U.S. v. Kessi

• Citation: 868 F.2d 1097
• Decision Date: 01 March 1989
• Docket Number: No. 87-3148,87-3148
• Parties: Fed. Sec. L. Rep. P 94,363, 27 Fed. R. Evid. Serv. 615 UNITED STATES of America, Plaintiff-Appellee, v. James E. KESSI, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1097

868 F.2d 1097

Fed. Sec. L. Rep. P 94,363, 27 Fed. R. Evid. Serv. 615

UNITED STATES of America, Plaintiff-Appellee, v. James E. KESSI, Defendant-Appellant.

No. 87-3148.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Sept. 13, 1988.

Decided March 1, 1989.

John W. Lundin, Seattle, Wash., for defendant-appellant.

Joanne Y. Maida, Asst. U.S. Atty., Seattle, Wash., for plaintiff-appellee.

Appeal from the United States District Court for the Western District of Washington.

Before WRIGHT, WALLACE and HUG, Circuit Judges.

WALLACE, Circuit Judge:

Kessi appeals his conviction for participating in a securities fraud scheme. Kessi, a commodities broker, executed trades in several commodities accounts in which the investment decisions were made by Henry March, who at the time was a fugitive from justice. March and his associate, Douglas Fisher, induced investors to enter profit-sharing agreements which were guaranteed to yield returns. March then diverted part of the investors' money for his personal use and passed the rest to Kessi for trading. For his role in this scheme, a jury convicted Kessi of aiding and abetting mail fraud (18 U.S.C. Secs. 2, 1341), aiding and abetting securities fraud (15 U.S.C. Secs. 77q(a), 77x; 18 U.S.C. Sec. 2), and being an accessory after the fact (18 U.S.C. Sec. 3). Kessi appeals his conviction, challenging the jury instructions, the sufficiency of evidence, the conduct of the prosecutor, and the admission of certain testimony by a psychiatric expert. We have jurisdiction under 28 U.S.C. Sec. 1291. We affirm.

I

Kessi's association with March began in July 1981, when March became a commodities client of Kessi's at the brokerage firm of Smith Barney in the Seattle, Washington area. In February 1982, between $60,000 and $80,000 in checks issued by March to Smith Barney were rejected for payment due to lack of funds. As a result, in March 1982, Kessi left Smith Barney to work at Prudential Bache (Bache), taking March's commodities accounts with him. Through a security check, Bache discovered that March had felony convictions for securities fraud and mail fraud for which he had served a seven-year prison sentence. In July 1982, Bache informed Kessi that it would not continue to conduct business with March due to his criminal history.

Kessi resigned and established his own business, Alpha Com, which traded through Rosenthal, a brokerage firm in Chicago. Kessi falsely told Rosenthal that he knew of no problems with March and that March had passed a credit check at Bache. Kessi opened several accounts for March at Rosenthal. In September 1982, when March wrote checks on these accounts to cover margin calls, all checks, approximating $150,000, failed to clear the bank. Kessi was forced to obtain a bank loan for $62,000 to cover March's margin calls. Kessi later told his business partner that March left him with $93,000 in debt from these accounts. During this time, Kessi learned that investors' funds approximating $50,000 had not been turned over by March for trading. Kessi also received from March account papers for investors but not money that should have accompanied the papers.

In November 1982, March was indicted for mail fraud and a warrant was issued for his arrest. March fled to the Seattle area, becoming a fugitive for the next two years. As a result of considerable publicity in the Seattle area, Kessi knew of the indictment against March and of his fugitive status.

In 1983, March contacted Kessi to request his assistance in trading commodities. Kessi agreed to establish accounts for him and to refer to him by the alias George Wells. During the next two years, Kessi had approximately 200 contacts with March by telephone and met with him personally in Issaquah, Washington, to discuss the scheme. Kessi established accounts at Rosenthal in the name of Fisher, March's business associate and son-in-law. At no time did Kessi notify Rosenthal that March was the true manager of the accounts, although he was required to give this information in writing. March gave Kessi's name to investors and encouraged them to call him if they had any questions about their investments, thereby lending credibility to the scheme. When investors called, Kessi denied any knowledge of impropriety with respect to their investments.

March and Fisher persuaded investors to execute profit-sharing agreements, whereby any profits from March's trading would be split fifty-fifty. None of the investors were aware of March's fugitive status, prior felony convictions, or questionable financial history. As with the 1982 investors, March diverted for his personal use part of the investors' money and gave the rest to Kessi for trading. Kessi was aware that investors' money had been collected but not turned over to him. Throughout this period, Kessi repeatedly denied to federal investigators and various individuals that he had had any contact with or knowledge of March.

