State v. Casper

• Decision Date: 06 November 2009
• Docket Number: No. M2006-02538-SC-R11-CD.,M2006-02538-SC-R11-CD.
• Citation: 297 S.W.3d 676
• Parties: STATE of Tennessee v. Michael CASPER.
• Court: Tennessee Supreme Court

297 S.W.3d 676

STATE of Tennessee v. Michael CASPER.

No. M2006-02538-SC-R11-CD.

Supreme Court of Tennessee, at Nashville.

June 2, 2009 Session.

November 6, 2009.

Robert E. Cooper, Jr., Attorney General & Reporter; Michael E. Moore, Solicitor General; Laura T. Kidwell, Assistant Attorney General; William C. Whitesell, Jr., District Attorney General; and Barbara Doak and Chad Jackson, Assistant District Attorneys General, for the appellant, State of Tennessee.

Dana C. McLendon III and Ernest W. Williams, Franklin, Tennessee, for the appellee, Michael Casper.

William Harris Farmer, Nashville, Tennessee, for the amicus curiae, North American Securities Administrators Association, Inc.

OPINION

GARY R. WADE, J., delivered the opinion of the court, in which JANICE M. HOLDER, C.J., CORNELIA A. CLARK, WILLIAM C. KOCH, JR., and SHARON G. LEE, JJ., joined.

The defendant was convicted of fifteen counts of willfully selling securities without registering with the state as a broker-dealer or agent in violation of Tennessee Code Annotated section 48-2-109. The trial court imposed concurrent sentences of four years on each count, required eleven months to be served in jail, and ordered twelve years of probation, community service, and the payment of fines and restitution. The Court of Criminal Appeals reversed and dismissed the convictions on grounds of insufficient evidence, holding that the term "willfully" in the criminal penalties section of the Tennessee Securities Act of 1980 required that the defendant not only had to act deliberately, but also had to be aware that his conduct was prohibited by law. We adopt the majority rule and hold that the statute does not require the state to prove that the defendant knew his or her acts were illegal in order to establish a willful violation of our state securities laws. The term "willfully" in Tennessee Code Annotated section 48-2-123(a) requires only that the accused acted deliberately and was fully aware of his or her conduct. Because the defendant was aware he was selling securities and knew that he was not registered as a broker-dealer or agent, we reinstate the convictions and the sentences.

Facts and Procedural History

Michael Casper (the "Defendant") owned Olde South Trust ("Olde South"), a business located in Murfreesboro. In January of 2003, the Securities Division of the Tennessee Department of Commerce and Insurance (the "Department") opened an investigation into Olde South's sale of preferred shares in PhyMed Partners, Inc. ("PhyMed"), a Florida corporation.¹ As a result of the investigation, the Defendant was charged with nineteen counts of sale of securities by an unregistered broker-dealer or agent in violation of Tennessee Code Annotated section 48-2-109 (1995 & Supp.2001). The indictment included allegations that the Defendant had willfully violated section 48-2-109, and thus could be subject to criminal penalties under section 48-2-123(a) (1995 & Supp.2001). The State dismissed three of the counts prior to trial, and the trial court dismissed one count for lack of evidence at the conclusion of the State's proof.

At trial, Robert Heisse, a former examiner in the Securities Division, offered testimony about the scope of the Department's investigation and the conclusions drawn. He stated that the Department discovered that Olde South had sold PhyMed preferred stock to a large number of senior citizens throughout Tennessee. Olde South had made initial contact with these individuals by holding seminars on estate planning, primarily at senior citizen centers and churches, during which its representatives discussed the importance of establishing living trusts. After the seminars, salespersons with the company conducted follow-up visits at the residences of individuals who had requested more information about investment options. During these visits, an Olde South sales representative evaluated the assets of the potential buyer and typically suggested that PhyMed preferred stock would offer a more lucrative source of income. The sales representatives promised a rate of return of approximately twelve percent, to be paid in monthly dividend checks. When the buyers signed the investment documents, Olde South mailed the documentation and purchase price to PhyMed in return for a finder's fee. In the summer of 2002, when their monthly dividend checks stopped arriving, individuals who had purchased PhyMed preferred shares through Olde South reported their concerns to the Securities Division. Eventually, PhyMed was shut down by federal authorities. Its President and Chief Executive Officer, James Lamar McMichael, was charged with securities fraud and ultimately entered a guilty plea.

