Head v. State
| Decision Date | 30 September 2009 |
| Docket Number | No. 14-07-00855-CR.,No. 14-07-00856-CR.,14-07-00855-CR.,14-07-00856-CR. |
| Citation | 299 S.W.3d 414 |
| Parties | Phillip Lee HEAD, Appellant v. The STATE of Texas, Appellee. |
| Court | Texas Court of Appeals |
Robert A. Scardino, Jr., Houston, TX, for Appellants.
B. Warren Goodson, Jr., Galveston, TX, for State.
Panel consists of Justices FROST, BROWN, and BOYCE.
A jury convicted appellant Phillip Lee Head of misapplication of fiduciary property and assessed punishment at 25 years' confinement and a $10,000 fine. The jury also convicted appellant of securities fraud and assessed punishment at 32 years' confinement and a $10,000 fine. Appellant appeals his conviction for misapplication of fiduciary property in cause number 14-07-00855-CR and his conviction for securities fraud in cause number 14-07-00856-CR on numerous grounds. We affirm.
Appellant sold annuities and trusts to senior citizens through his Galveston-based estate planning company, Capital Estate Services ("Capital"). Appellant operated Capital in the front of his office; the back housed Guardian Group, a telemarketing operation. Guardian Group telemarketers contacted senior citizens who responded to informational cards mailed by appellant. Guardian Group telemarketers set up appointments for Capital employees to visit seniors at their homes. These employees provided investment and estate planning information to the seniors and attempted to sell trusts and annuities.
Appellant also generated business for Capital by advertising in newspapers. The advertisements promoted seminars sponsored by appellant—a "certified estate planner, certified senior advisor, [and] certified wealth transfer practitioner" with a "masters certification in estate planning"— and his team of professionals. Appellant conducted his seminars at hotels and restaurants; the seminars targeted seniors and included a complimentary lunch or dinner.
Appellant presented himself at these seminars as an expert discussing the benefits of avoiding probate through irrevocable trusts, and the funding of such trusts through annuities. Appellant's employees contacted seniors who attended the seminars and scheduled home visits with the goal of selling trusts and annuities to the seniors. After a senior agreed to establish a trust, the trust documents were created in appellant's office using a format that was set up on the office computer and then reviewed by an attorney. Appellant's employees delivered the trust documents to the seniors.
Appellant hired attorney Wintford Evans Verkin, Jr.,1 in 2000, to provide legal services and assist appellant in creating trusts for his clients.
Verkin accompanied appellant to Austin in 2000 or 2001, to gather information about two companies—Old South Trust and Collins Financial. Appellant had been selling Old South Trust stock to his Capital clients before he teamed up with Verkin.
Old South Trust and Collins Financial were engaged in a joint venture under which Old South Trust raised investment money by selling stock, and Collins Financial used the money to buy distressed assets such as bulk credit card debt and delinquent education loans. Appellant and Verkin visited Collins Financial at its Austin headquarters to learn how the company operated. After the first trip with appellant, Verkin continued investigating Collins Financial and Old South Trust. By then, appellant and Verkin had decided to set up a business modeled after Old South Trust.
Verkin traveled to Murphysboro, Tennessee, and met with the CEO of Old South Trust and each of its division heads to learn about its organization and operation, and its agreements with Collins Financial. Based on this information, appellant and Verkin decided to form Retriever Equity Fund, Incorporated ("Retriever"). They contemplated that Verkin would organize Retriever and manage it. Appellant would receive 50 percent of Retriever's profits through a service agreement between Retriever and an entity called RPH—another company owned by appellant.
Appellant's role was to raise money for Retriever and bring in investors through his successful business at Capital. Appellant and his employees—in particular, Rita Brychta and John Drake—induced appellant's Capital clients to switch their investments from Old South Trust to Retriever. According to Retriever's private placement memorandum, which was modeled after Old South Trust's private placement memorandum, money from investors who contributed to Retriever would be invested in distressed assets.
