U.S. v. Lindo, 93-1881

• Decision Date: 10 March 1994
• Docket Number: No. 93-1881,93-1881
• Citation: 18 F.3d 353
• Parties: Fed. Sec. L. Rep. P 98,114 UNITED STATES of America, Plaintiff-Appellee, v. Herbert LINDO, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 353

18 F.3d 353

Fed. Sec. L. Rep. P 98,114

UNITED STATES of America, Plaintiff-Appellee, v. Herbert LINDO, Defendant-Appellant.

No. 93-1881.

United States Court of Appeals Sixth Circuit.

Argued Jan. 24, 1994.

Decided March 10, 1994.

Richard S. Murray, Asst. U.S. Atty. (argued and briefed), Grand Rapids, MI, for plaintiff-appellee.

R. Stan Mortenson, James B. Bennett, Miller, Cassidy, Larroca & Lewin, Washington, DC, Roy C. Hayes (argued and briefed), Charlevoix, MI, Priscilla L. Schwarze, Chelsea, MI, for defendant-appellant.

Before: MARTIN and BATCHELDER, Circuit Judges; and HULL, District Judge. ^*

BOYCE F. MARTIN, Jr., Circuit Judge.

Herbert Lindo appeals his jury conviction for unlawful sale of unregistered securities in interstate commerce. Lindo contends that the district court erred in failing to instruct the jury on a "good faith reliance on counsel" defense, that the evidence introduced at trial was insufficient to support his convictions, and that the court abused its discretion in denying his motion for a new trial. For the following reasons, we affirm the district court.

I

In 1986, Herbert Lindo was, and had been for fifteen years, the president of Kenilworth Systems Corporation, a New York corporation whose stock was publicly traded. Gary Lange was a lawyer with eight years of experience as a solo practitioner and part-time county prosecutor in the Upper Peninsula of Michigan. Richard Osserman was legal counsel to Kenilworth and the author of opinion letters regarding sales of the company's securities.

As the first step of a complex scheme to raise money for his financially-beleaguered company and by a letter dated July 31, 1986, Lindo directed the American Stock Transfer Company, a transfer agent for public companies, to issue four original stock certificates, each representing 300,000 shares of Kenilworth stock, to Lange. Lindo instructed the agent that Kenilworth had received full consideration for the shares. Each certificate was dated August 5, 1986, and bore a legend indicating that the shares represented by the certificate had not been registered under the Securities Act of 1933, had been acquired for investment purposes only, and could not be sold in the absence of an effective registration statement. Although the stock certificates indicated that Lange was the owner of the stock, a letter agreement signed by both Lindo and Lange explicitly stated that the shares had not been sold to Lange, but had only been issued to him for the purpose of obtaining loans.

Acting on Lindo's behalf and pledging the Kenilworth stock as collateral, Lange used personal contacts to borrow approximately $340,000 from three small banks: (1) First Bank of Ontonagon, in Ontonagon, Michigan; (2) State Bank of Ewen, in Ewen, Michigan; and (3) North Land Savings and Loan, in Ashland, Wisconsin. Two of the loans were in Lange's name and another was in the name of Lindo's wife, Sandra Flynn. Lange forwarded about $220,000 of the loan proceeds to Lindo, and shared the remaining proceeds with a mutual friend of Lange's and Lindo's.

In 1987 and 1988, the loans came due and the banks demanded repayment. Without requiring that Lange restrict sales of the Kenilworth stock to private offerings, Lindo directed Lange to have the banks sell the stock that had been pledged as collateral. The sale of the Kenilworth stock by the banks at Lindo's request was not "registered" by the filing with the Securities and Exchange Commission of a registration statement detailing the risk of buying the stock. Accordingly, these sales could only have proceeded legally if they had qualified under a recognized exemption to the registration requirements of the Securities Act of 1933, as amended. One potentially applicable exemption requires that the person selling the stock not be "an underwriter." 15 U.S.C. Sec. 77d(1). An SEC regulation, commonly known as Rule 144, provides that a person selling stock is not an underwriter when: (1) the quantity of the stock involved is no more than 1% of the outstanding shares; (2) the company is current in its SEC filings; (3) the stock has been beneficially owned for two or more years; (4) the sale is reported to the SEC through the filing of a Form 144; and (5) various limits are placed on the manner of sale, including limits on the solicitation of customers. 17 C.F.R. Sec. 230.144.

