Filed: Aug. 15, 2017
Latest Update: Mar. 03, 2020
Summary: FILED NOT FOR PUBLICATION AUG 15 2017 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT UNITED STATES OF AMERICA, ) No. 14-30180 ) Plaintiff-Appellee, ) D.C. No. 1:13-cr-00091-BLW-2 ) v. ) MEMORANDUM* ) MARK A. ELLISON, ) ) Defendant-Appellant, ) ) UNITED STATES OF AMERICA, ) No. 14-30183 ) Plaintiff-Appellee, ) D.C. No. 1:13-cr-00091-BLW-4 ) v. ) ) DAVID D. SWENSON, ) ) Defendant-Appellant, ) ) UNITED STATES OF AMERICA, ) No. 14-30184 ) Plaintiff-A
Summary: FILED NOT FOR PUBLICATION AUG 15 2017 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT UNITED STATES OF AMERICA, ) No. 14-30180 ) Plaintiff-Appellee, ) D.C. No. 1:13-cr-00091-BLW-2 ) v. ) MEMORANDUM* ) MARK A. ELLISON, ) ) Defendant-Appellant, ) ) UNITED STATES OF AMERICA, ) No. 14-30183 ) Plaintiff-Appellee, ) D.C. No. 1:13-cr-00091-BLW-4 ) v. ) ) DAVID D. SWENSON, ) ) Defendant-Appellant, ) ) UNITED STATES OF AMERICA, ) No. 14-30184 ) Plaintiff-Ap..
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FILED
NOT FOR PUBLICATION
AUG 15 2017
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA, ) No. 14-30180
)
Plaintiff-Appellee, ) D.C. No. 1:13-cr-00091-BLW-2
)
v. ) MEMORANDUM*
)
MARK A. ELLISON, )
)
Defendant-Appellant, )
)
UNITED STATES OF AMERICA, ) No. 14-30183
)
Plaintiff-Appellee, ) D.C. No. 1:13-cr-00091-BLW-4
)
v. )
)
DAVID D. SWENSON, )
)
Defendant-Appellant, )
)
UNITED STATES OF AMERICA, ) No. 14-30184
)
Plaintiff-Appellee, ) D.C. No. 1:13-cr-00091-BLW-3
)
v. )
)
JEREMY S. SWENSON, )
)
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Defendant-Appellant, )
)
UNITED STATES OF AMERICA, ) No. 14-30185
)
Plaintiff-Appellee, ) D.C. No. 1:13-cr-00091-BLW-1
)
v. )
)
DOUGLAS L. SWENSON, )
)
Defendant-Appellant, )
)
Appeal from the United States District Court
for the District of Idaho
B. Lynn Winmill, Chief District Judge, Presiding
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 investment
1
“DBSI Group” refers to the whole DBSI group of companies.
2
offerings. 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.
(A) Jury Instructions
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);
2
15 U.S.C. §§ 78j(b), 78ff(a); 18 U.S.C. § 2; see also 17 C.F.R. § 240.10b-5.
3
18 U.S.C. § 1343.
3
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 or
4
We decline to consider Douglas’s conclusory assertion in his reply brief
that the jury’s verdicts were inconsistent. See United States v. Romm, 455 F.3d
990, 997 (9th Cir. 2006); Greenwood v. FAA,
28 F.3d 971, 977 (9th Cir. 1994).
4
misstatement 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 to
5
We decline to consider Douglas’s argument in reply regarding the degree of
importance required to establish materiality. See Romm, 455 F.3d at 997.
6
No. 84 Empl.-Teamster Joint Council Pension Tr. Fund v. Am. W. Holding
Corp., 320 F.3d 920, 934 (9th Cir. 2003); see also United States v. Tarallo,
380
F.3d 1174, 1182 (9th Cir. 2004), amended,
413 F.3d 928, 928 (9th Cir. 2005).
7
See TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449,
96 S. Ct. 2126,
2132,
48 L. Ed. 2d 757 (1976) (defining materiality in terms of the “‘total mix’ of
information made available”).
5
a reasonable investor. See United States v. Bingham, 992 F.2d 975, 976 (9th Cir.
1993) (per curiam) (materiality is evaluated in the context of the “information
available to the buyer of the . . . stock”).
(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 not
8
See Smith, 831 F.3d at 1216.
6
precluded 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.
