People v. Butler, G043100

• Court: California Court of Appeals
• Citation: 151 Cal.Rptr.3d 352,212 Cal.App.4th 404
• Decision Date: 17 April 2013
• Docket Number: G043100
• Parties: The PEOPLE, Plaintiff and Respondent, v. Jeffrey Gordon BUTLER, Defendant and Appellant.

212 Cal.App.4th 404
151 Cal.Rptr.3d 352

The PEOPLE, Plaintiff and Respondent,
v.
Jeffrey Gordon BUTLER, Defendant and Appellant.

G043100

Court of Appeal,
Fourth District, Division 3, California.

Filed December 21, 2012
Review Denied April 17, 2013

Appeal from a judgment of the Superior Court of Orange County, James A. Stotler, Judge. Affirmed. (Super.Ct. No. 06NF0425)
Boyce & Schaefer and Laura Schaefer, San Diego, for Defendant and Appellant.

Kamala D. Harris, Attorney General, Dane R. Gillette, Chief Assistant Attorney General, Julie L. Garland, Assistant Attorney General, Barry Carlton and Teresa Torreblanca, Deputy Attorneys General, for Plaintiff and Respondent.

OPINION
IKOLA, J.

[212 Cal.App.4th 407]

A jury was asked to decide whether defendant Jeffrey Gordon Butler was guilty of securities fraud and related offenses or, conversely, if he

[212 Cal.App.4th 408]

was merely a failed businessman who did nothing meriting criminal punishment. Believing the former to be true beyond a reasonable doubt as to the majority of counts alleged, the jury convicted defendant of 288 counts of fraud in the offer or sale of a security (Corp.Code, § 25401),¹ 240 counts of offering an unqualified security (§ 25110), four counts of engaging in fraudulent securities schemes (§ 25541), 147 counts of theft from an elder ( Pen.Code, § 368, subd. (d)), three counts of filing a false tax return ( Rev. & Tax.Code, § 19705, subd. (a)(1)), and one count of aiding in the preparation of a false tax return ( Rev. & Tax.Code, § 19705, subd. (a)). Among other enhancement findings, the jury found true allegations that defendant intentionally took property valued in excess of $2.5 million. ( Pen.Code, § 12022.6, subd. (a).) The court sentenced defendant to 90 years and eight months in prison. Defendant raises numerous issues on appeal, but we affirm the judgment in all respects.

FACTS Defendant's Background

Defendant graduated from high school in Clovis, New Mexico and attended one year of college at Manhattan Christian College in Manhattan, Kansas. After leaving college, he owned and operated a car [151 Cal.Rptr.3d 357]detail business in Colorado for one year and a half.

Defendant obtained real estate licenses in Colorado and New Mexico, and unsuccessfully worked in the real estate business in the early 1980s. Defendant then obtained employment at Sandia Savings and Loan for “a couple years,” where he “basically handled mortgages and ... new deposits. I would visit people ... that had high deposits with the savings and loan and basically customer service them.”

Defendant next worked for “over two years” as a deputy treasurer for San Juan County, New Mexico. His duties entailed assisting the treasurer in the collection and investment of property taxes. At the same time, defendant partnered with others to buy rental properties as investments. After moving to Amarillo, Texas, defendant purchased a hair salon, which he expanded to three more locations. Defendant formed a company called “The Butler Group” and expanded into other businesses, including a laundry facility.

In the mid–1980s, defendant's banker introduced defendant to a man who owned four Arby's restaurants in Texas but was facing $300,000 in tax payments to the Internal Revenue Service (IRS). The IRS accepted defendant's offer of $80,000 to take over the restaurants. Defendant needed cash to

[212 Cal.App.4th 409]

pay off disgruntled suppliers and other bills, so he solicited investments from family members and “ran an ad in the newspaper offering ... 12–percent interest on notes. And we had people respond to that.”

One of these people was Oliver Ottensmeyer. After responding to Butler's newspaper ad, Butler promised Ottensmeyer a high rate of interest (10 or 12 percent) paid monthly. Ottensmeyer invested about $70,000 in an unspecified business venture. He received one or two interest payments. Ottensmeyer invested an additional $131,000 when told about the Arby's restaurant opportunity. Ottensmeyer did not receive any payments from the Arby's investment. Ottensmeyer unsuccessfully tried to contact Butler, but the next communication he received from Butler was a notice of bankruptcy proceedings. Despite filing proofs of claim, Ottensmeyer received nothing from the bankruptcy, which concluded in January 1989. Similarly, Sanford Evans invested $10,000 with defendant in exchange for a 12 percent note. Evans received interest payments for about a year and a half, but did not receive any of his principal back. All in all, defendant brought in approximately $400,000 in investor money using 12 percent promissory notes. Defendant did not “give [the investors] anything but the promissory note.” The debts were discharged in bankruptcy.

