a $5 million claim they filed in the U.S. Court of Claims alleging the Congressional legislation which eliminated the goodwill asset was a breach of contract.
Noebel pleaded guilty and was sentenced to five months in prison. Hughes, Carney and Fisher went on trial before a jury in U.S. District Court.
Among those who testified was Michael Tannery, an accountant for Bradley Branson, a professional basketball player then playing in Europe. Tannery said that he had invested on behalf of Branson, but overpaid by $20,000. Tannery said that when tried to get the money back, Fisher told him to apply for a loan from Bayside for the $20,000 and that he and Carney would repay the loan.
Carney testified in his own defense and said there was no fraud. However, prosecutors impeached his credibility—over Carney’s attorney’s objection—with a contempt finding against him by a Texas state court. The state case arose out of an action to enforce a judgment obtained by an investor. The state court judge found Carney in contempt of court and implied that Carney was deceitful and unscrupulous. At the time of the federal trial, Carney had sought a state writ of habeas corpus from the Texas Supreme Court in an attempt to overturn the contempt finding.
The defense offered evidence that the defendants had prevailed in an arbitration proceeding between them and four of the investors who had sought to exercise their repurchase options. The defense argued that the successful arbitration was evidence of the legitimacy of their actions, but the judge excluded the evidence.
On March 22, 1995, Fisher and Carney were convicted on all charges. Hughes was acquitted. Fisher and Carney were each sentenced to 87 months in prison and ordered to pay a joint total of $895,000 in restitution. They went to prison in January, 1996.
In January 1997, the United States Court of Appeals for the Fifth Circuit reversed their convictions. The court ruled that impeaching Carney with the contempt finding—which was later overturned—was improper.
The court also found that the exclusion of the arbitration proceeding was prejudicial error. “This evidence was highly relevant,” the Appeals Court ruled. “Evidence that an arbitration proceeding occurred and that the defendants were not found obliged to repurchase the (investors’) shares goes to the heart of the case.”
Further, the Appeals Court found that the prosecution had failed to turn over—until the last day of trial—an FBI interview with Bradley Branson, the basketball player. In the interview, Branson said he did not request a loan from Bayside, he did not ask Tanner to obtain it, he was unaware a loan was requested in his name and he had no idea what became of the funds.
The Appeals Court said the evidence could have been used to impeach the testimony of Tannery because it was “directly contradictory” to Tannery’s testimony.
Both men were released on bond in February 1997.
Prior to the second trial, the prosecution turned over more documents that had been concealed. These included evidence that Tannery, who testified at the first trial under a grant of immunity, was at that time under investigation for forging bank documents. The disclosure prompted the prosecution to dismiss the bank fraud charge from the indictment.
Armed with the evidence that had been concealed or improperly excluded at the first trial, Fisher and Carney went on trial a second time and both were acquitted by a jury on October 3, 1997.
– Maurice Possley