U.S. v. Tarallo

• Decision Date: 20 August 2004
• Docket Number: No. 02-50252.,02-50252.
• Citation: 380 F.3d 1174
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Aldo TARALLO, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

380 F.3d 1174

UNITED STATES of America, Plaintiff-Appellee, v. Aldo TARALLO, Defendant-Appellant.

No. 02-50252.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 9, 2004.

Filed August 20, 2004.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Barry Tarlow and Tarik S. Adlai, Tarlow & Berk, Los Angeles, CA, for the defendant-appellant.

Steven J. Olson, Assistant United States Attorney, Major Frauds Section, Los Angeles, CA, for the plaintiff-appellee.

Appeal from the United States District Court for the Central District of California Audrey B. Collins, District Judge, Presiding. D.C. No. CR-00-00186-ABC.

Before D.W. NELSON, JOHN R. GIBSON,^* and GRABER, Circuit Judges.

OPINION

GRABER, Circuit Judge:

Defendant Aldo Tarallo appeals his convictions on six counts of securities fraud, in violation of 15 U.S.C. §§ 78j(b) and 78ff and 17 C.F.R. § 240.10b-5; and four counts of mail fraud, in violation of 18 U.S.C. § 1341. We reverse his convictions with respect to three vicarious liability counts for lack of evidence. In affirming the remaining seven counts, we hold that a defendant may commit securities fraud "willfully" in violation of 15 U.S.C. § 78ff and 17 C.F.R. § 240.10b-5 even if the defendant did not know at the time of the acts that the conduct violated the law. We further hold that a defendant may commit securities fraud "willfully" by intentionally acting with reckless disregard for the truth of material misleading statements. Finally, we hold that 15 U.S.C. § 78ff is not facially unconstitutional as a violation of Apprendi v. New Jersey, 530 U.S. 466, 120 S.Ct. 2348, 147 L.Ed.2d 435 (2000).

FACTUAL AND PROCEDURAL BACKGROUND

Defendant and two co-defendants, David Colvin and John Larson, together participated in a fraudulent telemarketing scheme. Colvin owned several companies used in the scheme, including Intellinet, Inc., and Larson was Intellinet's sales manager. Defendant was hired by Intellinet as a telemarketer, and he participated in the fraud from April 1997 until February 20, 1998. Defendant and others solicited those called to invest in various businesses whose value and operations were fictitious. These purported businesses included Medical Advantage, Inc. ("Medical Advantage"), Lamelli Medical Technology, Inc. ("Lamelli"), and R.A.C. International, Inc. ("R.A.C.").

Defendant and his co-defendants falsely represented to potential investors that Medical Advantage operated independent weight loss clinics around the country and had a projected 1997 revenue of $8.2 million, and that C. Everett Koop and Tom Brokaw supported or were affiliated with the company. Defendant and his co-defendants falsely represented to potential investors that Lamelli had developed a detoxification system that could detoxify a person of all alcohol or drugs in 15 minutes, that the system had won FDA approval, and that $187 million in revenue was expected to be generated by this alleged invention in 1998. Defendant and his co-defendants falsely represented to potential investors that R.A.C. had generated $2.3 million in revenue in 1997 from sales of motor oil, car batteries, and tools, and that the company projected for 1998 revenues of approximately $3.5 million.

Defendant and his co-defendants told potential investors that they would be investing by means of promissory notes, which would be held in a "trust" for a fixed term of between 90 and 180 days. In return, the investors would receive 12 percent interest per annum and shares of "restricted stock" in the company. Defendant told investors that the company's Initial Public Offering ("IPO") would occur on or before the date on which the promissory note was to mature, at which point investors could (at their option) either receive back their invested principal or use it to purchase shares offered in the IPO. Instead of holding the invested funds in trust as promised, however, Colvin and others used those funds for the benefit of Colvin, Larson, Defendant, and their associates, and the investors never saw their money again.

After a nine-day trial, a jury convicted Defendant on six counts of securities fraud and four counts of mail fraud. The district court sentenced him to 37 months' imprisonment on each count, with the sentences to run concurrently. Defendant timely appealed.

