Hentzner v. State, 3649

Citation613 P.2d 821
Decision Date20 June 1980
Docket NumberNo. 3649,3649
PartiesBlue Sky L. Rep. P 71,558 Harry HENTZNER, Appellant, v. STATE of Alaska, Appellee.
CourtSupreme Court of Alaska (US)

Deborah Paquette, Asst. Public Defender, Brian Shortell, Public Defender, Anchorage, for appellant.

Timothy Petumenos, Asst. Atty. Gen., Anchorage, Avrum M. Gross, Atty. Gen., Juneau, for appellee.

Before RABINOWITZ, C. J., and CONNOR, BOOCHEVER, BURKE and MATTHEWS, JJ.

OPINION

MATTHEWS, Justice.

Hentzner was convicted of two counts of offering and two counts of selling unregistered and non-exempt securities in violation of AS 45.55.070. 1 He was sentenced to four concurrent sentences of five years in the penitentiary with four years suspended on the condition that he notify purchasers of his conviction and make restitution. On appeal, he contends that what he offered for sale and sold were not securities; that the trial court gave erroneous jury instructions on the definition of security and on the state of mind required for a conviction; and that mistakes concerning the admission and exclusion of evidence were made.

I

We turn first to a statement of the facts necessary for understanding this case. During the summer of 1968, Hentzner staked thirteen mining claims in an area northeast of Delta Junction. In 1974, he raised some $36,000 from investors in his native state of Wisconsin, with which he acquired mining equipment and began to mine. In February of 1975, in an effort to raise more money for mining, Hentzner placed advertisements in newspapers in Fairbanks and in Delta Junction. In them he offered to sell no more than 2,000 ounces of gold at the considerably below market price of $80 per ounce. Delivery was to be within six to eight months. The advertisement explained that the money would be used to finance mining to begin in the spring. 2

Several people responded to the ads and ordered gold from Hentzner. In April of 1975, while on one of his mining claims, Hentzner was served with what he has described as an injunction to stop mining by an Alaska State Trooper. 3 Evidently Hentzner obeyed what he regarded as the command of the state not to mine. He has not delivered gold to the investors.

II

At the close of the state's case, Hentzner moved for judgment of acquittal on the ground that the subject matter of his transactions was not a security as a matter of law. The motion was denied.

In considering a motion for a judgment of acquittal, both at trial and on appeal, the court "must take the view of the evidence and the inferences therefrom most favorable to the state. If . . . fair-minded men in the exercise of reasonable judgment could differ on the question of whether guilt has been established beyond a reasonable doubt," the motion must be denied. Gray v. State, 463 P.2d 897, 905 (Alaska 1970). See, e. g., Gipson v. State, 609 P.2d 1038 (Alaska 1980), Martin v. State, 456 P.2d 462, 464-65 (Alaska 1969).

When Hentzner performed the acts complained of the term "security" was defined as follows:

AS. 45.55.130. (12) "security" means a note; stock; treasury stock; bond; debenture; evidence of indebtedness; certificate of interest or participation in any profit-sharing agreement; collateral-trust certificates; preorganization certificate or subscription; transferable share; investment contract ; voting-trust certificate; certificate of deposit for a security; certificate of interest or participation in an oil, gas, or mining title or lease or in payments out of production under the title or lease or in any sale of or indenture or bond or contract for the conveyance of land or any interest in land; or, in general, any interest or instrument commonly known as a "security," or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing; "security" does not include an insurance or endowment policy or annuity contract under which an insurance company promises to pay a fixed sum of money either in a lump sum or periodically for life or for some other specified period; 4 (Emphasis added).

The state contends that what Hentzner offered and sold was an investment contract as that term is used in the foregoing definition, and thus a security. In Securities and Exchange Com'n v. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946), "investment contract" was defined as

a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party . . ..

Id. 328 U.S. 299-300, 66 S.Ct. 1100-1103, 90 L.Ed. 1249. The United States Supreme Court has recently stated that this definition embodies the essential attributes that run through all of the Court's decisions defining a security. The touchstone is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.

