Good Faith and Intent to Repay in Federal Fraud Cases
Good faith can defeat a federal fraud charge because a person who acts honestly does not possess the required intent to defraud. But an intention to repay money later does not automatically establish good faith when the defendant knowingly used material deception to obtain the money in the first place.
If federal prosecutors accuse you of knowingly making false representations to obtain a loan, investment, contract, or payment, contact federal criminal defense attorney Michael J. Petro before discussing your intent with investigators.
Intent to Defraud Is an Essential Element
Federal mail fraud and wire fraud are specific intent crimes.
The government generally must prove that the defendant knowingly participated in a scheme to defraud and acted with the required fraudulent intent.
Evidence of a false statement is not enough by itself. Prosecutors must establish that the defendant acted knowingly rather than through:
• An honest mistake.
• Negligence.
• Carelessness.
• A misunderstanding.
• Reliance on inaccurate information.
• A genuine contractual dispute.
• An honestly held belief.
The government retains the burden of proving fraudulent intent beyond a reasonable doubt.
What Is the Good Faith Defense?
Good faith means an honest belief that the defendant’s representations and conduct were lawful or truthful.
A defendant may act in good faith when the evidence shows:
• An honest belief that the statement was accurate.
• A reasonable interpretation of ambiguous contract language.
• Reliance on information supplied by employees or professionals.
• An intent to perform the promise when it was made.
• Efforts to disclose important facts.
• Attempts to correct an error after discovering it.
• Lack of knowledge that records or certifications were false.
Good faith is not ordinarily an affirmative defense that requires the defendant to prove innocence. It directly challenges the government’s ability to establish fraudulent intent.
Intent to Repay Is Not Automatically Good Faith
A person may intend to repay a loan while knowingly using false documents or material misrepresentations to obtain it.
For example, the following conduct may support a fraud charge despite an intention to repay:
• Inflating income on a loan application.
• Submitting false bank statements.
• Concealing existing debt.
• Using a straw borrower.
• Misrepresenting ownership of collateral.
• Submitting a forged appraisal.
• Using another person’s identity.
• Falsely certifying eligibility for government funds.
The proposed repayment does not erase the alleged deception used to obtain the victim’s money.
Why Repayment Does Not Necessarily Defeat Fraud
Fraud may be complete when the defendant obtains money or property through materially false representations.
The victim may be deprived of:
• The right to decide whether to enter the transaction based on truthful material information.
• Possession and use of its money during the loan period.
• The opportunity to evaluate the actual credit risk.
• Contract terms reflecting the true risk.
• Collateral or guarantees that would otherwise have been required.
The defendant’s belief that everything would eventually work out does not necessarily eliminate an intent to obtain money through deception.
Repayment Evidence Can Still Be Relevant
Evidence of repayment or an intention to repay is not irrelevant in every fraud case.
It may be probative when it helps establish that:
• The defendant believed the transaction was legitimate.
• The defendant did not know a representation was false.
• The defendant intended to perform a promise when it was made.
• The alleged victim understood the true arrangement.
• The transaction was a legitimate loan rather than a fraudulent taking.
• The defendant’s conduct was inconsistent with concealment.
The court should evaluate why the evidence is being offered.
A defendant generally cannot argue, “I knowingly lied, but planned to repay the money.” But the defendant may argue, “My conduct and repayment history show that I honestly believed the transaction was legitimate.”
A Broken Promise Is Not Automatically Fraud
A promise may support fraud when the defendant had no intention of performing it at the time it was made.
Failure to perform later does not automatically prove that the original promise was fraudulent.
Business conditions may change because of:
• Unexpected expenses.
• Loss of financing.
• Market conditions.
• Supply problems.
• Customer defaults.
• Illness or incapacity.
• Disputes over contract terms.
• Poor management.
The government must distinguish between a knowingly false promise and a legitimate plan that later failed.
Subsequent Conduct May Reveal Original Intent
Because intent concerns the defendant’s state of mind, later conduct may provide circumstantial evidence of what the defendant intended at the beginning.
Conduct supporting good faith may include:
• Making payments before an investigation began.
• Maintaining accurate records.
• Communicating openly with the lender or investor.
• Disclosing financial problems.
• Attempting to restructure the obligation.
• Returning unused funds.
• Seeking professional advice.
Evidence supporting fraudulent intent may include:
• Concealing the transaction.
• Creating additional false documents.
• Diverting money to undisclosed purposes.
• Giving conflicting explanations.
• Making payments only after discovery.
• Recruiting straw participants.
• Destroying or altering records.
The timing and context matter more than the simple fact that some money was repaid.
United States v. Radziszewski
In United States v. Radziszewski, the defendant was convicted of mail and wire fraud involving real estate loans.
The government alleged that he helped recruit straw buyers and used false documentation to obtain mortgage financing.
The alleged false information included:
• Employment information.
• Income.
• Bank statements.
• Property appraisals.
• Borrower identities.
One transaction involved a loan that the defendant expected to repay with proceeds from a later resale and a new mortgage loan.
The defendant argued that his plan to repay the earlier lender showed that he lacked intent to defraud that lender.
Why the Seventh Circuit Rejected the Repayment Defense
The Seventh Circuit held that an ultimate intention to repay a debt obtained through fraud did not negate the intent to obtain the money through deceptive means.
According to the court, the first lender’s repayment from a later transaction would not undo the alleged fraud used to obtain the original loan.
