People v. Blair

• Decision Date: 05 June 1978
• Docket Number: No. 27758,27758
• Citation: People v. Blair, 579 P.2d 1133, 195 Colo. 462 (Colo. 1978)
• Parties: , Blue Sky L. Rep. P 71,480 The PEOPLE of the State of Colorado, Plaintiff-Appellee, v. Charles E. BLAIR, Defendant-Appellant.
• Court: Colorado Supreme Court

Page 1133

579 P.2d 1133

195 Colo. 462, Blue Sky L. Rep. P 71,480

The PEOPLE of the State of Colorado, Plaintiff-Appellee, v.Charles E. BLAIR, Defendant-Appellant.

No. 27758.

Supreme Court of Colorado,En Banc.

June 5, 1978.

Rehearing Denied June 26, 1978.

J. D. MacFarlane, Atty. Gen., David W. Robbins, Deputy Atty. Gen., Edward G. Donovan, Sol.Gen., Sharon S. Metcalf, David K. Rees, Asst. Attys.Gen., Denver, for plaintiff-appellee.

Clarence A. Decker, David A. Sorenson, Denver, for defendant-appellant.

GROVES, Justice.

This is an appeal of defendant's convictions of 17 counts of securities fraud.Sixteen of the counts were for violation of subsection (b) of section 11-51-123, C.R.S.1973, while one count was for violation of subsection (c).Section 11-51-123 provides:

"Fraudulent and other prohibited practices.(1) It is unlawful for any person, in connection with the offer, sale, or purchase of any security, directly or indirectly:

(a) To employ any device, scheme, or artifice to defraud;

(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading; or

(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person."

The defendant was president and chairman of the board of the three nonprofit Colorado corporations: Calvary Temple, Life Center, Inc. and The Charles E. Blair Foundation.Calvary Temple is a church; Life Center, Inc., owned and operated nursing homes, including one named Life Center; and The Charles E. Blair Foundation made television films designed to raise money for Life Center.All three corporations sold securities through a single "Department of Development."The "Department of Development" was managed by Wendell Nance and had a staff of approximately ten salesmen.

The 16 counts of violation of subsection (b) in the indictment were based on misrepresentations and omissions made from March 1, 1972 through January 1974 in connection with the sale of investments to twelve different investors.The violation of subsection (c) is alleged to have occurred on a continuing basis from December 7, 1971 to March 13, 1974.

Life Center and the Charles E. Blair Foundation were individually insolvent continuously from 1971.On a combined basis the three corporations had a continuous fund deficit after September 30, 1971.By August 31, 1973, the net worth deficit of the three corporations had reached seven million dollars; they also had annual projected losses of 2.6 million dollars; and their cash flow projections indicated a serious likelihood that current obligations could not be paid.As of September 30, 1973, on a consolidated basis the three corporations had over $14,000,000 in unsecured debt and almost $9,000,000 in secured debt.Since they did not have enough income to meet their interest obligations, interest was being paid out of the principal of current investments.Also as of September 30, 1973, Calvary Temple and Life Center began to have delinquencies as to some interest payments to investors.During late 1973 and early 1974, the financial condition of the corporations continued to worsen and all interest payments to investors stopped in March 1974.On June 7, 1974, the corporations filed petitions for reorganization proceedings in bankruptcy court.

Disclosure was never made to potential investors that the corporations were either insolvent or in serious financial trouble.In addition, no disclosure was made that the investors' investment in principal would be used to pay interest on prior investments.The defendant also made various affirmative misrepresentations, including a statement to his securities salesmen in April 1973 that the liquidation value of the assets of the three corporations exceeded their liabilities by three million dollars.In fact, the reverse was true.In the case of a liquidation, liabilities would have probably exceeded the amount realized from assets by at least six million dollars.Throughout it all, the sales representatives and the brochures issued by the "Department of Development" assured investors that their investments were safe and secure.

A jury found the defendant guilty.Following the jury's verdict of guilt as to the 17 counts, the judge suspended the defendant's sentence and placed him on probation for five years.As a condition of probation, the defendant was ordered to pay a fine of $12,750.00 ($750.00 per count).Seesection 11-51-124(1), C.R.S.1973;Crim.P. 32(d)(2)(D).

