People v. Riley

• Decision Date: 18 November 1985
• Docket Number: No. 83SA247,83SA247
• Citation: 708 P.2d 1359
• Parties: Blue Sky L. Rep. P 72,344 The PEOPLE of the State of Colorado, Plaintiff-Appellee, v. William G. RILEY, Defendant-Appellant.
• Court: Colorado Supreme Court

Page 1359

708 P.2d 1359

Blue Sky L. Rep. P 72,344

The PEOPLE of the State of Colorado, Plaintiff-Appellee, v. William G. RILEY, Defendant-Appellant.

No. 83SA247.

Supreme Court of Colorado En Banc.

Nov. 18, 1985.

Duane Woodard, Atty. Gen., Norman S. Early, Jr., Dist. Atty., Brooke Wunnicke, Chief Appellate Deputy Dist. Atty., Michael L. Kane, Deputy Dist. Atty., Denver, for plaintiff-appellee.

Gerash & Robinson, Scott H. Robinson, Denver, for defendant-appellant.

QUINN, Chief Justice.

The defendant, William Riley, appeals his conviction of seven counts of fraudulent and other prohibited practices in connection with the sale of securities. §§ 11-51-123(1) and 11-51-124, 4 C.R.S. (1985 Supp.). He challenges his conviction on the following grounds: that section 11-51-123(1), 4 C.R.S. (1985 Supp.), is unconstitutionally vague, both on its face and as applied in this case, in violation of due process of law; that the trial court erred in instructing the jury that good faith is not a defense to securities fraud; that he was denied his constitutional right to effective assistance of counsel; and that the trial court erred in admitting evidence and in instructing the jury on flight and concealment. We reject the defendant's constitutional challenges to section 11-51-123(1), 4 C.R.S. (1985 Supp.), but conclude that the trial court's instruction to the jury that good faith is not a defense to securities fraud resulted in nullifying the mens rea element of the crimes charged against the defendant. We accordingly reverse the judgment of conviction and remand for a new trial. Since a new trial is required, we do not address the other issues raised by the defendant.

I.

The defendant was indicted on 28 counts of securities fraud allegedly committed on various dates between November 1979 and May 1981. He was ultimately tried on ten counts (Counts A-J) of fraudulent and prohibited practices relating to the sale of securities of Income Realty and Mortgage, Inc. (Income Realty). Count A alleged that the defendant made three types of false statements to bond purchasers as part of the practices and course of business of Income Realty and that these statements operated as a fraud in connection with the sale of the bonds in violation of section 11-51-123(1)(c), 4 C.R.S. (1985 Supp.). These false statements were, as alleged in Count A, basically as follows:

(1) that the bonds were secured or backed by designating groups of installment land contracts, sometimes referred to as mortgages, which installment land contracts or mortgages were specifically set aside for that purpose; and

(2) that, although the bonds did not mature for payment of principal until ten years from the date of issue, Income Realty nonetheless would buy back bonds upon the purchaser's request and return the investments prior to the date of maturity; and

(3) that investment in the bonds was a safe investment and involved little or no risk.

It was further alleged in Count A that the defendant, as part of the practices and course of business of Income Realty, failed to disclose to purchasers of the bonds the following facts: (1) that the offering circulars registered with the Colorado Division of Securities contained information that the bonds were unsecured corporate obligations of Income Realty; (2) that there were no installment land contracts or mortgages assigned or pledged to secure payment of the principal or interest due on the bonds; (3) that the offering circulars registered with the Colorado Division of Securities contained information indicating that the bonds were subordinated to existing and future indebtedness of Income Realty; (4) that the offering circulars registered with the Colorado Division of Securities contained information indicating that the bonds were redeemable prior to the maturity dates only at the option of Income Realty and that the offering circulars contained no provision granting purchasers the right to require Income Realty to buy back the bonds and return the purchasers' investments prior to the maturity dates stated on the bonds; (5) that the offering circulars registered with the Colorado Division of Securities contained information indicating that the investment in the bonds was subject to a high degree of risk; and (6) that in some cases the offering circulars registered with the Colorado Division of Securities were actually withheld from purchasers of the bonds and never delivered to them or were delivered only after the purchases had been completed.