Verkin's role was to manage Retriever's day-to-day operations and keep records for the investors in return for a $150,000 annual salary. Verkin selected most of Retriever's investments. He wrote all of the checks on behalf of Retriever and made deposits. Appellant had no access to the two bank accounts Verkin handled for Retriever. According to Verkin, appellant and Verkin both knew how Retriever operated and what Retriever was doing. Verkin and appellant talked about Retriever four to five times a day.
Retriever's original articles of incorporation were filed on December 31, 2001. Appellant instructed his employees to contact Capital clients who previously had bought trusts, annuities, or Old South Trust stock and tell them about Retriever.
Within weeks of Retriever's incorporation, Verkin realized that Retriever was undercapitalized and needed tens of millions of dollars to be economically feasible. In January or February 2002, Verkin told appellant that Retriever needed millions more in capital. Verkin told appellant that Retriever would not invest in distressed assets, and asked appellant to start looking at other investment opportunities. Verkin also told appellant that he would explore investing in litigation. Appellant told Verkin that he would increase the frequency of his seminar presentations to attract more investors. Appellant and Verkin never discussed informing potential investors that, in fact, Retriever would not be investing in distressed assets as represented in the private placement memorandum.
Appellant received no payment under the service agreement between Retriever and RPH. However, appellant received multiple loans from Retriever between 2002 and 2003 totaling more than $700,000 —paid to appellant individually or to his companies—under a loan participation agreement. Appellant also was paid a 10 percent commission on the money Capital clients invested in Retriever; his commissions totaled nearly $370,000 between January 2002 and April 2004.
Retriever never invested in distressed assets as originally contemplated. Instead, Retriever invested in personal injury litigation pursued by Verkin's law firm and another law firm. Retriever also funded a litigation matter referred to as "Medallion" in the Bahamas; other Retriever investments included a loan participation agreement with RPH for several hundred thousand dollars, real property in Galveston County, certificates of deposit, promissory notes, and a judgment.
Numerous seniors cashed in their savings, retirement funds, or annuities to invest in Retriever. Several investors incurred substantial surrender penalties after cashing in their annuities and other investments, but were told that the losses would be offset by a bonus from Retriever. Seniors invested more than $3.7 million in Retriever between 2001 and 2004. By 2005, Retriever's assets were worth $450,000. Retriever was in receivership by the time of appellant's trial.
The evidence at trial showed that Brychta, one of appellant's Capital employees, started selling Retriever stock to several seniors in 2002. Brychta learned about Retriever from appellant, who told her that it was fashioned after Old South Trust. Appellant also told Brychta that appellant and Verkin talked about Retriever being "a good plan" for Capital clients and "something they could make a good income off of." Brychta talked to Verkin about Retriever so she could inform clients about where their funds would be invested. Verkin explained to Brychta that Retriever would invest in credit card debt and distressed real estate properties which then would be "rehabbed" and sold.
Appellant instructed Brychta to visit Capital clients and induce them to invest in Retriever. As instructed by appellant and Verkin, Brychta told clients that Retriever invested in credit card debt and foreclosed homes. Brychta did not know—and never told clients—that Verkin and appellant were borrowing money from Retriever; that Verkin had filed for bankruptcy in 1994; or that Retriever had used previous investors' funds for purposes other than buying distressed assets.
Brychta and appellant discussed how Retriever would make up any losses clients incurred from annuity surrender charges, and appellant explained that Retriever would issue a bonus in the form of additional Retriever shares. Accordingly, investors who incurred a withdrawal penalty were told that Retriever would offset for the penalty.
By 2004, Brychta knew that appellant had gone into bankruptcy in May 2003, but she did not tell clients about the bankruptcy. She failed to disclose that a cease and desist order had been entered by the Texas State Securities Board against her and appellant. Brychta also failed to disclose that a consent judgment was entered against appellant, RPH, and Guardian Group in Iowa pursuant to the Iowa Consumer Fraud Act. This judgment enjoined appellant and his named companies from soliciting in "Iowa or directing toward Iowa consumers transactions involving timeshares."
Several of the seniors who lost the money they invested in Retriever also testified at trial. Donald Long, Mabel Milsted Silverstein, Wallace Thornton, Anna Weber, and Harvey Birdwell confirmed that they had been Capital clients and had invested in Retriever after talking to...
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