United States v. Ellison
| Decision Date | 15 August 2017 |
| Docket Number | No. 14-30184,No. 14-30185,No. 14-30180,No. 14-30183,14-30180,14-30183,14-30184,14-30185 |
| Parties | UNITED STATES OF AMERICA, Plaintiff-Appellee, v. MARK A. ELLISON, Defendant-Appellant, UNITED STATES OF AMERICA, Plaintiff-Appellee, v. DAVID D. SWENSON, Defendant-Appellant, UNITED STATES OF AMERICA, Plaintiff-Appellee, v. JEREMY S. SWENSON, Defendant-Appellant, UNITED STATES OF AMERICA, Plaintiff-Appellee, v. DOUGLAS L. SWENSON, Defendant-Appellant |
| Court | U.S. Court of Appeals — Ninth Circuit |
NOT FOR PUBLICATION
MEMORANDUM*Appeal from the United States District Court for the District of Idaho
Argued and Submitted June 5, 2017 Seattle, Washington
Before: FERNANDEZ, CALLAHAN, and IKUTA, Circuit Judges.
Douglas Swenson, Mark Ellison, David Swenson, and Jeremy Swenson (collectively, the Appellants) appeal their convictions after a joint jury trial. All of the Appellants also appeal their restitution orders, and Douglas, David, and Jeremy also appeal their prison sentences. The Appellants worked for the DBSI Group1 and were convicted for their roles in defrauding investors in fifteen investmentofferings. Each of the Appellants was convicted of securities fraud,2 and Douglas was also convicted of wire fraud.3 We affirm the Appellants' convictions and sentences in virtually all respects; however, we vacate the restitution order against Ellison, David, and Jeremy, and remand for the district court for recalculation of the amount.
The Appellants challenge a number of jury instructions given in their joint trial. Each challenge fails.
(1) Scheme to defraud
The Appellants hypothesize that the district court's Instruction 40, which defines "a scheme to defraud" for the securities and wire fraud charges, could have allowed the jury to convict them for silence, even in the absence of a duty to disclose any information to investors. The district court did not abuse its discretion in formulating this instruction. See United States v. Lloyd, 807 F.3d 1128, 1164-65 (9th Cir. 2015). In general, guilt for securities fraud and wire fraud "is not restricted solely to isolated misrepresentations or omissions." Blackie v. Barrack, 524 F.2d 891, 903 n.19 (9th Cir. 1975); see 17 C.F.R. § 240.10b-5(a), (c);see also Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 152-53, 92 S. Ct. 1456, 1471-72, 31 L. Ed. 2d 741 (1972); United States v. Woods, 335 F.3d 993, 997-98 (9th Cir. 2003). Moreover, in this case, it was undisputed that a number of statements were made to investors in connection with the investment offerings. Cf. Chiarella v. United States, 445 U.S. 222, 226, 100 S. Ct. 1108, 1113, 63 L. Ed. 2d 348 (1980). Because statements were made to investors, the securities laws imposed a duty to disclose material facts necessary to render those statements not misleading, regardless of whether any fiduciary relationship with investors existed. See S.E.C. v. Fehn, 97 F.3d 1276, 1290 n.12 (9th Cir. 1996); Hanon v. Dataproducts Corp., 976 F.2d 497, 504 (9th Cir. 1992); see also 17 C.F.R. § 240.10b-5(b). On this record, the instruction was correct and did not mislead the jury. See United States v. Smith, 831 F.3d 1207, 1219 (9th Cir. 2016).4
(2) Materiality
The Appellants argue that Instruction 30, which defines materiality for securities fraud, did not tell the jury to consider the purported omission ormisstatement in light of all the circumstances.5 At bottom, "'materiality depends on the significance the reasonable investor would place on the withheld or misrepresented information,'"6 and a reasonable investor would consider all of the circumstances in determining whether a false statement or omitted fact was significant.7 By referring to a reasonable investor, the instruction adequately communicated that the jury should consider relevant circumstances in evaluating materiality. See United States v. Hofus, 598 F.3d 1171, 1174 (9th Cir. 2010). We reject the Appellants' speculation that the jury could have convicted them based on inadequate evidence of materiality: there was sufficient evidence to support the jury's verdicts. See Griffin v. United States, 502 U.S. 46, 59-60, 112 S. Ct. 466, 474, 116 L. Ed. 2d 3714 (1991). We also reject the Appellants' suggestion that the jury should have been told to consider information that was made available to third parties, but not to investors, when it evaluated the materiality of a particular fact toa reasonable investor. See United States v. Bingham, 992 F.2d 975, 976 (9th Cir. 1993) (per curiam) ().
