State v. McGuire

• Decision Date: 02 May 2007
• Docket Number: No. 2005AP2832-CR.,2005AP2832-CR.
• Citation: 735 N.W.2d 555,2007 WI App 139
• Parties: STATE of Wisconsin, Plaintiff-Respondent, v. Kevin F. McGUIRE, Defendant-Appellant.<SMALL><SUP>†</SUP></SMALL>
• Court: Wisconsin Court of Appeals

735 N.W.2d 555

2007 WI App 139

STATE of Wisconsin, Plaintiff-Respondent, v. Kevin F. McGUIRE, Defendant-Appellant.^†

No. 2005AP2832-CR.

Court of Appeals of Wisconsin.

Submitted on Briefs January 25, 2007.

Opinion Filed May 2, 2007.

On behalf of the defendant-appellant, the cause was submitted on the briefs of Timothy A. Provis, of Port Washington.

On behalf of the plaintiff-respondent, the cause was submitted on the brief of Peggy A. Lautenschlager, Attorney General, and Mark A. Neuser, Assistant Attorney General.

An amicus curiae brief was filed by David A. Cohen, Randall E. Schumann, and Leslie M. Van Buskirk, of Madison, on behalf of the Wisconsin Department of Financial Institutions, Division of Securities.

Before SNYDER, P.J., BROWN and NETTESHEIM, JJ.

¶ 1 NETTESHEIM, J

This case examines whether a promissory note issued to a sole investor is a "security" within the meaning of WIS. STAT. § 551.02(13) (2005-06).¹ Kevin F. McGuire appeals a judgment convicting him of fraud in connection with the sale of securities, contrary to WIS. STAT. § 551.41(2). Without revealing pertinent information regarding his financial and criminal history, McGuire gave his paramour a promissory note promising to repay with interest money she lent him for his auto racing venture. While this scenario may be at the periphery of what the legislature intended when it enacted WIS. STAT. ch. 551, we hold that it nonetheless falls within that remedial statute's broad scope. We affirm the judgment of conviction.

¶ 2 The following testimony was given at the trial to the court. Laura DeLuisa met McGuire in January 2001. He told her that he was involved in a NASCAR-related venture and showed her pictures of six or seven race cars that he said he owned.² He asked DeLuisa whether she would want to display any of the cars at her husband's restaurant. DeLuisa mentioned to McGuire that she was awaiting a personal injury settlement. Thereafter, McGuire telephoned her often, sometimes twice a day, to ask if she would loan him money for his NASCAR-related expenditures.

¶ 3 About two days after DeLuisa received her settlement, she began writing checks to people associated with McGuire's NASCAR venture. These included numerous checks between May 8 and May 11, 2001, in amounts between $2500 and $35,000 for purchasing race cars, a trailer and tires, and for repairs. DeLuisa made the checks out to the various vendors, not to McGuire. DeLuisa understood from McGuire that the money was for establishing his NASCAR venture and that, because NASCAR was "up and coming," it would be a good investment. McGuire assured her that as dealerships paid him for showing his race cars, he would repay her, and repeatedly told her she would realize a profit. By the time DeLuisa made her first loan to McGuire their acquaintance had evolved into a romantic relationship. At this point, the only terms were that McGuire would repay the money he borrowed from her.

¶ 4 Eventually, DeLuisa's payments on McGuire's behalf reached $140,000. On July 1, 2001, McGuire signed a promissory note at DeLuisa's lawyer's office by which McGuire agreed to repay DeLuisa $140,000 plus ten percent interest on the unpaid balance amortized over four years. The note provided that, in the event of untimely payments or default, all interest and any amount still owed would become immediately due and payable.

¶ 5 McGuire soon stopped making payments³ and DeLuisa filed a complaint with the Wisconsin Department of Financial Institutions, Division of Securities (DFI), to the effect that McGuire may have defrauded her. Mark Dorman, a DFI securities examiner who investigates possible violations of WIS. STAT. ch. 551, was assigned to investigate the complaint and testified for the State in this case. Based on his initial conversation with DeLuisa, Dorman concluded "there were indications her transactions with McGuire likely involved some type of fraud." Dorman also learned that McGuire had filed for bankruptcy in 1998 and that he had a 1990 felony conviction for larceny for which he had served time in prison. McGuire's Chapter 13 bankruptcy file was active at the time of his dealings with DeLuisa. The bankruptcy plan, which would not expire until 2003, forbade McGuire from incurring debt in excess of $1000 without first informing and receiving permission from the bankruptcy court.

¶ 6 The testimony of DeLuisa and McGuire conflict as to whether McGuire told DeLuisa his recent divorce left him with financial or credit problems. However, it is undisputed McGuire never told DeLuisa about the bankruptcy, the conviction, or the prison term. Leslie Van Buskirk, a staff attorney in DFI's Bureau of Registration Enforcement, also reviewed DeLuisa's file. In her opinion, this was "kind of a classic situation" in which a security was formed.

