U.S. v. Brown

• Decision Date: 01 June 1978
• Docket Number: No. 77-1742,77-1742
• Citation: 578 F.2d 1280
• Parties: Fed. Sec. L. Rep. P 96,478 UNITED STATES of America, Plaintiff-Appellee, v. Robert Edwin BROWN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1280

578 F.2d 1280

Fed. Sec. L. Rep. P 96,478

UNITED STATES of America, Plaintiff-Appellee, v. Robert Edwin BROWN, Defendant-Appellant.

No. 77-1742.

United States Court of Appeals, Ninth Circuit.

June 1, 1978.

Rehearing and Rehearing En Banc Denied July 24, 1978.

Jack A. Brown (argued) Brown & Bain, P.A., Phoenix, Ariz., Ralph E. Seefeldt, Sullivan & Seefeldt, Tucson, Arizona, for defendant-appellant.

Dale A. Danneman, Asst. U. S. Atty. (argued), of Phoenix, Ariz., for plaintiff-appellee.

Appeal From the United States District Court For the District of Arizona.

Before WRIGHT and HUG, Circuit Judges, and INGRAM ^*, District Judge.

INGRAM, District Judge.

Robert Edwin Brown appeals from his conviction after trial by court of 10 counts of violations of 15 U.S.C. § 77q(a) (counts 2, 4, 6, 7, 9, 10, 12, 14, 19, and 20 for securities On appeal, Brown contends that five counts upon which he was convicted (counts 2, 4, 12, 19, and 20) are barred by the Statute of Limitations and that the trial court erred in denying his motion for judgment of acquittal with respect to those counts; that four counts (counts 7, 9, 19, and 20) were not supported by evidence sufficiently substantial to support a finding of guilt beyond a reasonable doubt; that the evidence produced by the government was insufficient to support a finding of the existence of a specific intent to sell a security or knowledge on the part of the defendant that the instruments in question were securities; ¹ that the evidence adduced in support of count 10 was materially at variance with the allegations of the indictment and that the court erred in denying the motion for judgment of acquittal made upon that ground; that the court erred in denying defendant's motion for dismissal on the ground of pre-indictment delay; and, finally, that the evidence was insufficient to support the conviction of the conspiracy charge embraced within the allegations of count 34.

fraud) and one conspiracy count in violation of 18 U.S.C. § 371 (count 34).

We disagree with each of the contentions set forth by appellant.

I. FACTS

We review the facts in their aspect which is most favorable to the government. Glasser v. United States, 315 U.S. 60, 62 S.Ct. 457, 86 L.Ed. 680 (1942); Mosco v. United States, 301 F.2d 180 (9th Cir. 1962); Castro v. United States, 323 F.2d 683 (9th Cir. 1963).

Appellant was president of a corporation, Buckeye Mines, Inc., which had subsidiaries including Arizona-Florida Equities Corp., Arizona-Florida Development Corp., and Corona De Tucson. Appellant was president of the latter two subsidiaries.

Arizona-Florida Development Corp. (AFD) was formed in 1970 for the purpose of developing land. To develop sufficient cash flow to accomplish that purpose, land contracts purportedly sold to purchasers were factored through a Florida company, Summit Investment Co., with appellant receiving from Summit a sum equal to 80 percent of their face value. The contracts factored through Summit were sold to investors through brokers, with the result that appellant became obligated to the investors for the monthly payments provided in the contracts.

Many of the land contracts transferred in the fashion described were forged. Payments were made to purchasers of these forged instruments as if they were genuine. In other cases, purchasers were given a six month cancellation privilege. These contracts were also factored in the fashion described prior to the expiration of the six month period. In still other instances, salesmen employed by appellant and AFD were encouraged to enter into land purchase agreements which did not require them to make payments. Contracts of this category were also sold to investors. Some investors received their monthly payment checks although the contracts they had purchased had been cancelled.

After October, 1971, during which month the Securities and Exchange Commission ordered Summit to cease selling contract assignments, the sale of these ceased. Thereafter, appellant commenced selling contract assignments and promissory notes and mortgages in a development known as Corona. Under this plan, an investor received a promissory note secured by a mortgage on a lot in a development known as Lake Mead. In August, 1973, appellant's companies defaulted on their obligations and were indebted to investors in a sum exceeding six million dollars.

Appellant received a sentence of five years and a $5,000 fine on count 2, a sentence of five years on four additional counts to run concurrently with count 2 and with each other, and a $5,000 fine on each of the six remaining counts.