9
See United States v. Della Porta, 653 F.3d 1043, 1052 (9th Cir. 2011);
United States v. Bear,
439 F.3d 565, 569 (9th Cir. 2006).
10
See Smith, 831 F.3d at 1220; see also Middleton v. McNeil,
541 U.S. 433,
438,
124 S. Ct. 1830, 1833,
158 L. Ed. 2d 701 (2004) (per curiam).
7
(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).
(B) Sufficiency of the evidence
We have carefully reviewed the record, and construed in the light most
favorable to the prosecution, there was a plethora of evidence from which a
11
United States v. O’Hagan, 521 U.S. 642, 665–66,
117 S. Ct. 2199, 2214,
138 L. Ed. 2d 724 (1997); see also 15 U.S.C. § 78ff(a).
8
rational 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 financial
9
statements 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) (violating GAAP by
overstating revenues may state a claim for securities fraud (accounting fraud)).
The existence of evidence inconsistent with an intent to defraud is beside the point,
because the jury was entitled to credit the evidence suggesting Douglas’s willful
intent to deceive investors. See
Nevils, 598 F.3d at 1169.
There was also sufficient evidence to support a determination that Ellison,
Jeremy, and David committed securities fraud. At the very least, it was sufficient
to show that they aided and abetted a fraudulent act, practice, or course of business.
17 C.F.R. § 240.10b-5(c); see also 18 U.S.C. § 2(a).12
For example, there was evidence that (1) Ellison approved the PPMs that
contained misleading statements, despite being repeatedly informed by others
about their misleading nature, and despite knowing that investors wanted more
transparency about the financial condition of DBSI Group and the MLP, and
Ellison attempted to dissuade an employee from continuing to question the
12
The jury was properly instructed regarding aiding and abetting liability in
Instruction 33. See Rosemond v. United States, __ U.S. __, __, 134 S. Ct. 1240,
1245,
188 L. Ed. 2d 248 (2014); United States v. Garcia,
400 F.3d 816, 819 (9th
Cir. 2005); see also United States v. Dearing,
504 F.3d 897, 901 (9th Cir. 2007).
10
misleading nature of the statements; (2) David knew the state of DBSI Group
because he was a senior executive who received regular reports and attended
regular meetings at which the financial difficulties of the MLP and DBSI, Inc.
were discussed, and David approved language in the PPMs that investors’
Accountable Reserves could not be used for the company’s general operations,
even though he told another DBSI Group employee that the funds could be used
for that purpose; (3) Jeremy annually directed that money be transferred into the
Master Leaseco account just before its audits in order to inflate the account
balance, served on a committee responsible for monitoring the repayment of loans
made from the account (although the evidence also showed that repayments were
not made), was on the committee responsible for lending money from the 2008
Notes Offering to the technology companies, and was also present at meetings
where concerns regarding the MLP’s and DBSI, Inc.’s finances were discussed,
including concerns about whether it was misleading not to show the loans to
affiliated technology companies as a separate line item in DBSI, Inc.’s financial
statements.13
13
We also reject Jeremy’s argument that his securities fraud convictions are
inconsistent with Douglas’s convictions for wire fraud and for committing
securities fraud by other, additional means. Even if there were some inconsistency
(which there is not), it would not undermine the validity of Jeremy’s convictions.
(continued...)
11
(C) Conduct required to violate Rule 10b-5(a) or (c)
The Appellants argue that their convictions pursuant to Rule 10b-5(a) and
(c) cannot stand because a conviction for violating those provisions must be
premised on conduct separate from misrepresentations or omissions that violate
Rule 10b-5(b). See WPP Lux. Gamma Three Sarl v. Spot Runner, Inc., 655 F.3d
1039, 1057–58 (9th Cir. 2011). Assuming without deciding that this principle
applies in the context of a criminal prosecution, there was evidence of the
fraudulent scheme or course of business beyond the misrepresentations made to
investors in connection with the securities sales: for example, Douglas’s
withholding important information from his own sales staff; Jeremy’s directing
money transfers into the Master Leaseco account; Ellison’s attempt to dissuade
employees from pursuing greater transparency; and David’s efforts to conceal from
lenders DBSI Group’s sales of properties to TIC investors. Thus, the Appellants’
convictions were supported by evidence of conduct beyond isolated
misrepresentations and omissions. See Affiliated
Ute, 406 U.S. at 153, 92 S. Ct. at
1472; cf. WPP
Lux., 655 F.3d at 1057–58.14
13
(...continued)
United States v. Hart, 963 F.2d 1278, 1281 (9th Cir. 1992).
