People v. Salas

Decision Date21 June 2004
Docket NumberNo. B159750.,B159750.
Citation14 Cal.Rptr.3d 689,119 Cal.App.4th 805
CourtCalifornia Court of Appeals Court of Appeals
PartiesThe PEOPLE, Plaintiff and Respondent, v. Javier O. SALAS et al., Defendants and Appellants.

Douglas G. Benedon, Los Angeles, under appointment by the Court of Appeal, for Defendant and Appellant Javier O. Salas.

Neil J. Rosenbaum, under appointment by the Court of Appeal, for Defendant and Appellant Stephen C. Patrick.

Bill Lockyer, Attorney General, Robert R. Anderson, Chief Assistant Attorney General, Pamela C. Hamanaka, Assistant Attorney General, Susan Sullivan Pithey and Thien Huong Tran, Deputy Attorneys General, for Plaintiff and Respondent.

Steve Cooley, District Attorney, Curt Livesay, Chief Deputy District Attorney, Peter Bozanich, Assistant District Attorney, and Richard A. Lowenstein, Deputy District Attorney, as Amicus Curiae, on behalf of Plaintiff and Respondent.

ASHMANN-GERST, J.

Javier O. Salas (Salas) and Stephen C. Patrick (Patrick) appeal from the judgments entered upon Patrick's conviction by jury of one count and Salas's convictions by jury of four counts of selling unqualified securities (Corp.Code, §§ 25110, 25540, subd. (a)).1 The jury also found the special allegation that each of the offenses was not discovered until after July 10, 1996 (Pen.Code, § 803, subd. (c)) to be true. The trial court sentenced Patrick to 16 months in state prison, suspending sentence and placing him on three years formal probation on the condition that he spend one year in county jail. It sentenced Salas to an aggregate term of three years to be served in the Department of Corrections Los Angeles restitution center (Pen.Code, § 6227).

Appellants contend that (1) the trial court erred in instructing the jury that the statute of limitations on the charged offenses was four years instead of three; (2) even if a four-year statute of limitations is applicable, it expired prior to initiation of the prosecution; (3) the trial court erred in instructing the jury that the sale of unqualified securities is a strict liability crime; and (4) the trial court's instruction on the defense that the securities were exempt from qualification was erroneous.

We hold that violation of section 25110 is a general intent crime which carries a knowledge requirement. Although the trial court properly instructed the jury regarding general intent, it neglected to advise the jury of the knowledge requirement. As to Patrick, this error warrants reversal and a new trial to allow Patrick to present evidence that he lacked knowledge of the facts establishing that the securities were not exempt pursuant to section 25102, subdivision (f). As to Salas, however, the error was harmless.

Accordingly, we affirm the judgment against Salas and reverse the judgment against Patrick and remand the case for retrial.

FACTUAL BACKGROUND

The People's case

A. American Joint Ownership Interests, Inc.

In 1990, Salas formed American Joint Ownership Interests, Inc. (AJOI), to acquire properties in the Belmont District of Los Angeles for development. He was its president, secretary, treasurer, sole shareholder and the only person authorized to disburse money from its bank accounts. He boasted that he ran AJOI by himself. Codefendants Rick Berry (Berry)2 and Patrick joined AJOI in approximately 1990 and 1993, respectively, to procure investors to purchase partnership interests in entities formed to acquire the properties. David and Carol Melland, Mary Donovan, and Edward Burke were investors in 201 Boylston Street Associates, an entity formed to purchase the property at 201 Boylston Street.

The parties stipulated that these investment transactions were securities within the Corporate Securities Law of 1968 (the Act) and that the Department of Corporations had no record of any application to qualify to offer securities in the name of Salas, Berry, Patrick, AJOI or British-American Equity Management, Inc.3

The examiner from the Department of Corporations, Michelle Tse (Tse), examined the bank records of 201 Boylston Street Associates. She determined that 48 people wrote checks, in round number amounts totaling $347,100, some with "201 Boylston" written in the memo section, that were placed in the 201 Boylston Street Associates account. In January 1997, as a result of a civil suit against Salas and AJOI by several investors, a receiver was appointed for AJOI. Lisa Kalaydjian (Kalaydjian), the receivership administrator, determined from 201 Boylston Street Associates' records that there were 72 "people [invested] in 201 Boylston" with various amounts of money placed next to their names. She did not know whether those people had transferred money from 201 Boylston Street Associates to other AJOI properties in connection with which some of their names also appeared.

