People v. Martinez

• Decision Date: 09 March 2017
• Docket Number: D067561,D067052
• Citation: 216 Cal.Rptr.3d 814,10 Cal.App.5th 686
• Court: California Court of Appeals Court of Appeals
• Parties: The PEOPLE, Plaintiff and Respondent, v. Francisco Jose MARTINEZ et al., Defendants and Appellants. The People, Plaintiff and Respondent, v. Marcellus Lopes Lee, Defendant and Appellant.

10 Cal.App.5th 686

216 Cal.Rptr.3d 814

The PEOPLE, Plaintiff and Respondent,

v.Francisco Jose MARTINEZ et al., Defendants and Appellants.

The People, Plaintiff and Respondent,

v.Marcellus Lopes Lee, Defendant and Appellant.

D067052

D067561

Court of Appeal, Fourth District, Division 1, California.

Filed March 9, 2017

As Modified on Denial of Rehearing April 6, 2017

Charles R. Khoury, under appointment by the Court of Appeal, for Defendant and Appellant, Francisco Jose Martinez.

Cynthia M. Jones, under appointment by the Court of Appeal, for Defendant and Appellant, Daniel P. Romero.

Barbara A. Smith, under appointment by the Court of Appeal, for Defendant and Appellant, Marcellus Lopes Lee.

Kamala D. Harris, Attorney General, Kathleen Alice Kenealy, Chief Deputy and Acting Attorney General, Gerald A. Engler and Julie L. Garland, Assistant Attorneys General, Sharon Rhodes and Ryan H. Peeck, Deputy Attorneys General, for Plaintiff and Respondent.

O'ROURKE, J.

A jury found Marcellus Lopes Lee, Daniel Paul Romero and Francisco Jose Martinez, Jr. (together, appellants or the defendants) guilty of fraud in the offer or sale of commodities. (Corp. Code, § 29536.)¹ Lee and Romero were also convicted of conspiracy and grand theft of personal property. (Pen. Code, §§ 182, subd. (a)(4), 487, subd. (a).) The jury found that the takings exceeded certain dollar amounts and that the victims' losses were in excess of $150,000. (Pen. Code, §§ 186.11, subds. (a)(2) & (a)(3), 12022.6, subd. (a)(2) (collectively, aggravated white collar criminal enhancements).) The trial court subsequently granted the defendants' motions for a new trial on some of the counts and dismissed other counts for insufficiency of the evidence. The People appealed. (People v. Lee (Mar. 7, 2014, No. D061235, 2014 WL 897927 ) [nonpub. opn.] (Lee ).)

In Lee , we concluded that the trial court abused its discretion in reversing the jury's verdicts. We reversed the trial court's orders and remanded the case with instructions to reinstate the verdicts rendered by the jury and sentence the defendants accordingly. In the interests of justice, we ordered the proceedings on remand to be heard before a trial judge other than the judge whose orders were reviewed on appeal.² (Lee , supra , No. D061235, Disposition.)

On remand, at the People's request, the sentencing court dismissed the counts on which the defendants were subject to retrial. The court sentenced Romero to a total of seven years in prison. Martinez received a one-year jail sentence and a five-year probation term. Lee was sentenced to a total of five years in prison.

In the instant appeal, Appellants assert there is not sufficient evidence to support their convictions for commodities fraud because they entered into money management contracts with their clients, not contracts for the sale or purchase of commodities. Martinez also argues there is not sufficient evidence to sustain his convictions even if money management contracts qualify as commodities contracts within the meaning of section 29536. Appellants claim the trial court prejudicially erred by failing to instruct the jury that scienter is an element of the offense of commodities fraud. They also contend reversal is required because the sentencing court refused to consider a motion for a new trial on grounds not decided by the trial court.³

Romero argues the trial court did not properly instruct the jury about the statute of limitations requirement for conspiracy. He contends the sentencing court erroneously ordered him to pay restitution to several alleged victims for crimes for which he was not convicted, and duplicating the amount of restitution owed to one of the victims. Romero and Martinez maintain there is insufficient evidence to support an aggravated white collar crime enhancement under Penal Code section 186.11, subdivision (a)(2), which requires a taking to be greater than $500,000. Finally, Romero contends the sentencing court erred by reinstating count six, which the court later dismissed at the People's request, and by reinstating his conviction on count seven, and sentencing him for that offense.⁴

The People concede the sentencing court erroneously reinstated counts six and seven, and we accept their concession. The People also concede the trial court erred when it did not instruct the jury that scienter is an element of the offense of commodities fraud, but contend the error was harmless. The People ask this court to review the possibility the sentencing court may not have imposed a mandatory fine under Penal Code section 186.11, subdivision (c).