Defendant moved back to New Mexico and worked in sales for a water filtration system company. Defendant was a top salesman; he would meet with customers in their homes and demonstrate the system. At the same time, defendant obtained an insurance license in New Mexico and started selling a variety of insurance policies.

Defendant subsequently accepted a job with Globe Life in Riverside, California in 1992. Defendant obtained a license to sell insurance in California at that time. When this job failed to provide adequate income, defendant pursued a new business in which he sold (as an independent contractor) “gap filler” insurance policies to cover in-home care for seniors. In 1995, the Department of Insurance closed down the insurance firm that was issuing the policies and put defendant on probation, revoking his license and issuing a restricted license. Defendant had offered and sold home health care services to senior citizens without the required regulatory [151 Cal.Rptr.3d 358]approval of these products, and had collected large fees in doing so. Defendant paid a fine of $23,000.

Formation and Operation of Senior–Oriented Financial Services Firms

Undaunted by his bankruptcy, the suspension of his insurance license, and his apparent lack of any particular education or expertise in the complex fields of finance and investment, defendant set his sights on marketing living trusts, wills, annuities, and reverse mortgages to senior citizens.

[212 Cal.App.4th 410]

At some point in the 1990s, defendant formed Senior Information Services (SIS), through which defendant marketed and sold living trusts and wills to senior citizens. SIS used telemarketers and print advertisements to develop leads. Defendant and his sales representatives would then use their knowledge of clients' assets to offer annuity investments.

Defendant also formed a company known as Patriot, which sold reverse mortgages—often to the same SIS clients that defendant solicited to buy annuities (i.e., clients could use the proceeds of the reverse mortgage to buy annuities). Defendant's insurance license was permanently revoked in 2001 based on defendant's sale of reverse mortgages to senior citizens in 1996 and 1997. The Department of Insurance's revocation order stated that eight of defendant's customers were “not informed of the dollar amount of the service fee charged by [defendant] until the loan was complete and payment of the service fee was demanded. Said service fees ranged from $3,400 to $7,705. Each of said eight individuals would not have purchased the reverse mortgages if they had been informed of the dollar amount of the service fee charged by [defendant]. By failing to disclose the amount of the service fee, [defendant] misrepresented a material item or material term of the broker's agreement mentioned here and above.”

Transfer of Investor Funds to Medical Factoring Company Investments

During the same time period, defendant (and his agents) began working on commission as an independent “finder” for a medical bill factoring company, Medical Capital Corporation (MCC). Defendant also worked as a “finder” for Dawson Group, Inc. (DGI), a firm similarly engaged in medical bill factoring. The factoring firms' business plan was to pay health care providers discounted cash payments for receivables. Both firms (MCC and DGI) offered promissory notes to investors paying 12 percent interest. Both firms rewarded “finders” (like defendant) with 10 percent commissions on the money invested, plus an additional 10 percent commission each year the promissory note was renewed.

Defendant steered his SIS clients into the MCC and DGI investments, sometimes just months after convincing his clients to invest in annuities. By 1998, defendant had approximately 23 clients who collectively invested more than $1 million in DGI. At the peak of “finding” investors for MCC, defendant's investors loaned $8 to $9 million to MCC. Defendant was not charged with crimes as a result of selling MCC and DGI investments.

In 1998, DGI was insolvent. DGI's assets included $332,000 in cash and $1.3 million in uncollected receivables; DGI's liabilities included $2.7 million owed to note investors. DGI's owner told defendant he was going to

[212 Cal.App.4th 411]

notify the investors of the firm's impending bankruptcy. Rather than allowing DGI to declare bankruptcy, defendant agreed to take over DGI, transferring its assets and liabilities to a new business entity. The investors would have received only 10 to 15 percent [151 Cal.Rptr.3d 359]of their notes' principal values if the remaining money was returned to them. Only $225,000 of the receivables were ultimately collected. In the interim, however, investors continued to receive 12 percent interest payments. Defendant was using money from Patriot and his own compensation to make interest payments to investors.

Defendant was charged with crimes in connection with his transfer of DGI investors into new investments. The first new entity, Medifund, issued new one-year notes to the DGI investors. Defendant changed the name of Medifund to Genessee Capital, Inc. (Genessee) in 2000 and issued new Genessee notes in January 2001. Defendant did not tell DGI investors transferred to Medifund notes...