I

In our view, the primary question before us is whether the jury was correctly instructed as to the mental state necessary to constitute a criminal violation of 11-51-123.The criminal provisions as to section 11-51-123 are provided by section 11-51-124(1):

"Criminal penalties.(1) Any person who willfully violates any provisions of this article . . . is guilty of a felony and, upon conviction thereof, shall be punished by a fine of not more than five thousand dollars, or by imprisonment in the state penitentiary for not less than one year nor more than three years, or by both such fine and imprisonment."(emphasis added)

The jury instructions given in this case provided in part:

"To constitute a crime there must be the joint operation of an act forbidden by law or an omission to perform an act required by law and a culpable mental state of the Defendant.A culpable mental state means intentionally or knowingly, as those terms are explained in this instruction."

"A person acts 'knowingly' with respect to conduct or to a circumstance described by a statute defining an offense when he is aware, or reasonably should be aware, that his conduct is of that nature or that the circumstance exists."

"With respect to the crime of Fraudulent and Other Prohibited Practices in the Sale of Securities, as charged in Count One of the Indictment, a person commits that crime if:

"In connection with the offer, sale, or purchase of any security, he knowingly engages in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person.

"The elements of that crime are therefore:

(1) In connection with the offer, sale, or purchase of any security.

(2) Knowingly,

(3) Engages in any act, practice or course of business,

(4) Which operates or would operate as a fraud or deceit,

(5) Upon any person."

"With respect to the crimes of Fraudulent and Other Prohibited Practices in the Sale of Securities, as charged in Counts Two through Seventeen, inclusive, of the Indictment, a person commits those crimes if:

"In connection with the offer, sale, or purchase of any security by or to any other person, directly or indirectly, he knowingly makes any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading.

"The elements of those crimes are therefore:

(1) In connection with the offer, sale, or purchase of any security.

(2) By or to any other person,

(3) Directly or indirectly,

(4) Knowingly,

(5)(a) Makes any untrue statement of a material fact, or

(b) Omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading.

The question is whether, when taken as a whole, these instructions adequately set forth the offenses of which the defendant was charged.

The defendant contends that "willfully" as used in the statute(1) does not mean "knowingly" and (2) does not include "reasonably should be aware."

While the instructions are not models, they are adequate to support the conviction.

Our inquiry must begin with the definition of the word "willfully" as used in the context of this statute.The effect of the word "willfully" as used in this statute is "knowingly."

A little background is in order.Section 11-51-123and124, C.R.S.1973 came from the Uniform Securities Act, sections 101and409.See7 U.L.A. 695, 768.Section 101 of the Uniform Securities Act is substantially the same as the well-known Rule 10b-5 of the Securities and Exchange Commission.17 C.F.R. § 240.10b-5.Rule 10b-5 was adopted pursuant to the authority granted to the S.E.C. under § 10(b) of the Securities Exchange Act of 1934¹ and was modeled upon § 17(a) of the Securities Act of 1933,15 U.S.C. § 77q(a).Commissioners' Note, § 101, 7 U.L.A. 695-96.See also, Draftsmen's Commentary to§ 101, L. Loss, Commentary on the Uniform Securities Act 6-8(1976).

The equivalent to section 11-51-124 is § 409 of the Uniform Securities Act. 7 U.L.A. 768.The Commissioner's Note as to § 409 refers to his comment under § 204(a)(2)(B) for the definition of "willfully."This reads:

"Clause (B): As the federal courts and the SEC have construed the term 'willfully' . . . all that is required is proof that the person acted intentionally in the sense that he was aware of what he was doing.Proof of evil motive or intent to violate the law, or knowledge that the law was being violated, is not required.The principal function of the word 'willfully' is thus to serve as a legislative hint of self-restraint to the Administrator."

Thus, "awareness" and its twin, "knowingly", are the essence of "willfully."

In its definitions, as already noted, the court stated that a person acts "knowingly" when he is aware, or reasonably should be aware, that his conduct is of a certain nature or that certain circumstances exist.The portion of the instruction stating "reasonably should be aware" should not have been included.As a result, we are confronted with the question as to whether the inclusion of this clause was reversible error.Viewing the instructions as a whole, it is apparent that the thrust thereof was that, in order for the jury to convict the defendant, it must find that he...