In light of these prerequisites to the "not an underwriter" exemption from the registration requirement, opinion letters were transmitted by Kenilworth to the transfer agent. These letters, written on corporate counsel Osserman's letterhead and purportedly signed by Osserman, directed the transfer agent to remove the restrictive legend from the stock certificates that it had issued to Lange. The opinion letters, which were in fact signed by Lindo's executive secretary, falsely identified the shareholder of the stock as Lange, claimed that Lange had received the stock as a loan commitment fee, and gave the year in which the stock was issued as 1984. Based on these alleged facts, the letters stated that the stock legally could be sold, without being registered, pursuant to the safe harbor provisions of 17 C.F.R. Sec. 230.144. Using primary brokers with whom Lindo had extensive business dealings, the banks then sold to the general public the shares of stock Lange had pledged as collateral.

On June 4, 1992, a grand jury returned an indictment charging Lindo, Lange, and Osserman with: one count of conspiracy to sell unregistered securities, in violation of 18 U.S.C. Secs. 371, 1001 and 15 U.S.C. Secs. 77e(a)(2), 77x; and four counts of selling unregistered securities, in violation of 18 U.S.C. Sec. 2 and 15 U.S.C. Secs. 77e(a)(2), 77x. After Lange pled guilty to making false statements on a tax return, his trial was severed. The government dismissed the charges against Osserman.

Lindo's jury trial began on March 17, 1993. Pursuant to a plea agreement, Lange testified against Lindo. On March 30, the jury returned a guilty verdict on the illegal sales charged in Counts Two, Three, and Five, but found Lindo not guilty of the conspiracy charged in Count One and the sale charged in Count Four. On June 15, the district court sentenced Lindo to three years probation on each count, to be served concurrently, and imposed a $200,000 fine per count, for a total of $600,000. The conditions of probation included fifteen months of home detention with work release and 1,000 hours of community service. This timely appeal followed.

II

Lindo initially contends that the district court erred in failing to instruct the jury on a good faith reliance on counsel defense because he commonly relied on the professional opinion of his corporate counsel, Osserman concerning the sales of stock. Solely on the basis of his decision not to testify at trial, according to Lindo, the district court denied him the opportunity to argue that he relied on opinion letters prepared by Osserman in regard to the stock at issue in this case. Lindo maintains that this denial violated his Fifth Amendment rights. Had he been allowed to advance his reliance on counsel theory, Lindo asserts that the government could not have borne its burden of proving that he willfully caused shares, which he knew to be neither registered nor exempt from registration, to be sold to the public.

As this Court has recognized, it is "well established that an instruction should not be given if it lacks evidentiary support or is based upon mere suspicion or speculation." United States v. James, 819 F.2d 674, 675 (6th Cir.1987) (quoting United States v. McLister, 608 F.2d 785, 791 (9th Cir.1979)). In a case addressing whether a taxpayer-defendant was entitled to an instruction regarding his good faith reliance on his accountant, however, this Court noted that "the standard of evidence necessary to warrant an instruction cannot include an absolute requirement that the taxpayer must testify, for that would burden the taxpayer's own Fifth Amendment right against self-incrimination." United States v. Duncan, 850 F.2d 1104, 1115 n. 9 (6th Cir.1988). The Court went on to state that "[w]hen a proper request for an instruction on a criminal defendant's theory of defense is made, it is reversible error not to present that theory adequately in a full statement of the law." Id. at 1117-18.

The elements of a reliance on counsel defense are (1) full disclosure of all pertinent facts to counsel, and (2) good faith reliance on counsel's advice. Id. at 1116 (agreeing with the trial court in that case that the elements of a reliance on accountant defense are "(1) full disclosure of all pertinent facts, and (2) good faith reliance on the accountant's advice"). Moreover, " '[a]ny foundation in the evidence' sufficient to bring the issue into the case" is also sufficient to merit a jury instruction on reliance. Id. at 1117 (quoting United States v. Phillips, 217 F.2d 435, 442 (7th Cir.1954)). Accordingly, we read Duncan to hold that a defendant who identifies any evidence supporting the conclusion that he or she has fully disclosed all pertinent facts to counsel, and that he or she has relied in good faith on counsel's advice, is entitled to a reliance jury instruction. See United States v. Kenney, 911 F.2d 315, 322 (9th Cir.1990) (holding that "[i]n order to qualify for an advice of counsel instruction the appellant must show that there was full disclosure to the attorney of all material facts, and that he relied in good faith on the attorney's recommended course of conduct").

In Duncan, the defendant and his accountant were charged with making false statements in a tax return. Because the accountant initiated the transaction that served as the basis for the bringing of charges against the defendant, and therefore possessed all of the relevant facts concerning that transaction from the outset, the Court noted that there was no point in requiring a showing by the defendant that he personally...