Cheque Kiting Prosecutions
⚖️ Overview
Cheque kiting is a form of bank fraud in which a person exploits the float period between banks to withdraw money that does not exist in their account. It usually involves writing a cheque from one bank account to another, knowing there are insufficient funds, to temporarily inflate account balances.
In many jurisdictions, cheque kiting is criminalized under fraud, bank fraud, or financial crime statutes. In the U.S., it often falls under 18 U.S.C. §1344 (Bank Fraud) and state laws.
🧾 Case 1: United States v. Harry G. Lewis (1994) — New York
Facts:
Lewis orchestrated a cheque kiting scheme between three banks, circulating cheques totaling over $1.5 million over six months. He profited personally while concealing the overdrafts.
Legal Issue:
Violation of bank fraud statutes and conspiracy to commit fraud.
Judgment:
Convicted on multiple counts of bank fraud and conspiracy.
Sentenced to 7 years imprisonment, ordered to pay restitution of $1.5 million.
Significance:
This case highlighted that inter-bank kiting over extended periods with intent to defraud is treated as serious federal bank fraud.
🧾 Case 2: United States v. Michael James Smith (1997) — California
Facts:
Smith ran a retail business and repeatedly issued post-dated cheques from one account to another to temporarily inflate balances and cover cash withdrawals.
Legal Issue:
Bank fraud and misrepresentation under 18 U.S.C. §1344.
Judgment:
Convicted on 4 counts of bank fraud.
Sentenced to 4 years in prison and $250,000 restitution.
Significance:
Courts emphasized that intent to cover withdrawals using non-existent funds constitutes fraud, even in small-scale operations.
🧾 Case 3: United States v. Raines (2002) — Texas
Facts:
Raines coordinated a kiting scheme across multiple branches of the same bank. He wrote over 200 cheques totaling $500,000 to manipulate the float.
Legal Issue:
Violation of federal bank fraud statutes.
Judgment:
Convicted on 5 counts of bank fraud and 1 count of conspiracy.
Sentence: 6 years imprisonment, mandatory restitution, and probation post-release.
Significance:
Court clarified that using a single bank with multiple accounts to kite cheques is equally punishable as inter-bank kiting.
🧾 Case 4: United States v. Teresa Ball (2005) — Illinois
Facts:
Ball worked as an accountant and used corporate and personal accounts to inflate balances through kiting, enabling unauthorized withdrawals and checks bouncing.
Legal Issue:
Corporate and personal cheque kiting, misappropriation, and bank fraud.
Judgment:
Convicted on 3 counts of bank fraud and one count of wire fraud.
Sentenced to 5 years imprisonment and $600,000 restitution.
Significance:
Court emphasized employee abuse of corporate accounts in kiting schemes, and liability extends to internal accounting fraud.
🧾 Case 5: United States v. Michael R. Lubow (2010) — Florida
Facts:
Lubow ran a small chain of convenience stores and engaged in cheque kiting to cover payroll obligations. The scheme lasted 2 years, involving over $2 million.
Legal Issue:
Bank fraud under federal statutes, conspiracy to commit fraud, and wire fraud.
Judgment:
Convicted on 7 counts of bank fraud and conspiracy.
Sentenced to 8 years imprisonment, forfeiture of personal assets linked to the scheme, and restitution.
Significance:
Court noted that long-term, high-volume kiting schemes are treated more severely, especially when multiple institutions are defrauded.
🧾 Case 6: United States v. Leonard H. Johnson (2014) — Ohio
Facts:
Johnson coordinated a family-operated cheque kiting ring, using multiple accounts across three banks. They repeatedly deposited and withdrew cheques to inflate available balances.
Legal Issue:
Bank fraud and conspiracy.
Judgment:
Convicted on 12 counts of bank fraud.
Sentenced to 7 years imprisonment and $1.2 million restitution.
Significance:
The case illustrates that even familial or small group operations are prosecuted heavily. Intent and frequency are critical factors in sentencing.
🧾 Case 7: United States v. Douglas Young (2017) — New Jersey
Facts:
Young ran a kiting scheme exploiting online banking systems, transferring funds electronically across accounts with minimal delays, resulting in $800,000 in fraudulent withdrawals.
Legal Issue:
Wire and bank fraud, aggravated by the use of online banking systems.
Judgment:
Convicted on 5 counts of bank fraud and 2 counts of wire fraud.
Sentenced to 6 years imprisonment, full restitution, and probation.
Significance:
Modernized approach shows electronic kiting is prosecuted as strictly as traditional cheque kiting, with wire fraud charges adding severity.
⚖️ Summary Table
| Case | Year | Scheme Type | Amount | Sentence | Legal Importance |
|---|---|---|---|---|---|
| Lewis | 1994 | Multi-bank | $1.5M | 7 yrs | Extended inter-bank kiting |
| Smith | 1997 | Small business | $250k | 4 yrs | Even small-scale kiting = fraud |
| Raines | 2002 | Single bank, multiple accounts | $500k | 6 yrs | Single-bank kiting punishable |
| Ball | 2005 | Corporate + personal | $600k | 5 yrs | Employee misuse of accounts |
| Lubow | 2010 | Business chain | $2M | 8 yrs | Long-term high-volume schemes |
| Johnson | 2014 | Family-operated | $1.2M | 7 yrs | Group liability |
| Young | 2017 | Online/electronic kiting | $800k | 6 yrs | Electronic kiting = wire fraud |
🧩 Legal Principles
Intent to defraud is the key element in cheque kiting prosecutions.
Multi-bank schemes often lead to more severe sentences than single-bank schemes.
Amount involved influences restitution and prison terms.
Electronic or modern banking kiting is treated as seriously as traditional methods.
Employee and business owner liability includes personal accountability for corporate accounts.
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