The U.S. Court of Appeals for the Seventh Circuit has partially overturned the convictions of two former Housing Authority of South Bend (HASB) leaders, Tonya Robinson and Albert Smith, who were found guilty of orchestrating a multi-million dollar kickback scheme. While the court upheld their wire fraud convictions, it reversed the bank fraud convictions, ruling that the government failed to prove the necessary element required for that specific federal charge.
Robinson, the former Executive Director, and Smith, the former Asset Director, were convicted by a jury on multiple counts, including conspiracy, wire fraud, bank fraud, and federal program theft, stemming from their misuse of HUD funds intended for affordable housing maintenance.
The Kickback Scheme Unraveled
The corruption centered on the Housing Authority, which managed over 800 rental properties in South Bend and relied on federal funding from the Department of Housing and Urban Development (HUD). Standard procedure required a bidding process for larger maintenance projects, followed by contractor invoicing, inspection, and payment via checks approved by top management.
Beginning around 2015, Robinson and Smith diverted these funds. They colluded with contractors to submit invoices for maintenance work that was never performed. Once the Housing Authority issued checks for these bogus projects, the contractors would cash them and split the proceeds with Robinson and Smith.
Their lavish spending habits, specifically gambling large sums at the Four Winds Casino, eventually alerted law enforcement. A subsequent investigation led to federal charges against the pair.
Reversal on Bank Fraud: The Crucial Missing Link
The central issue on appeal involved the sufficiency of the evidence supporting the bank fraud convictions under 18 U.S.C. § 1344(2). This statute specifically criminalizes schemes to obtain bank property “by means of false or fraudulent pretenses, representations, or promises.”
The Seventh Circuit, relying heavily on the Supreme Court’s precedent in *Loughrin v. United States*, focused on the mandatory “by means of” language. The court explained that for a conviction under § 1344(2), the defendant’s false statement must be the mechanism that directly induces the financial institution (the bank) to part with its assets.
The government’s evidence demonstrated a clear fraud against the Housing Authority and HUD—false invoices led to checks being written to co-conspirators. However, the appellate court found a critical gap: the prosecution never showed that any of these false invoices or representations were ever presented *to a bank*.
Judge Scudder, writing for the majority, compared the situation to someone selling a counterfeit handbag and getting paid by check; the fraud is against the buyer, not the bank that merely processes the valid check. In this case, Robinson and Smith defrauded the Housing Authority, which then used legitimate checks drawn on its accounts to pay the contractors. The bank’s involvement was deemed “wholly fortuitous.”
Because the government failed to identify a false statement that “went to a financial institution,” the court concluded that the bank fraud convictions could not stand under the strict requirements of the statute.
Plain Error Review and Wire Fraud Affirmation
Robinson and Smith had not challenged their bank fraud convictions during the trial proceedings below, meaning the appellate court reviewed the issue under the rigorous “plain error” standard. This standard requires showing four elements: an error, that the error was plain, that it affected substantial rights, and that it seriously affected the fairness of the proceedings.
The court found that the district court plainly erred by allowing the bank fraud convictions to stand, as the underlying evidence was legally insufficient to meet the statutory definition. This satisfied the first three prongs of the plain error test. The court determined that vacating the convictions—even if it didn’t alter their concurrent prison sentences—affected their substantial rights due to potential collateral consequences, thus satisfying the fourth prong as well.
In contrast, the convictions for wire fraud (Count 8) were affirmed. Wire fraud requires proving participation in a scheme to defraud and causing an interstate wire transmission in furtherance of that scheme. The government successfully linked a specific electronic transfer—an $80,000 HUD drawdown in September 2017—to the payment of a fraudulent invoice shortly thereafter. Viewing the evidence favorably to the government, the court found that a rational jury could infer that this specific wire transfer helped fund the kickback operation, thus upholding that conviction.
Sentence Not Changed, Minor Remand for Restitution
Regarding sentencing, Smith had challenged a two-level enhancement for abusing a position of trust. The Seventh Circuit reviewed this finding for clear error and found ample evidence to support the district court’s decision. As Asset Director, Smith exercised significant discretion over contractor oversight and invoicing, which constituted a position of trust that he abused to facilitate the fraud.
Furthermore, even if the enhancement were an error, the district court had clearly stated it would have imposed the same sentence range based on other factors under the Sentencing Guidelines, making any potential error harmless.
Finally, the court noted a minor clerical oversight in Robinson’s written judgment regarding restitution owed jointly with Smith and another contractor. The court remanded the case solely to correct this written record to accurately reflect the parties’ joint and several liability for that specific restitution amount.
Judge Easterbrook concurred, agreeing with the reversal of the bank fraud convictions based on *Loughrin*. However, he expressed strong reservations about applying the plain error review when the defense failed to make a timely motion for acquittal under Federal Rule of Criminal Procedure 29, suggesting that the majority’s approach sidestepped established procedural rules. Despite these procedural concerns, Judge Easterbrook joined the opinion due to the government’s failure to argue against the plain error review.