¶ 7 The trial court found McGuire guilty, sentenced him to seven years' probation with one year of conditional jail time, and ordered him pay DeLuisa $112,750 in restitution. McGuire appeals.

DISCUSSION

¶ 8 McGuire's silence regarding his felony conviction and bankruptcy formed the basis for his conviction of securities fraud under WIS. STAT. § 551.41(2). This statute provides in relevant part:⁴

551.41 Sales and purchases. It is unlawful for any person, in connection with the offer, sale or purchase of any security in this state, directly or indirectly:

. . . .

(2) 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 the light of the circumstances under which they are made, not misleading. . . .

The issue on appeal is whether the promissory note McGuire signed is a "security" within the meaning of WIS. STAT. § 551.02(13)(a). This question is one of statutory interpretation, presenting a question of law that we review de novo. State v. Johnson, 2002 WI App 224, ¶ 9, 257 Wis.2d 736, 652 N.W.2d 642.

¶ 9 We begin with the language of WIS. STAT. § 551.02, which states:

551.02 Definitions. In this chapter, unless the context otherwise requires:

. . . .

(13)(a) "Security" means any stock; treasury stock; note; bond; debenture; evidence of indebtedness; share of beneficial interest in a business trust; certificate of interest or participation in any profit sharing agreement; collateral trust certificate; preorganization subscription; transferable share; investment contract; commodity futures contract; voting trust certificate; certificate of deposit for a security; limited partnership interest; certificate of interest or participation in an oil, gas or mining title or lease or in payments out of production under such a title or lease; or, in general, any interest or instrument commonly known as or having the incidents of a security or offered in the manner in which securities are offered; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of or option, warrant or right to subscribe to or purchase or sell, any of the foregoing. (Emphasis added.)

¶ 10 This language is similar to the definition of "security" in the federal Securities Act of 1933 and Securities Exchange Act of 1934. See 15 U.S.C.A. §§ 77a, 77b(a)(1), 78a, and 78c(a)(10) (1997). On its face, WIS. STAT. § 551.02(13)(a) states that a promissory note is a security because "[s]ecurity means any ... note." Id. But this language is not as absolute as it facially appears. In Reves v. Ernst & Young, 494 U.S. 56, 63, 110 S.Ct. 945, 108 L.Ed.2d 47 (1990), the United States Supreme Court held that the phrase "`any note' should not be interpreted to mean literally `any note,'" but "must be understood against the backdrop of what Congress was attempting to accomplish in enacting the Securities Acts." Id. In that light, the Supreme Court held that the statutory language establishes a presumption that every note is a security. Id. at 67, 110 S.Ct. 945. However, this presumption may be rebutted by showing that the note falls within or closely resembles the "family" of instruments deemed not to be securities.⁵ Id. at 65, 67, 110 S.Ct. 945.

¶ 11 "Family resemblance" is determined by examining four factors: (1) the motivations of a reasonable seller and buyer; (2) the note's "plan of distribution"; (3) the reasonable expectations of the investing public; and (4) whether other risk-reducing factors exist, making unnecessary the application of the securities laws to protect the public. Id. at 66-67, 110 S.Ct. 945. If the challenged instrument does not sufficiently resemble an item on the list such that it can be said to fall into one of the enumerated categories, a court may reexamine the four factors to determine whether a new category should be added to the list. See id. at 67, 110 S.Ct. 945.

¶ 12 Because the entire purpose of "blue sky" laws is to protect investors, the law must be liberally construed to carry out that plain legislative intent. Klatt v. Guaranteed Bond Co., 213 Wis. 12, 21, 250 N.W. 825 (1933) (construing WIS. STAT. § 189.02, the predecessor to WIS. STAT. § 551.02). See also Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 151, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972) (stating that securities legislation is meant to be flexibly construed to accomplish its remedial purpose). We must coordinate the interpretation and administration of WIS. STAT. ch. 551, the Wisconsin Uniform Securities Law, with related federal regulations. WIS. STAT. §§ 551.01, 551.67. Also, we find instructive case law interpreting federal securities legislation and accompanying regulations and case law from other jurisdictions that have enacted the Uniform Securities Act. Fore Way Express, Inc. v. Bast, 178 Wis.2d 693, 703, 505 N.W.2d 408 (Ct.App.1993).

¶ 13 Wisconsin has adopted the Reves "family resemblance" test as the proper framework for analyzing whether a note is a security. Johnson, 257 Wis.2d 736, ¶ 15, 652 N.W.2d 642. However, as the amicus curiae brief of the DFI...