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White Collar Defense & Compliance Developments in Criminal Law, Federal Case Law and Statutory Developments

“Ostrich” Defense Proves No Defense For Lawyer Charged With Mortgage Fraud

Posted in Offense elements

Jana C. Volante writes:

In United States v. Westerfield, 2013 WL 1405881 (7th Cir., Apr. 9, 2013), an Illinois lawyer, Lorie Westerfield, who worked for a title company, was charged with facilitating fraudulent real estate transfers in a mortgage fraud scheme. The scheme used stolen identities of homeowners to “sell” houses, that were not truly for sale, to fake buyers, and then collect the mortgage proceeds from lenders who were unaware of the fraud. Westerfield was indicted on four counts of wire fraud with regard to the fake transfers. A jury convicted her on three of these counts. The district court sentenced her to 72 months in prison with three years of supervised release and ordered her to pay $916,300 in restitution.

At trial, the government relied on circumstantial evidence including evidence that Westerfield had prepared real estate transaction documents indicative of fraud. The government showed that Westerfield helped two buyers purchase five homes with financing from different lenders during a short period of time. There was testimony that borrowing from multiple lenders is a red flag because it allows fraudulent transactions to avoid immediate detection, as well as evidence that Westerfield arranged to have 100% of the proceeds from the real estate transactions directed to a third party who had not been involved in the real estate transactions.

There was, however, a lack of direct evidence of intentionally fraudulent conduct.  Based on this circumstantial evidence, the government requested an “ostrich” jury instruction that would tell jurors that if they found that Westerfield had a strong suspicion that things were not what they seemed or that someone had withheld some important facts, yet “shut her eyes” for fear of what she would learn, then the jury could conclude that Westerfield acted with the necessary intent.

The district court granted the government’s request and gave the jury this instruction.
On appeal, Westerfield challenged her conviction for insufficient evidence and argued that the government did not present any direct evidence showing that she knew that she was participating in fraudulent real estate transactions.   The Seventh Circuit held that, based on the evidence summarized above, a reasonable jury could conclude that, even if there was a lack of direct evidence that Westerfield had been aware that she was facilitating an illegal scheme, she only lacked such knowledge because she was deliberately ignorant. Thus, the Seventh Circuit held that the district court did not err in denying Westerfield’s motion for judgment of acquittal, and affirmed Westerfield’s conviction.

[Part I of II]

(Jana C. Volante, Esq., the author of this entry, is an associate with Fox Rothschild LLP, based in our Pittsburgh, PA office. Her practice concerns white collar criminal defense and commercial litigation)