Appellant is presently out of custody on bail.

II. REQUIREMENT OF SPECIFIC KNOWLEDGE THAT THE INSTRUMENTS WERE SECURITIES

In attacking his conviction of the alleged violations of 15 U.S.C. § 77q, appellant principally contends that the government's burden includes the obligation to prove beyond a reasonable doubt that appellant knew that the items sold were securities within the meaning of the act. Appellant argues that the use of the word "willful" in 15 U.S.C. § 77x, the penalty provision for violations of § 77q, imports the requirement of specific knowledge of the identity of instruments as securities. ² We are therefore required in determining this issue to construe the word "willfully" as it appears in the context of this statute. We are mindful that "willful" and "willfully" are words of many meanings, and that their construction is often influenced by context. Screws v. United States, 325 U.S. 91, 101, 65 S.Ct. 1031, 1035, 89 L.Ed. 1495, 1502 (1945); Spies v. United States, 317 U.S. 492, 63 S.Ct. 364, 87 L.Ed. 418 (1943).

Appellant, relying upon United States v. Lizarraga-Lizarraga, 541 F.2d 826 (9th Cir. 1976), and United States v. Klee, 494 F.2d 394 (9th Cir. 1974), argues that the court erred as a matter of law in entering judgments of conviction upon the counts alleging violations of 15 U.S.C. § 77q in that the court did not require proof of specific intent to sell a security, or proof of specific knowledge on the part of appellant that the instruments sold were securities within the meaning of the Securities Act of 1933. Appellant contends that the word "willfully" as used in § 77x requires this proof in order to convict.

Lizarraga-Lizarraga finds that Congress intended the requirement of proof of specific intent by its use of the word "willful" in enacting 22 U.S.C. § 1934, which proscribes the exportation of such contraband articles as may be defined by regulation promulgated thereunder. Within the context of that statute, the court found that, absent proof of specific intent, prosecutions and convictions might ensue because of the unwitting and innocent exportation of innocuous articles that were in fact contraband because the regulations so defined them. Reference to the statute alone, without the regulations at hand, would not enlighten the unwary, and the Congressional intent was inferred from that circumstance. In Klee, an income tax "failure to file" case, the court approved the giving of an instruction which required proof of a knowing violation of law, as distinguished from innocent error or inadvertence, or even from reckless disregard. In sum, these cases find a requirement of the necessity of proof of specific intent in the use of the term "willful" as a necessary inference of Congressional intent to avoid the prosecution of the innocent, feckless or reckless.

In contrast, 15 U.S.C. § 77q in substance proscribes the offer or sale of a security through the use of instruments or communications in commerce or by the use of the mails where the offer or sale involves:

1) The employment of a device or scheme to defraud, or

2) The obtaining of money or property through untrue statements of material facts or the omission to state material facts, the omission of which makes statements made misleading, or 3) Conduct amounting to fraud and deceit.

This prohibition of conduct is not a trap for the unwary because the thrust of it is fraud. Our question is whether the government is required to prove that one otherwise transgressing this statute must specifically know that the vehicle of his perfidy is a security within the meaning of the Securities Act.

We think that the government is required to prove specific intent only as it relates to the action constituting the fraudulent, misleading or deceitful conduct, but not as to the knowledge that the instrument used is a security under the Securities Act. The government need only prove that the object sold or offered is, in fact, a security; it need not be proved that the defendant had specific knowledge that the object sold or offered was a security.

In United States v. Riedel, 126 F.2d 81 (7th Cir. 1942), a prosecution for six counts of violations of 15 U.S.C. §§ 77q, 77x, and three counts of mail fraud, defendant contended that the instruments in question (trust certificates) were not securities within the meaning of the Securities Act of 1933 as amended. The court held that the question of whether or not the instrument in issue was a security was determinable from the evidence, and that where the issuance of such instruments was a part of a fraud practiced upon a purchaser, a violation of the Securities Act occurred. While the question of specific knowledge of the nature of the instruments as securities was neither raised by the parties nor addressed by the court, it is implicit in the holding that where inclusion of the instrument in question in the definition of a security in the context of a fraud case is itself a jural fact, the knowledge and belief of the defendant with respect to this is not a relevant fact requiring proof.

There is, of course, no issue in the case before us as to whether the instruments factored and assigned by appellant were securities. They are conceded to be.

In marked contrast to such holdings as Lizarraga-Lizarraga and Klee, it is interesting to note that when...