Check Kiting Prosecutions In Us Law
🔍 What is Check Kiting?
Check kiting is a form of bank fraud involving the manipulation of the “float” time between banks to fraudulently create funds.
A kiter writes a check from one bank account without sufficient funds and deposits it into another account, exploiting the time delay before the check clears to withdraw money illegally.
This artificially inflates the account balance, allowing the person to withdraw funds that don’t exist.
⚖️ Legal Basis for Prosecution
Federal law: 18 U.S.C. § 1344 (Bank Fraud Statute) is the primary federal statute used to prosecute check kiting.
Prosecutions may also involve:
Mail and wire fraud statutes,
State-level fraud statutes,
Conspiracy charges if multiple people are involved.
Penalties can include imprisonment, fines, and restitution.
Case Law: Detailed Examples of Check Kiting Prosecutions
1. United States v. DeLuna, 763 F.2d 897 (5th Cir. 1985)
Facts: DeLuna engaged in a large-scale check kiting scheme involving multiple banks, creating fraudulent balances through overlapping deposits and withdrawals.
Ruling: The court upheld convictions under the bank fraud statute, emphasizing the scheme’s intent to deceive financial institutions.
Significance: Established that deliberate manipulation of the float to defraud banks constitutes bank fraud under federal law.
2. United States v. Martino, 864 F.2d 817 (9th Cir. 1988)
Facts: Martino was convicted for a check kiting scheme involving the issuance of checks without sufficient funds to obtain cash advances.
Ruling: The Ninth Circuit affirmed the conviction, underscoring that the intent to defraud banks through check float abuse meets the statutory definition of bank fraud.
Significance: Reinforced that the use of bank systems in fraudulent schemes falls under federal jurisdiction.
3. United States v. Nash, 910 F.2d 750 (1st Cir. 1990)
Facts: Nash orchestrated a complex kiting scheme by transferring funds between accounts to cover insufficient balances.
Ruling: Conviction affirmed; court highlighted that the timing manipulation and intent to deceive satisfied the elements of bank fraud.
Significance: Confirmed that temporal manipulation of account balances for gain is criminally punishable.
4. United States v. Gaydos, 108 F.3d 505 (3rd Cir. 1997)
Facts: Gaydos engaged in check kiting and pleaded guilty to bank fraud.
Ruling: Affirmed the applicability of bank fraud statutes to kiting and the appropriateness of sentence enhancements based on scheme sophistication.
Significance: Showed that sentencing takes into account scheme scale and complexity.
5. United States v. Ivester, 757 F.3d 1253 (11th Cir. 2014)
Facts: Ivester ran a kiting operation involving multiple bank accounts and millions in fraudulent checks.
Ruling: The court upheld the conviction and sentencing enhancements related to the large monetary amount involved.
Significance: Demonstrated federal courts’ zero tolerance for large-scale kiting and willingness to impose harsh penalties.
6. United States v. Hentz, 384 F.3d 1050 (9th Cir. 2004)
Facts: Hentz was prosecuted for a check kiting scheme involving personal and business accounts, leading to significant bank losses.
Ruling: The conviction was upheld; the court emphasized the defendant’s knowledge and intent to defraud as critical.
Significance: Reinforced that both personal and business accounts can be involved in kiting and prosecuted accordingly.
Summary of Legal Principles
| Principle | Explanation |
|---|---|
| Intent to defraud banks is key | Accidental overdrafts are not criminal; deliberate schemes are. |
| Use of check float to create artificial balances constitutes fraud | Manipulating timing to access nonexistent funds. |
| Federal bank fraud statute is primary prosecution tool | Encompasses schemes abusing banking processes. |
| Scale and sophistication affect sentencing | Larger, more complex schemes get harsher penalties. |
| Both individual and corporate actors prosecuted | Businesses can be liable, not just individuals. |
Typical Penalties
Prison sentences (often multiple years for large schemes),
Restitution payments to banks,
Fines,
Probation or supervised release.
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