B. David and Carol Melland

Sometime before March 1991, David and Carol Melland (the Mellands) received an unsolicited telephone call from Salas, seeking their investment in 201 Boylston Street Associates. The Mellands did not know Salas or anyone else at AJOI before the call. He told them that they would obtain "a big return in a short period of time." He also told them he had obtained their telephone number from a list of people who made investments. The Mellands did not consider themselves sophisticated investors.

In August 1991, the Mellands invested $5,000 for a 1 percent interest in 201 Boylston Street Associates,4 executing a subscription agreement that made no mention of any partnership interest, although they had been told that they were investing in limited partnerships. They never received any partnership agreement. The Mellands believed AJOI owned 201 Boylston Street when they invested, as Salas said nothing about having to acquire it. In 1992 or 1993, they learned from Mr. Melland's broker-friend, Ron Schweder (Schweder), that AJOI did not own that property. That revelation concerned Mrs. Melland, but she did not think there was fraud or misappropriation of money, only that the project was off to a slow start. Salas reassured the Mellands that they should "hang on," he was going to acquire the property, but there were insufficient funds to do so at that time.

In 1993, when Mr. Melland was told that he would not realize profit for a couple of years, he became concerned about the investment, questioning whether it was a good one. He did not think, however, there was any mishandling of his funds. He called Salas several times and was satisfied with what he was told. He testified that he did not know if he was aware that "something was amiss at AJOI in 1995." Mrs. Melland also believed it was taking too long for them to receive a return on their investment. Other than the delay, however, she did not think Salas was doing anything wrong until 1995 or 1996. In 1996, she believed there was some impropriety involved because "it was taking too long without getting anything back on [their] money."

Between September 1992 and January 1996, the Mellands received numerous letters from AJOI, some signed by Salas and some by Berry, repeatedly reassuring them and representing that 201 Boylston Street would soon be purchased. It never was.

The Mellands received a letter dated May 18, 1995 (the May 18, 1995 letter), from Berry, on CP Development letterhead, advising that Berry was no longer affiliated with AJOI. "[D]ue to certain disagreements . . . [he] tendered [his] resignation."5 The letter concerned Mr. Melland "that there may be a problem" but did not cause Mrs. Melland concern because she thought it simply meant that Berry was leaving AJOI. Mr. Melland did not think much about whether the portion of the letter referring to "full disclosure" meant that the Mellands were not receiving full disclosure from AJOI and did not contact Berry after receiving it.

The Mellands denied receiving a letter from Berry, similar to the one sent to another investor, dated September 15, 1995 (the September 15, 1995 letter), stating that suit was being filed against AJOI and Salas regarding "improprieties and/or fraudulent activities regarding your investments with him."6 They also denied receiving or seeing any other letters referring to fraud or illegal activities at AJOI or letters from other investors seeking a return of their money.

In 1997, at approximately the same time they were contacted by the receiver for AJOI, Early Lincoln, a sheriff's investigator, contacted the Mellands regarding a criminal investigation of possible fraud. Before that, they had received no information that AJOI was involved in any fraudulent or criminal activities.

C. Mary Donovan

In January 1994, Mary Donovan (Donovan) received a telephone solicitation from someone at AJOI whose name she did not recall. However, during her dealings with AJOI, she dealt with Salas, Patrick and Berry, who told her of their project and that she would earn two to four times her investment. She invested $10,000 in 201 Boylston Street Associates in January 1994, and another $10,000 the following month, in both instances signing subscription agreements. Before investing in that property, she believed she was told that AJOI already owned it. In July 1994 and June 1996, she invested $10,000 and $20,000, respectively, in two other AJOI properties.

Donovan first became aware of problems at AJOI three or four years before trial when a law enforcement investigator, Keith Cook, contacted her, and she received letters from the receiver of AJOI. Before she heard from them, the only suggestion of any problems was the May 18, 1995 letter she received. It indicated to her that "something was rotten in Denmark," but she took no action, and made no effort to contact Berry, nor did she receive a telephone call from him or from anyone telling her that there was fraud or other impropriety at AJOI. She never saw the September 15, 1995 letter.

D. Edward...

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