The court therefore upheld the exclusion of a defense theory based solely on the defendant’s intention to repay the lender several months later.
Importantly, the trial court did not prevent every good faith argument. The defendant remained free to argue that he acted only as an innocent translator and did not knowingly participate in the false statements.
The decision distinguishes a genuine lack of fraudulent intent from an anticipated repayment after knowing deception.
Full Repayment Does Not Automatically Defeat Wire Fraud
The Supreme Court’s decision in Kousisis v. United States confirms that federal fraud does not always require the victim to suffer a final net economic loss.
A defendant may obtain money through material deception and provide valuable goods, services, collateral, or repayment in return.
Read more about federal mail and wire fraud and financial loss.
The prosecution must still prove that money or traditional property was an object of the scheme, the deception was material, and the defendant acted with the required intent.
Advice of Counsel and Professional Reliance
Reliance on an attorney, accountant, lender, consultant, or compliance professional may support good faith.
Relevant evidence may include:
• The professional’s advice.
• Information disclosed by the defendant.
• Written opinions or communications.
• The defendant’s actions after receiving the advice.
• Whether the defendant followed the advice honestly.
A defendant cannot rely on professional advice obtained after concealing material facts. Full disclosure and genuine reliance are important.
Advice of counsel does not shift the prosecution’s burden. It is evidence that may negate fraudulent intent.
Reliance on Employees or Business Records
Executives and business owners frequently rely on information prepared by other people.
A defendant may lack fraudulent intent when an inaccurate submission resulted from:
• A bookkeeping error.
• Incorrect information from an employee.
• A misunderstanding by a subcontractor.
• Defective software.
• An inaccurate internal report.
• A compliance failure outside the defendant’s knowledge.
The government must prove the defendant knew about or deliberately participated in the alleged falsity.
Position or title alone does not establish knowledge.
Willful Blindness
Prosecutors may argue that a defendant deliberately avoided learning the truth.
A willful blindness instruction generally requires evidence that the defendant:
• Subjectively believed there was a high probability that a fact existed.
• Deliberately acted to avoid learning that fact.
Carelessness or failure to investigate is not automatically willful blindness.
The government should not be permitted to lower the intent requirement from knowledge to negligence by arguing that the defendant should have known more.
Is a Separate Good Faith Jury Instruction Required?
Courts differ in how they formulate fraud instructions.
A defendant may request an instruction explaining that good faith is inconsistent with intent to defraud. Some courts conclude that a separate instruction is unnecessary when the instructions already require the jury to find knowing and intentional fraud beyond a reasonable doubt.
Defense counsel should:
• Request a legally accurate good faith instruction when supported by evidence.
• Object to instructions that reduce intent to negligence.
• Ensure the jury understands that mistake is not fraud.
• Preserve the ruling for appeal.
• Confirm that any willful blindness instruction is supported by evidence.
The defense should also be permitted to argue its good faith theory from the admitted evidence.
Repayment and Sentencing Loss
Even when repayment does not defeat guilt, it may affect the Sentencing Guidelines loss calculation.
The timing matters. Value returned before the offense was detected may receive different treatment from money repaid after the defendant learned of an investigation.
Defense counsel should distinguish:
• The amount originally obtained.
• Principal repaid.
• Interest paid.
• Collateral value.
• Foreclosure proceeds.
• Actual loss.
• Intended loss.
• Payments made before detection.
• Payments made after detection.
The government’s gross transaction amount is not automatically the proper sentencing loss.
Repayment and Restitution
Restitution generally focuses on the victim’s actual remaining loss.
The court should account for:
• Money returned.
• Property recovered.
• Collateral proceeds.
• Goods or services provided.
• Payments from other sources.
• Losses directly caused by the offense.
A conviction may remain valid even when full repayment eliminates or substantially reduces restitution.
Forfeiture Is a Separate Question
Forfeiture focuses on proceeds obtained from the offense rather than only the victim’s unpaid loss.
The government may seek forfeiture even when money was later repaid. Defense counsel should challenge whether the requested property represents traceable criminal proceeds and whether the calculation includes legitimate funds.
Guilt, sentencing loss, restitution, and forfeiture require separate analyses.
Building a Good Faith Defense
Evidence supporting good faith may include:
• Emails and text messages.
• Draft agreements.
• Accounting records.
• Payment history.
• Communications with lenders and investors.
• Advice from attorneys or accountants.
• Internal compliance records.
• Evidence of disclosure.
• Efforts to correct errors.
• Testimony from employees and professionals.
• Contemporaneous business plans.
The strongest evidence often comes from records created before the investigation began.
Questions in a Good Faith Fraud Defense
Defense counsel should ask:
• What statement was allegedly false?
• Did the defendant know it was false?
• Was the statement material?
• Did the defendant honestly believe the transaction was lawful?
• Did the defendant intend to perform when the promise was made?
• Was important information disclosed?
• Did the defendant rely on professional advice?
• Was the case actually a failed business transaction?
• How does repayment evidence relate to the defendant’s original intent?
• Is the government improperly equating negligence with fraud?
Michael J. Petro represents clients facing federal fraud investigations and charges in Tampa and Chicago, and if prosecutors are attempting to turn a loan default, repayment dispute, or failed transaction into a criminal fraud case, contact federal criminal defense attorney Michael J. Petro.