Heisse had previously led other investigations into the Defendant's business practices on behalf of the Securities Division. He testified that the Defendant, as the sole owner of Middle Tennessee Trust, a predecessor entity to Olde South, was involved with the sale of unregistered securities in the form of viatical settlements.² Upon the completion of that investigation, the Department issued a cease and desist order directing Middle Tennessee Trust to discontinue its sale of unregistered securities and to stop acting as a broker-dealer or broker-dealer agent until registering with the state. Heisse acknowledged that Middle Tennessee Trust complied with the cease and desist order. Heisse also described an investigation that he had conducted in 2000 in connection with the sale of PhyMed promissory notes. As a result of that investigation, the Securities Division petitioned for a cease and desist order against PhyMed and other parties for violations of the Tennessee Securities Act. Although a cease and desist order was not entered against either Olde South or the Defendant as a result of this second investigation, the Defendant, in response to a subpoena, provided sworn testimony by deposition. Both PhyMed and the Defendant quit selling promissory notes after the 2000 investigation and, instead, initiated the sale of PhyMed preferred stock. Heisse testified that the "common theme" between the two prior administrative investigations was that his Department "addressed the sale of unregistered securities and the sale of securities by unregistered parties."

On cross-examination, Heisse conceded that the Defendant had apparently acted under the impression that Olde South could sell PhyMed preferred stock in return for a finder's fee without the stocks being registered. Specifically, the Defendant had claimed that he was not aware that the PhyMed securities required registration because they were being sold under Rule 506 of Regulation D, a "safe harbor" for securities under federal law promulgated by the United States Securities and Exchange Commission ("SEC").

At the conclusion of the Department's investigation into Olde South's sale of PhyMed preferred securities, the Defendant entered into an agreed order in which he admitted that he had engaged in the offer and sale of unregistered securities without being registered by the State as a broker-dealer or agent.

Walter "Bucky" Phillips, who worked as a salesperson for Olde South for approximately five years, confirmed Heisse's account of Olde South's sales strategy with regard to the PhyMed preferred stock. Phillips testified that the Defendant owned the company and made all decisions "as to how things were done, what the investments were and so forth." According to Phillips, the Defendant decided to initiate sales of PhyMed preferred stock in 1999 or 2000, and the stock eventually became a "staple" of the investment products offered by Olde South. He recalled that the Defendant led the "vast majority" of the seminars, which included general presentations on estate planning and specifically addressed the comparison of wills to living trusts. He confirmed that at the conclusion of each seminar, the Olde South staff met with potential investors. Phillips, who first learned of PhyMed through the Defendant, testified that when he reviewed a financial statement and determined that the potential buyer had trust income, he would introduce PhyMed preferred stock as an investment option. He described PhyMed's return of twelve percent on the investment as "a good source of income." Phillips, who had also been indicted for his failure to properly register before selling the securities, acknowledged that he had sold PhyMed stock to individuals whose complaints had led to the prosecution of the Defendant.

Phillips recalled that in the spring and early summer of 2002, "as the PhyMed checks were coming later and later to our clients ... there was growing concern about PhyMed." Nevertheless, the Defendant directed the Olde South sales representatives to sell as much PhyMed preferred stock as they could in order to ensure that PhyMed did not "go under." During this time, Phillips obtained his Series 7 license, which allowed him to sell securities through a registered broker-dealer. Olde South had paid for Phillips to prepare for and take the licensing examination because it had developed another preferred stock that was similar to the one PhyMed was offering, but which required a registered broker-dealer. Because PhyMed was not on the preferred list of the broker-dealers with whom Phillips was working as a licensed broker-dealer agent, he stopped selling PhyMed stock. At the time Phillips testified, he had surrendered his securities license as well as his license to sell insurance products. He planned to plead guilty under a pre-trial diversion program, the terms of which included a probationary period of six years and an agreement to testify truthfully in this proceeding.

Joyce Dutton, the bookkeeper for Olde South from August of 1998 until September of 2001, also testified at trial. While admitting that she was under investigation by the Department for selling securities without a license, she corroborated Phillips' testimony that the Defendant was...