14
We decline to address Jeremy’s conclusory assertion that his convictions
(continued...)
12
(D) Agent Morse’s credibility
The Appellants argue that the district court erred by providing two
instructions to the jury regarding Federal Bureau of Investigation (FBI) Agent
Rebekah Morse’s use of a mobile device during a sidebar conference while she was
testifying: (1) that Morse was not transmitting text messages during the sidebar,
but rather was entering a code to turn off her device (the “First Instruction”), and
(2) that the jury should disregard the First Instruction because (a) while Agent
Morse gave that explanation for her behavior under oath, it had subsequently been
determined that Agent Morse exchanged text messages with her husband during a
sidebar, and (b) that the jury could consider those facts in assessing her credibility
(the “Second Instruction”).
(1) Vouching
We review the Appellants’ argument that the district court vouched for
Agent Morse for plain error because the Appellants did not contemporaneously
object on this ground. United States v. Brooks, 508 F.3d 1205, 1209 (9th Cir.
14
(...continued)
violated the Double Jeopardy clause of the Fifth Amendment. Greenwood, 28 F.3d
at 977; see also U.S. Const. amend. V.
13
2007). While we are dubious that a judge can be said to vouch for a witness,15
even if it did occur here, it did not constitute plain error. The First Instruction
merely indicated that there had been no message, and the Second Instruction told
the jury to disregard the first one and indicated, in effect, that she may have been
untruthful and that the jury could consider that. That was favorable, not
prejudicial, to the Appellants.
(2) Rule 605
The Appellants further argue that the First and Second Instructions violated
Federal Rule of Evidence 605 by adding evidence outside the trial record. See
United States v. Berber-Tinoco, 510 F.3d 1083, 1091 (9th Cir. 2007). Assuming a
Rule 605 violation, any error was harmless, and, indeed, beneficial to the
Appellants. See
id. at 1092–93; United States v. Heredia,
483 F.3d 913, 923 (9th
Cir. 2007).
(3) Impeachment evidence
The Appellants argue that the district court erred by excluding evidence
related to Agent Morse’s texting pursuant to Federal Rule of Evidence 403. The
15
We note that the government conceded in the district court that the First
Instruction constituted vouching.
14
district court properly exercised its discretion16 to determine that any evidence
beyond what the jury had already been told was more prejudicial than probative,
and was cumulative. See United States v. Vallejo, 237 F.3d 1008, 1016 (9th Cir.),
amended by
246 F.3d 1150, 1150 (9th Cir. 2001). For the same reason, the
exclusion of evidence did not violate the Appellants’ right to present a complete
defense. See
Haischer, 780 F.3d at 1284.
(E) Courtroom closures
The Appellants claim that the closure of two sets of proceedings violated
their right to a public trial: the closure of a portion of the pre-trial hearing in which
FBI Agent Martinen testified (the “Martinen Hearing”) and the closure of certain
proceedings related to Agent Morse’s texting (the “Morse Proceedings”). See U.S.
Const. amend. VI; United States v. Waters, 627 F.3d 345, 360 (9th Cir. 2010).
(1) Martinen Hearing
Assuming that the public trial right attached to the Martinen Hearing,17 the
district court did not err by closing the courtroom for about half an hour while
Agent Martinen testified regarding another agent. The district court identified an
16
United States v. Haischer, 780 F.3d 1277, 1281 (9th Cir. 2015); see also
Fed. R. Evid. 403.
17
See Waters, 627 F.3d at 360–61.
15
important interest that would be prejudiced by a public hearing;18 the closure was
narrowly tailored to the portion of the Martinen Hearing concerning whether Agent
Martinen’s destruction of certain documents was related to her purported fear of
the other agent (it was not);19 the district court considered the alternative of
Appellants asking questions without specifying the other agent’s involvement;20
and the district court’s findings are clear in context and sufficient to enable
appellate review.21 The district court did not err by closing the courtroom for
foundational consideration of whether Agent Martinen’s issues with the other
agent were related to her destruction of certain documents related to this case.
(2) Morse Proceedings
As to the Morse proceedings, the Appellants’ statements, actions, and
failures to object constituted a waiver of any public trial rights they had. See
United States v. Perez, 116 F.3d 840, 845 (9th Cir. 1997) (en banc); see also
Levine v. United States,
362 U.S. 610, 618–20,
80 S. Ct. 1038, 1043–44,
4 L. Ed.
2d 989 (1960); United States v. Rivera,
682 F.3d 1223, 1232–33, 1233 n.6 (9th Cir.
18
See Waller v. Georgia, 467 U.S. 39, 45,
104 S. Ct. 2210, 2215,
81 L. Ed.
2d 31 (1984).
