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United States v. Pardue

January 26, 1998

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,

v.

JERRY PARDUE, DEFENDANT-APPELLANT.



Appeal from the United States District Court for the Central District of Illinois.

No. 96 CR 30026 Richard Mills, Judge.

Before KANNE, ROVNER, and EVANS, Circuit Judges.

EVANS, Circuit Judge.

ARGUED DECEMBER 8, 1997

DECIDED JANUARY 26, 1998

On December 20, 1996, a jury found Jerry Pardue guilty of embezzlement and misapplication of bank funds. He was sentenced to 18 years imprisonment and ordered to pay $10,000 restitution. The only thing at all remarkable in the case is that the events occurred in 1986 and the indictment was returned almost 10 years later, just before the expiration of the statute of limitations. Predictably, Pardue contends that the indictment should have been dismissed because of prejudicial preindictment delay.

Pardue was indicted with Eldon Schoch, the president of the Mendon State Bank, and Eldon's brother Donald Schoch, the chairman of the bank's holding company. Both of the Schochs entered guilty pleas and testified at Pardue's trial.

Pardue was the chairman of Choice 2000, a company which presented itself to the bank as a business established to sell real estate throughout the country. When Choice 2000 began to receive loans from the Mendon State Bank, Pardue was aware that the bank had already reached its lending limit. Nevertheless, the company obtained a loan to purchase a site with the unlikely name of Lake Little Tweet. Choice 2000 did not generate sufficient funds to avoid a negative checking account balance from January 1986 until the bank closed in August 1986. Donald Schoch discussed the negative balance with Pardue, who nevertheless continued to write checks on the account.

Both Donald and Eldon Schoch personally borrowed $100,000 from the bank and transferred the funds to the Choice 2000 account. In addition, for the purpose of further funding Choice 2000, Pardue and the Schoch brothers formed E & D Financial, Inc., which unsuccessfully attempted to fund Choice 2000.

In constant need of funds, Pardue convinced some Choice 2000 employees to sign Mendon Bank promissory notes and to allow the company to have the use of the funds. In early March 1986 persons involved with Choice 2000 formed a corporation and obtained a $100,000 loan so that Choice 2000 could obtain a new building. In April 1986 Pardue personally signed for a $350,000 business loan and his financial officer signed for another $100,000 loan. Funds from Pardue's loan were used to cover Choice 2000 overdrafts, and funds from the financial officer's loan were applied to repay Pardue's loan. Also in April 1986, two other loans for $100,000 and two loans for $120,000 were made in the names of employees. Loan proceeds went to Choice 2000's checking account and to repay the loan for which the defendant signed. On June 30, 1986, Mendon Bank loaned an additional $420,000 which benefited Choice 2000 through loans to four individuals associated with the company.

In July 1986 the Schochs were aware that the loans constituted unsecured credit. But because Choice 2000 constantly required funds, John Kolp, the bank's consultant, and Pardue devised a plan by which the bank would loan funds to Choice 2000 associates and the funds would be used to purchase zero coupon bonds. Pardue had represented that a third party, whom he introduced to the bank, would then be willing to provide funds to Choice 2000 and, more importantly, pick up the loans currently at Mendon Bank. Donald Schoch had never worked with zero coupon bonds, and he did not realize that the Mendon Bank funds were being funneled directly into the account of the third party who was supposed to be providing financing to Choice 2000, with the result that the bonds were never delivered to the bank.

Although Donald Schoch did not, Pardue clearly understood how such bonds worked and explained them to his employees, one of whom recognized the problem with the bonds. The $350,000 loans were due in one year, and the bonds, which ostensibly were security on the loans, would not mature for 13 years. At maturity in 1999 the bonds, purchased for $140,000 each, would be worth only enough to pay the principal on the loans and were not nearly sufficient security for the loans made to purchase the bonds.

If that wasn't enough, six loans of $350,000 were made to others, ostensibly to establish Choice 2000 centers around the country. It should be no surprise by now to learn that the money went to make payments on loans and to the third-party bond purchaser, and that no Choice 2000 centers were ever established with the funds. Meanwhile, Choice 2000 continued to flood the bank with overdrafts.

By July 30, 1986, the Illinois Commissioner of Banks entered Mendon Bank. Again not surprisingly, the bank was closed shortly thereafter. But it wasn't until June 1996 that a federal grand jury returned an indictment charging Pardue, along with Donald and Eldon Schoch, in the present case. Prior to trial Donald Schoch moved to dismiss the indictment, claiming that ...


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