DISCUSSION

Defendant presents four arguments on appeal: (A) there was insufficient evidence to support the fraud convictions; (B) there was insufficient evidence to support the convictions on counts arising from acts committed by other telemarketers; (C) the district court erred in instructing the jury; and (D) the prosecution engaged in misconduct that prejudiced Defendant. We will address each of these arguments in turn, but agree with Defendant only as to the second argument.

A. Evidence Supporting the Fraud Convictions

1. Standard of Review.

We review de novo the question whether sufficient evidence was adduced at trial to support a conviction. United States v. Diaz-Cardenas, 351 F.3d 404, 407 (9th Cir.2003). We view the evidence in the light most favorable to the government, and it is sufficient if any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt. United States v. Plache, 913 F.2d 1375, 1381 (9th Cir.1990).

2. Defendant knowingly made false statements.

A defendant may be convicted of committing mail fraud in violation of 18 U.S.C. § 1341 only if the government proves beyond a reasonable doubt that the defendant had the specific intent to defraud. United States v. Sayakhom, 186 F.3d 928, 941 (9th Cir.), amended by 197 F.3d 959 (9th Cir.1999). Likewise, a defendant may be convicted of committing securities fraud only if the government proves specific intent to defraud, mislead, or deceive. United States v. Brown, 578 F.2d 1280, 1284 (9th Cir.1978).

Defendant argues that there was insufficient evidence that he knew that the statements he made to potential investors were false. If he did not even know that the statements were false, of course, he could not have had the specific intent to defraud. He points out that Colvin and Larson distributed typewritten scripts for salespeople to use during sales calls, and he asserts that the investment materials they provided to Defendant (and passed along to investors) were sophisticated and were not recognizably false. In essence, Defendant claims that no evidence at trial established that he was anything other than an innocent who was duped right along with the investors.

The record does not support Defendant's claim. A reasonable factfinder could have found beyond a reasonable doubt that Defendant knew of the fraudulent nature of the scheme in which he was participating.

For example, the jury was presented with evidence that Defendant knew that it was a lie to assure investors that their money was guaranteed and risk-free because it was held in a "trust" until the IPO occurred. For example, Crew testified that Defendant told him that his investment would be held in a trust and that, after the IPO, he could receive his principal back with interest, or else receive shares in the company. However, Defendant received paychecks from Sierra Ridge Management Trust, which was one of the trusts for which Defendant solicited investors. Agent Goldman testified that, after being arrested and Mirandized, Defendant admitted that he knew he was being paid out of the same "trust" companies that investors' money was being deposited. Paul Coynes, who worked with Defendant as a telemarketer, also testified for the prosecution. Coynes explained that he realized after a time that it was impossible for the money he was soliciting to be held safely in a trust:

[W]e told people that all the money went into the trust company. And at some point it became clear to me how ridiculous that was because we were getting paid a commission, the sales manager was getting paid a commission, and the owner of the company was obviously living a decent life-style and that money had to come from somewhere.

A juror could reasonably conclude from this evidence that Defendant knew that the "trusts" were not actually safe, but were being raided for payroll.

The jury also heard evidence that Defendant lied to potential investors about where he was located, telling them during telephone conversations that he was in a different office from Colvin, an office that did not exist. Investor-victim John Wiedmer testified that Defendant told him that he was in a Washington, D.C., office, while Colvin was in California. Wiedmer testified that this statement influenced his decision to invest because it made the publishing company Defendant was pitching sound like "a pretty big operation," and that representation added some credence to the legitimacy of the enterprise. Likewise, investor-victim Keith Crew testified that Defendant sometimes claimed to be in Washington, D.C., when they spoke on the telephone and that Defendant provided him with a business card from Al Tarall (Defendant's alias) in Washington, D.C. However, Agent Steven Goldman of the FBI testified that, in the course of his investigation into the telemarketing scheme, he learned that the "Washington office" was only a "virtual office" that consisted simply of a service that answered the telephones and forwarded mail.

The foregoing evidence supported the jury's finding beyond a reasonable doubt that Defendant knew of the fraudulent nature of the telemarketing scheme and that he acted with the intent to defraud.

3. The false statements were material.

A misrepresentation must be material to form the basis of a conviction for mail or securities fraud. Neder v. United States, 527 U.S. 1, 25, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999) (mail fraud); United States v. Smith, 155 F.3d 1051, 1064 (9th Cir.1998) (securities fraud under 17 C.F.R. § 240.10b-5). For mail fraud, the test is whether...