19
See United States v. Yazzie, 743 F.3d 1278, 1289 (9th Cir. 2014).
20
See id. at 1289–90.
21
See id. at 1290.
16
2012). Moreover, the matters taken up were administrative details regarding
preservation of evidence and how to proceed with the jury while information was
being gathered. See United States v. Ivester, 316 F.3d 955, 959 (9th Cir. 2003).
No public trial rights attached.
(F) Voir dire
The district court did not abuse its discretion22 when it refused to ask the
venire about any bias any of them had with respect to the Church of Jesus Christ of
Latter-Day Saints. No supplemental question was required because this case did
not involve religion, let alone any purported religious bias,23 and because the
Appellants sought to uncover merely a “general impression or prejudice against a
group.”24 The Appellants presented no evidence suggesting that religious bias was
“‘an actual and likely source of prejudice’” in this case.25
(G) Required disclosure of defense non-impeachment evidence
The Appellants argue that the district court violated their constitutional
22
United States v. Anekwu, 695 F.3d 967, 978 (9th Cir. 2012).
23
Id. at 980.
24
United States v. Toomey, 764 F.2d 678, 682 (9th Cir. 1985).
25
United States v. Jones, 722 F.2d 528, 530 (9th Cir. 1983) (quoting United
States v. Robinson,
475 F.2d 376, 381 (D.C. Cir. 1973)). The district court’s
references to anti-LDS bias summarized the Appellants’ arguments and were not
findings of fact.
17
rights by requiring them to provide reciprocal discovery to the government by
disclosing the non-impeachment documents they intended to use at trial.26 See Fed.
R. Crim. P. 16(b)(1)(A); United States v. Swenson, 298 F.R.D. 474, 477–78 (D.
Idaho 2014); see also United States v. Fort,
472 F.3d 1106, 1109 (9th Cir. 2007);
United States v. Aceves-Rosales,
832 F.2d 1155, 1156 (9th Cir. 1987). The district
court properly refused to limit Appellants’ production obligation to those exhibits
they planned to introduce with their own witnesses by refusing to cabin their “case-
in-chief” to the period after which they called their first witness at trial, because a
defendant may establish his defense by cross-examining the government’s
witnesses. See, e.g., United States v. Hernandez-Meza,
720 F.3d 760, 762–63, 765
(9th Cir. 2013) (failure of proof defense); Notaro v. United States,
363 F.2d 169,
174 (9th Cir. 1966) (affirmative defense).27 The district court’s order did not
violate Rule 16.
Because the district court’s order merely enforced Appellants’ reciprocal
26
That did not include documents that could be used for impeachment, even
if they had some non-impeachment content also.
27
Moreover, the Appellants’ alternative temporal definition of case-in-chief
would impinge on the district court’s discretion to “determine generally the order
in which parties will adduce proof.” Geders v. United States, 425 U.S. 80, 86,
96
S. Ct. 1330, 1334,
47 L. Ed. 2d 592 (1976).
18
discovery obligations,28 it did not violate their constitutional rights. See United
States v. Urena, 659 F.3d 903, 908–09 (9th Cir. 2011). Moreover, the scope of the
order was properly limited to the production of non-impeachment evidence—i.e.,
to evidence that was “offered to show an alternative view of the truth.”29
(H) Redaction and limited admission of exhibit
Douglas30 argues that the district court should not have limited the jury’s
consideration of exhibit 7452 (an email from Ellison to the legal department
regarding additional disclosures to be made in connection with the PPM
accompanying the 2008 Notes Offering) to its reflection of Ellison’s state of mind.
The district court properly limited consideration of the email because it was
hearsay, and was relevant only insofar as it was true that Ellison indeed believed
that additional disclosures were necessary. See Fed. R. Evid. 801(c)(2).31
Douglas’s argument that the district court abused its discretion when it
28
See Fed. R. Crim. P. 16(a)(1)(E).
29
Bemis v. Edwards, 45 F.3d 1369, 1372 (9th Cir. 1995).
30
All of the Appellants join this argument, but they do not assert any
arguments other than those raised by Douglas; thus, their challenges fail for the
same reasons that his do.