Much of Kessi's defense at trial was aimed at establishing that he suffered from post-traumatic stress disorder (PTSD) as a result of his combat service in Vietnam. Kessi contended that PTSD prevented him from forming the requisite intent to commit the crimes for which he was charged.

II

Kessi was charged with aiding and abetting March and Fisher in a scheme to defraud investors in the "offer and sale of securities." The court instructed the jury that the profit-sharing agreements March and Fisher executed with investors constituted "securities" for purposes of this charge. Kessi complains that this instruction was improper. He argues that the existence of securities is an element of the crime and thus a question of fact for the jury. By instructing the jury that the profit-sharing agreements were securities, he contends, the court invaded the province of the jury and thereby committed reversible error.

We review the district court's jury instructions for abuse of discretion. United States v. Burgess, 791 F.2d 676, 680 (9th Cir.1986) (Burgess ). We examine " 'whether or not the instructions taken as a whole were misleading or represented a statement inadequate to guide the jury's deliberations.' " United States v. Shortt Accountancy Corp., 785 F.2d 1448, 1454 (9th Cir.) (Shortt Accountancy ), cert. denied, 478 U.S. 1007, 106 S.Ct. 3301, 92 L.Ed.2d 715 (1986), quoting Stoker v. United States, 587 F.2d 438, 440 (9th Cir.1978) (per curiam). To preserve the right to appellate review of this kind, Kessi must have objected properly in the district court. Federal Rule of Criminal Procedure 30 prohibits a party from assigning error "unless that party objects thereto before the jury retires to consider the verdict, stating distinctly the matter to which that party objects and the grounds of the objection." (Emphasis added.) The standard for a proper objection under Fed.R.Crim.P. 30 and its civil counterpart, Fed.R.Civ.P. 51, is the same. See United States v. Espinosa, 827 F.2d 604, 613 (9th Cir.1987) (Espinosa), cert. denied, --- U.S. ----, 108 S.Ct. 1243, 99 L.Ed.2d 441 (1988); Fed.R.Crim.P. 30 advisory committee note (procedure for making objections is same for criminal and civil actions).

Kessi failed to object distinctly to the court's instruction that the profit-sharing agreements were securities. Kessi merely objected generally to this instruction. Kessi's only specific objection was to a different part of the instruction. This does not satisfy Rule 30.

We have recognized a sole exception to the requirement of a formal, timely, and distinctly stated objection. A party need not properly object if doing so would be a "pointless formality." Robert's Waikiki U-Drive v. Budget Rent-A-Car Systems, 732 F.2d 1403, 1410 (9th Cir.1984) (Robert's Waikiki U-Drive); Brown v. AVEMCO Investment Corp., 603 F.2d 1367, 1371 (9th Cir.1979) (Brown ). An objection may be a "pointless formality" when (1) throughout the trial the party argued the disputed matter with the court, (2) it is clear from the record that the court knew the party's grounds for disagreement with the instruction, and (3) the party offered an alternative instruction. Martinelli v. City of Beaumont, 820 F.2d 1491, 1493-94 (9th Cir.1987); Brown, 603 F.2d at 1371-73; accord Brett v. Hotel, Motel, Restaurant, Construction Camp Employees & Bartenders Union, Local 879, 828 F.2d 1409, 1414 n. 7 (9th Cir.1987); Lifshitz v. Walter Drake & Sons, Inc., 806 F.2d 1426, 1430-31 (9th Cir.1986); Kramas v. Security Gas & Oil Inc., 672 F.2d 766, 769 (9th Cir.), cert. denied, 459 U.S. 1035, 103 S.Ct. 444, 74 L.Ed.2d 600 (1982). The offering of an alternative instruction combined with an objection to a related part of the questioned instruction does not satisfy the "pointless formality" exception. Robert's Waikiki U-Drive, 732 F.2d at 1409-10.

Kessi offered an alternative instruction which would have required the jury to find whether the profit-sharing agreements constituted securities. This alone, however, is not enough. Id. Kessi also discussed with the court whether the profit-sharing agreements were securities. While arguing a motion for judgment of acquittal, Kessi repeatedly urged the court to rule as a matter of law that the profit-sharing agreements were commodities and thus under the exclusive jurisdiction of the Commodities Futures Trading Commission. Yet at no time during this discussion did Kessi assert that the issue of whether the agreements were securities is a question of fact for the jury. We do not believe that from this discussion "the district court was fully aware of [Kessi's present] position," Brown, 603 F.2d at 1371, that this matter was for the jury to decide. Finally, the court held a five hour off-the-record instruction conference at which this issue may have been discussed. But because there is no record of the conference, we have no way of knowing whether the court was fully aware that Kessi did not agree with its instruction. Espinosa, 827 F.2d at 613 ("reco...