United Housing Foundation, Inc. v. Foreman, 421 U.S. 837, 852, 95 S.Ct. 2051, 2060, 44 L.Ed.2d 621, 632 (1975).

Hentzner contends that the transactions at issue do not contain either the common enterprise or the profit from the efforts of others elements set forth in the Howey definition. We believe that both are readily present.

The common enterprise requirement has come to mean only that the investor's financial interests must be "inextricably interwoven" with those of the promoter or third parties. Securities and Exchange Com'n v. Commodity Options International, Inc., 553 F.2d 628, 633 (9th Cir. 1977); Securities and Exchange Com'n v. Glen W. Turner Ent., 474 F.2d 476, 482 n. 7 (9th Cir.), cert. denied, 414 U.S. 821, 94 S.Ct. 117, 38 L.Ed.2d 53 (1973); Hannon and Thomas, The Importance of Economic Reality and Risk in Defining Federal Securities, 25 Hastings L.J. 219, 236 (1973-74). That was the situation in this case. The advertisements made it clear that the money received from investors was to be pooled in order to buy mining equipment and supplies so that Hentzner could mine the gold he was contracting to sell. While Hentzner's obligation to deliver gold was not legally conditional upon his mining success, the plain implication of the ads was that a mining failure would result in nondelivery of the gold. 5

Essentially the same thing can be said of the requirement that the expected profits come from the efforts of others. One who buys gold for investment purposes does so with the hope that its price will increase and that it can be sold at a profit. That expectation does not depend on the managerial efforts of the seller of gold, and such a transaction is therefore not ordinarily regarded as an investment contract. See, e. g., Sinva, Inc. v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 253 F.Supp. 359, 366-67 (S.D.N.Y.1966). However, add to the buyer-seller relationship a continuing dependency by the buyer on the seller's expertise and ability in managing the investment and the efforts of others test is met. The contract will then be regarded as a security, assuming the other parts of the Howey definition are satisfied. See, e. g., Commodity Options International, Inc., 553 F.2d at 633; Glen W. Turner, Ent., Inc., 474 F.2d at 482 (the test is satisfied if the "efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise"); McClellan v. Sundholm, 89 Wash.2d 527, 574 P.2d 371, 374 (1978). Since the investors were in a position of continuing dependency on Hentzner's efforts to extract gold from the ground, the efforts of others test was satisfied.

The form, as well as the substance, of Hentzner's plan was that investors would pay money to him so that he could mine gold, and if he did so successfully the investors would profit. The contracts he made fall squarely within the definition of an investment contract and are therefore securities. No error was committed in denying Hentzner's motion for judgment of acquittal.

III

AS 45.55.210(a) provides that upon a wilful violation of the Securities Act, including the registration requirement of AS 45.55.070, 6 one may be convicted of a felony punishable by a fine of not more than $5,000 or imprisonment for not less than one year nor more than five years, or both. 7

As to each count of the indictment, the jury was instructed that in order to convict Hentzner it had to find that he acted wilfully, unlawfully, feloniously, and with specific intent to violate the law. 8 In response to questions from the jury expressing uncertainty over what state of mind was required, the trial judge stated that the term "feloniously" should be disregarded and that Hentzner did "not have to intentionally violate the law; he (did) have to intentionally do the acts which are prohibited by law."

Hentzner argues that the state had to prove knowledge of wrongdoing in this case and that the instructions, especially as amended by the court following the jury's questions, were inadequate to convey this point.

The state contends that the only state of mind required was an intention to offer and sell and the fact that Hentzner might not have known that those acts were unlawful or that his conduct was in any sense wrongful is not relevant. Thus, the state contends that the trial court's instructions were correct.

The issue before us is the meaning of the word "wilfully" as used in AS 45.55.210(a). There are several possibilities. One is that the defendant must act intentionally in the sense that he is aware of what he is doing; another is that the defendant must be aware that what he is doing is illegal; and a third is that the defendant must know that what he is doing is wrong. 9 It is in this last sense that we think "wilfully" should be interpreted as it is used in Section 210.

We recognized in Speidel v. State, 460 P.2d...

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