Amidst a string of high-profile decisions released at the end of the Supreme Court’s most recent term, one under-the-radar decision may have far-reaching effects in the white collar world. Loughrin v. United States dealt with a narrow question of statutory construction in the federal bank fraud statute 18 U.S.C. §1344. Despite the limited question at issue, the effect of the decision was to significantly broaden the statute’s scope and dramatically expand the tools available to prosecutors in white collar cases.

Section 2 of the bank fraud statute criminalizes a scheme to obtain money or other property “owned by, or under the custody or control of” a financial institution by means of false or fraudulent representations. Kevin Loughrin was convicted under this section for presenting stolen checks at a retail store, where he purchased goods and then returned them for cash. He argued that he could not be convicted unless the government proved that he acted with the intent to defraud a financial institution. While he admittedly intended to defraud the true owners of the stolen checks, the involvement of a financial institution was wholly incidental to the scheme. All nine justices rejected this argument, holding that the statute did not require intent to defraud a financial institution.

The Court divided, however, over limiting principles. The justices acknowledged that the ruling could conceivably bring any fraud involving a check within the statute’s ambit. In dicta, five justices signed onto Justice Kagan’s view that the phrase “by means of” in the statute meant that the false statement must actually reach the financial institution. In a concurrence, Justice Scalia, joined by Justice Thomas, condemned this limiting principle as incorrect, intimating that it would prove unworkable in practice. He argued that any limiting principles should be worked out in future cases. Justice Alito refused to sign onto either opinion, instead suggesting a much broader reading of the statute generally.

As decided, Loughrin potentially paves a new way for prosecutors to charge financial institutions and their employees. One such approach is a “self-affecting” theory of fraud – a financial institution itself makes misrepresentations to third parties and thereby obtains funds already within its custody. Take, for example, one of the standard allegations made against banks in the aftermath of the financial crisis: a bank allegedly misrepresents the quality of a mortgage to an investor in order to induce her to purchase the mortgage. The investor buys the mortgage and pays using funds she already has on deposit at that bank. Thus, the bank obtains money “under the custody or control of” a financial institution, and does so “by means of” the misrepresentation. Since the bank itself made the misrepresentation, the false statement has reached the financial institution that has custody of the funds. Even assuming adherence to the majority’s limiting principle, a court could readily conclude that this conduct falls within the statute’s redefined scope. The Court’s division over the proper way to limit the bank fraud statutes gives prosecutors latitude to charge creatively and thus significantly expand the range of activity that constitutes bank fraud.

Prosecutors have a strong incentive to push these boundaries because bank fraud has a major advantage over most other federal fraud statutes insofar as it has a ten-year statute of limitations, versus the five-year statute of limitations applicable to most fraud statutes. As we move past the five-year period for activity at the heart of the financial crisis, bank fraud offers prosecutors the ability to bring cases for several more years. Hence, prosecutors have every incentive to fit as many forms of fraud as possible within the bank fraud statute. Accordingly, while investigations and prosecutions from the financial crisis have, in many respects, appeared to be winding down, prosecutors, who have continued to take criticism over their handling of the financial crisis, may only be starting the second act.