We conclude that the restitution award to Ricky Lutz was incorrectly determined. We vacate Romero's conviction on count seven and remand for resentencing. Otherwise, we find no error and affirm.

FACTUAL AND PROCEDURAL BACKGROUND

We detailed the factual and procedural background of this case in our earlier decision, Lee , supra , No. D061235. We need not repeat those details here. Instead, we summarize the background of the case where relevant to the issues raised in these appeals.⁵

In early 2004, Romero and Martinez became interested in international currency trading. They had no background in trading or foreign currency. Romero and Martinez contacted Lee, a former stockbroker who had started trading in off-exchange foreign currency (forex). Lee's company was New England Capital Traders (NECT).

In August 2004, Romero opened an account with a futures commodity merchant (FCM). He acknowledged receiving a risk disclosure statement from the FCM, which stated stop-loss or stop-limit orders intended to limit losses to certain high returns and minimal risk through stop-loss discipline may not be effective because market conditions may make it impossible to execute such orders. Notwithstanding this advisement, Martinez developed a web site for his and Romero's company, Kingdom Advisors, which stated: "Investors may lower their exposure to risk by employing risk-reducing strategies such as 'stop-loss' or 'limit' orders."

Romero and Martinez solicited and received more than $600,000 in loans from two individuals to start trading. Using Lee as a trader, they had highly favorable returns for three to five months and were able to recruit other investors. After the initial period, Lee began to incur large trading losses. Despite the losses, Lee personally profited from every trade. Based solely on Lee's short-lived success, Lee, Romero and Martinez solicited several million dollars from other persons for the purpose of trading forex contracts. Lee and Romero told potential investors they had significant success trading foreign currency. They promised high rates of return and said they mitigated risk by implementing stop-loss procedures.

Unhappy that Lee was taking commissions, Romero and Martinez opened a trading account with another FCM, and received commissions or rebates on every trade regardless of performance. Romero and Martinez contracted with another trader, who was inexperienced and incurred large losses. Their clients lost most or all of their money. According to Romero's estimates, during a period of 16 to 18 months, Kingdom Advisors received from 10 to 30 percent of several million dollars in commissions from trading forex contracts.

In approximately late 2005, Romero and Martinez, together with Lee, decided to stop trading in the forex market and start an FCM, which they named TradeCo. They told existing clients the only way to recoup their losses was to invest in TradeCo. They solicited other persons to finance their new enterprise by promising high rates of return and the possibility of equity positions. After operating for two to three months, the NFA increased TradeCo's capitalization requirements and TradeCo ceased functioning.

On March 25, 2009, the People charged Lee, Romero and Martinez with conspiracy to defraud, commodities fraud and grand theft. The People alleged defendants falsely claimed substantial expertise and success trading foreign currency, promised returns of 10 to 15 percent per month on investment funds and guaranteed investors they would not lose more than 20 percent of the initial value of their portfolio through the use of stop-loss mechanisms. The People also alleged as a result of their misrepresentations, defendants took more than 2.4 million dollars from individual victims, who lost most or all of their investments.

Trial began on February 28, 2011, and concluded on April 6, 2011. In the interests of brevity, we discuss only those counts for which the defendants were convicted and sentenced. Additional facts are set out in Discussion where relevant to the issues raised on appeal.

Count One (Conspiracy )

The People charged Lee, Martinez and Romero with conspiracy to defraud and alleged they committed 19 overt acts in furtherance of their conspiracy, including obtaining $100,000 from Robert Smith on or about November 3, 2004; $260,000 from Ricky Lutz between August to September 2005; $45,000 from Curtis Brown and $100,000 from Michael Mauch on or about November 28, 2005; $10,000 from Greg Hughes on or about March 30, 2006; $110,000 from Greg Sabal between May 10 and July 5, 2006; and $150,000 from Paul Cannon between September 25 and 28, 2006. The complaint alleged the defendants failed to return all but a small fraction of the money to their victims, despite demands by the victims for its return.

Counts Eight and Nine (Robert Smith )

The People charged the defendants with grand theft of personal property and fraud in the offer or sale of a commodity to Robert Smith. After several meetings with Romero and Martinez, and with Lee, Romero and Martinez, Brian Smith, a financial advisor, advised his client, Robert Smith, to invest with the defendants. Brian Smith was aware that forex trading was high risk. Romero told Brian Smith they could provide a monthly return of six percent and had clients who were earning that rate. Brian Smith discussed foreign currency markets, liquidity leverage,...