(3) Defense of investor negligence
Instruction 41 told the jury that it was not a defense that "investors may have been gullible, careless, naive or negligent." The Appellants argue that the instruction undermined the requirement that materiality be determined objectively, and that they should have been allowed to argue that investor carelessness was a defense where the government argued that they were guilty and pointed to victim investors who failed to understand the disclosures. We review this claim for plain error because the Appellants did not object to the district court's formulation of this instruction on this ground. See United States v. Anderson, 741 F.3d 938, 945-46, 946 n.5 (9th Cir. 2013).
The instruction correctly stated the law8 because materiality is determined objectively, so that a victim's negligence is not a defense. United States v. Lindsey, 850 F.3d 1009, 1015-16 (9th Cir. 2017); see also United States v. Reyes, 577 F.3d 1069, 1075 (9th Cir. 2009). The government did present testimony from victim investors who said that they had been deceived, but the Appellants were notprecluded from arguing that, nevertheless, a reasonable investor would not have been. However, if the form of the instruction injected some ambiguity, and even if it was plain error to so instruct,9 the Appellants have not demonstrated that the error affected the outcome of their trial, and therefore fail to demonstrate plain error. See United States v. Ameline, 409 F.3d 1073, 1078 (9th Cir. 2005) (en banc). First, while the Appellants argue that nothing was misleading or omitted, the materiality of the financial information in question was essentially uncontroverted. See Bear, 439 F.3d at 570; see also United States v. Jenkins, 633 F.3d 788, 802 (9th Cir. 2011); S.E.C. v. Murphy, 626 F.2d 633, 653 (9th Cir. 1980). Second, in order for the error to have affected the verdict, the jury would had to have drawn the "far-fetched inference"10 that: (1) the Appellants' statements, omissions, or actions would not have been considered important by a reasonable investor, and (2) the Appellants should still be convicted because those statements or actions nevertheless deceived these unreasonable victims. There would be no "genuine possibility that the jury convicted" Appellants on that basis. See Bear, 439 F.3d at 568, 570.
(4) Good faith and willfullness
Although some of the Appellants proposed their own jury instruction regarding good faith, they did not object to the district court's definition of "willfully." Thus, we review the instruction regarding willfullness for plain error. See Anderson, 741 F.3d at 945-46. The district court's Instruction 30 correctly stated the law regarding the intent11 required for securities fraud: "'willfully' . . . means intentionally undertaking an act that one knows to be wrongful," and "does not require that the actor know specifically that the conduct was unlawful." Tarallo, 380 F.3d at 1188. The definition of "willfully" that typically applies to other crimes does not apply to securities fraud. Id. at 1186-88; see also 15 U.S.C. § 78ff(a). Because the instruction correctly defined the requisite intent, the Appellants were not entitled to a separate good faith instruction. United States v. Green, 745 F.2d 1205, 1209 (9th Cir. 1984); see also United States v. Shipsey, 363 F.3d 962, 967-68 (9th Cir. 2004).
We have carefully reviewed the record, and construed in the light most favorable to the prosecution, there was a plethora of evidence from which arational juror could have found that each Appellant was guilty of the crimes for which he was convicted. See United States v. Nevils, 598 F.3d 1158, 1161 (9th Cir. 2010) (en banc).
There was sufficient evidence to support a determination that Douglas, with the requisite willful intent, approved the Private Placement Memoranda (PPMs) for the various investment offerings, each of which contained materially misleading statements regarding the financial viability of DBSI Master Leaseco, Inc. (Master Leaseco), DBSI, Inc. (formerly known as DBSI Housing, Inc.), and the Master Lease Portfolio (MLP), and regarding the use of investors' "Accountable Reserves" funds for the company's ongoing operations. In the words of one witness, investors had to go on "an Easter egg hunt to figure out what's going on." For example, there were misleading statements regarding: (1) DBSI, Inc.'s net worth, including substantial receivables from technology company affiliates and whether those were current assets; (2) the use of investors' accountable reserves; (3) the financial health of the MLP properties overall; (4) the assets of Master Leaseco; and (5) the status and shutdown of FOR1031. Moreover, there was sufficient evidence to support the jury's determination that the statements were material and would have misled a reasonable investor, even in the absence of expert testimony, especially when the PPMs and accompanying financialstatements were not prepared according to Generally Accepted Accounting Principles (GAAP). Jenkins, 633 F.3d at 802, 802 n.3; cf. Sparling v. Daou (In re Daou Sys., Inc.), 411 F.3d 1006, 1016 (9th Cir. 2005) (...
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