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United States v. Rafsky

argued: September 16, 1986.


On Appeal from the United States District Court for the Eastern District of Pennsylvania, Criminal No. 85-00303-01.

Author: Adams


Before: ADAMS, STAPLETON and GARTH, Circuit Judges

ADAMS, Circuit Judge.

In February 1986, Jeffrey Rafsky was convicted by a jury of 25 counts of wire fraud in connection with a check kiting scheme. He was sentenced to three years' probation and community service, and ordered to pay a $1,000 fine; in addition, he was directed to complete restitution to the bank that was defrauded by the end of the probationary period. Rafsky now appeals, claiming that a scheme to defraud based on passing checks backed by insufficient funds cannot, as a matter of law form the basis of a wires fraud conviction.


As president and 30% owner of Trend Group, a holding company that maintained a checking account at Citizens Fidelity Bank and Trust Company in Louisville, Kentucky, Rafsky engaged in an elaborate check kiting scheme during late 1983 and early 1984. Trend Group was the sole owner of Lease Trend Company, an automobile leasing company, which maintained a checking account at the Provident National Bank in Philadelphia.

In September, 1983, the Trend Group began to experience financial difficulties, largely because of the failure of an Arab sheik to pay a substantial debt to Lease Trend. As a result, Lease Trend's payments on a $4,000,000 line of credit at Provident were delinquent. To meet the financial pressures faced by Trend Group and Lease Trend, Rafsky devised a scheme to take advantage of the "float" between the checking accounts in Philadelphia and Louisville.

Lease Trend had an agreement with Provident that gave Lease Trend immediate credit for deposits made to the Lease Trend account, at Provident, before the deposited check had actually cleared the Federal Reserve System. Taking advantage of this arrangement to create an artificially high balance in the Lease Trend account, Rafsky would write checks drawn on Trend Group's Louisville bank and deposit them in the Philadelphia bank, which would then immediately credit Lease Trend's account. The Louisville checks, however, were not backed by sufficient funds. In order to cover the amount drawn on the Louisville account, Rafsky would then transfer money by wire from Philadelphia to Louisville, drawing on the artificially high Philadelphia balance.

In February 1984, Provident investigators noticed that Lease Trend's average daily balance was unusually high, and that this high balance was due to checks drawn on the Louisville account. As a result of the investigation, Provident suspended Lease Trend's wire transfer privileges. The Louisville checks were then processed without the benefit of a wire transfer to cover the checks, and were returned to Provident for lack of sufficient funds. As a result, it was revealed that Lease Trend was overdrawn by some $2,815,000.

In August 1985, Rafsky and William Klein, Vice President of Finance of Trend Group, were indicted in the Eastern District of Pennsylvania on 32 counts of wire fraud in connection with this scheme. The district court granted Klein's severance motion on January 10, 1986. After the district court entered a judgment of acquittal on counts 1 through 7 of the indictment, the jury convicted Rafsky of 25 counts of wire fraud. By the time of trial, Rafsky had reduced his debt to the Provident Bank to approximately $1,000,000.


Both at trial and on appeal, Rafsky has contended that a check kiting scheme cannot be a federal crime under the mail fraud statute, which prohibits "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises . . . that involves use of wire, television or radio communications." 18 U.S.C. § 1343. In support of his contention, Rafsky relies on the 1982 Supreme Court case Williams v. United States, 458 U.S. 279, 73 L. Ed. 2d 767, 102 S. Ct. 3088, and Williams's progeny in this Circuit, United States v. Frankel, 721 F.2d 917 (3d Cir. 1983). We believe that this argument is untenable.

In Williams v. United States, the Supreme Court held that a check is not a "representation" or "factual statement" for purposes of 18 U.S.C. § 1014, which prohibits "any false statement or report" knowingly designed to influence a federally insured bank in making loans or other financial commitments. In this opinion for the Court, Justice Blackmun stressed that if merely passing a single bad check could form the basis of a federal prosecution, then "a surprisingly broad range of unremarkable conduct [would be] a violation of federal law." 458 U.S. at 286. Congress did not intent to include such a "broad range" of minor infractions within the sweep of a federal criminal statute. "Absent support in the legislative history for the proposition that § ...

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