The next five counts (Counts B through F) alleged that the same false statements alleged in Count A were made to other named purchasers and constituted untrue statements of material fact violative of section 11-51-123(1)(b), 4 C.R.S. (1985 Supp.). Count G alleged that the defendant engaged in practices that operated as a fraud in connection with the sale of the corporate stock of Income Realty to purchasers, specifically because the offering circular contained information indicating that Income Realty would have, upon completion of the sale of Series C bonds, $6,994,000 of outstanding subordinated debentures but omitted to mention the fact that the bonds were sold to investors by means of the following false representations: that the bonds were secured by installment land contracts, sometimes referred to as mortgages, and that Income Realty would buy back the bonds and return principal investments prior to the maturity date of the bonds. ¹

In submitting the charges to the jury, the court instructed on the essential elements of securities fraud, including the culpable mental state of acting "willfully." A separate instruction stated that "knowingly" is synonymous with "willfully" and defined these terms as follows:

A person acts "knowingly" or "willfully" with respect to conduct or to a circumstance described by a statute defining an offense when he is aware that his conduct is of such nature or that such circumstance exists. A person acts "knowingly" or "willfully" with respect to a result of his conduct when he is aware that his conduct is practically certain to cause the result.

The court also instructed the jury, over the defendant's objection, that "[g]ood faith is not a defense to the charge of Fraudulent and Other Prohibited Practices in the Sale of Securities."

The jury returned guilty verdicts to Counts A through G and, after denying the defendant's motion for a new trial, the court imposed a combination of concurrent and consecutive sentences which cumulatively resulted in a total sentence of five years plus one year of parole.

The defendant's appeal was originally filed in the court of appeals, but was transferred to this court because of the defendant's constitutional challenges to section 11-51-123(1), 4 C.R.S. (1985 Supp.). See §§ 13-4-102(1)(b) and 13-4-110, 6 C.R.S. (1973). We first address the defendant's constitutional challenges to section 11-51-123(1) 4 C.R.S. (1985 Supp.), and then the propriety of the trial court's instruction that good faith was not a defense to the charges submitted to the jury.

II.

It is necessary to address the defendant's constitutional challenge to section 11-51-123(1), 4 C.R.S. (1985 Supp.), because if the statute is either facially unconstitutional or unconstitutional as applied, the defendant would not be subject to retrial. We first consider the defendant's argument that the statute is facially void for vagueness and then his argument that the statute is unconstitutionally vague as applied to the conduct for which he was prosecuted in this case.

A.

Section 11-51-123(1), 4 C.R.S. (1985 Supp.), states:

(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 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 claims that the terms "material," "fraud" and "deceit" are too vague to give an accused adequate notice of the conduct proscribed by the statute, with the result that the jury is impermissibly allowed to set its own standards of criminal responsibility in each case. We find this argument devoid of merit.

A statute is presumed to be constitutional in the first instance, and the burden falls upon the party attacking the statute to establish its unconstitutionality beyond a reasonable doubt. E.g., People v. Alexander, 663 P.2d 1024 (Colo.1983); Bollier v. People, 635 P.2d 543 (Colo.1981); People v. Summit, 183 Colo. 421, 517 P.2d 850 (1974). The controlling consideration in a void-for-vagueness challenge is whether the challenged statute is sufficiently specific to apprise persons of ordinary intelligence of the particular conduct that will subject them to criminal liability. Connally v. General Construction Co., 269 U.S. 385, 46 S.Ct. 126, 70 L.Ed. 322 (1926); People ex rel. City of Arvada v. Nissen, 650 P.2d 547 (Colo.1982); People v. Jennings, 641 P.2d 276 (Colo.1982); People v. Blue, 190 Colo. 95, 544 P.2d 385 (1975); People v. Cardwell, 181 Colo. 421, 510 P.2d 317 (1973). We hasten to add, however, that "while a statute must be sufficiently specific to give fair warning of the proscribed conduct, it often must remain sufficiently general 'to address the essential problem under varied circumstances.' " Alexander, 663 P.2d at 1027 (quoting Colorado Auto and Truck Wreckers Ass'n v. Department of Revenue, 618 P.2d 646, 651 (Colo.1980)).

Although this court has not previously addressed the constitutionality of section 11-51-123(1) of the Colorado Securities Act, we have recognized that, insofar as the provisions of the Colorado statute parallel those of the federal counterparts,...