31
To the extent there was any error in giving the limiting instruction, it was
harmless, especially in light of the fact that there was no dispute that the 2008
Notes PPM contained additional disclosures, or that Ellison approved those
disclosures.
19
redacted the references to him in exhibit 7452 fares no better. See Larez v. City of
Los Angeles, 946 F.2d 630, 642 (9th Cir. 1991). Their relevance lay only in the
truth of the matters asserted by Ellison in the email: that is, the references to
Douglas were relevant only insofar as Ellison accurately reported that Douglas had
“reached the same conclusion” and agreed with him that more disclosure was
needed. They were properly redacted.
(I) Admission of prior testimonial statements by co-defendants
The district court admitted several out-of-court statements made by Ellison,
Jeremy, and David, which the government conceded were testimonial. Because the
district court did not instruct the jury to consider each statement as evidence only
against the declarant,32 and not against his co-defendants, admission of the
statements violated the confrontation rights33 of each non-declarant co-defendant.34
The only remaining question is whether the errors were harmless beyond a
reasonable doubt. United States v. Nguyen, 565 F.3d 668, 675 (9th Cir. 2009).
32
None of the Appellants requested a limiting instruction, despite the district
court’s invitation to them to do so.
33
U.S. Const. amend. VI; Richardson v. Marsh, 481 U.S. 200, 206, 107 S.
Ct. 1702, 1706–07,
95 L. Ed. 2d 176 (1987).
34
See Melendez-Diaz v. Massachusetts, 557 U.S. 305, 314 n.4,
129 S. Ct.
2527, 2534 n.4, 17
4 L. Ed. 2d 314 (2009); United States v. Sauza-Martinez,
217
F.3d 754, 760 (9th Cir. 2000).
20
The errors were harmless. As to Jeremy, David, and Ellison, each statement
concerned the declarant’s personal responsibilities and knowledge of the state of
DBSI Group’s operations and finances. None of the statements implicated those
non-declarants or supported a disputed element of the government’s case against
them. See United States v. Hoac, 990 F.2d 1099, 1105 (9th Cir. 1993); cf.
Nguyen,
565 F.3d at 675 (error not harmless where statement helped to establish the
defendant’s knowledge). As to Douglas, one statement referred to him expressly
by name, but it merely identified him as potentially having determined the amount
of accountable reserves for certain properties; the existence of accountable reserves
for each property was not in dispute, and thus the statement was not incriminating.
See
Hoac, 990 F.2d at 1105. Douglas argues that the other statements incriminated
him because they implicated DBSI Group, and a statement about DBSI Group was
tantamount to a statement about him. However, DBSI Group was a large
organization and the case was not presented on an alter ego theory. Even if the
statements were somewhat incriminating of Douglas, they were not about his own
actions and were minimally incriminating when compared to the other evidence in
the case. That is, at most they were “merely cumulative of other overwhelming
and essentially uncontroverted evidence properly admitted.” United States v.
Gillam,
167 F.3d 1273, 1277 (9th Cir. 1999). In light of all of the other evidence
21
regarding Douglas’s guilt, the statements were harmless beyond a reasonable
doubt.
(J) Admission of evidence of undisclosed loans
We review de novo35 whether the district court properly characterized
evidence related to DBSI Group’s failure to inform lenders that properties securing
their loans were sold to TIC investors as evidence of “other act[s]” pursuant to
Federal Rule of Evidence 404(b). This evidence was admissible as evidence of the
very acts charged in the indictment. Loftis, 843 F.3d at 1176–77. The practice was
part and parcel of Appellants’ scheme to defraud and their efforts to mislead TIC
investors36 regarding their purchases: an encumbered property where the very sale
to the TIC investors could trigger a technical default and ultimately, foreclosure on
the property. Moreover, the practice allowed DBSI Group to acquire properties at
a lower cost, and DBSI Group would not have been able to purchase and resell
certain properties without those benefits. Because “Rule 404(b) applies solely to
evidence of ‘other’ acts,” the district court properly determined that the rule did not
bar the admission of this evidence. See id.; see also United States v. Vizcarra-
Martinez,
66 F.3d 1006, 1012–13 (9th Cir. 1995).
35
United States v. Loftis, 843 F.3d 1173, 1176 n.1 (9th Cir. 2016).
36
There was no evidence that TIC investors were aware of this practice.
22
(K) Constructive amendment of the indictment
Jeremy and David argue that the indictment was constructively amended
because it did not charge fraud related to Master Leaseco, but the prosecution’s
evidence included Jeremy’s moving money into Master Leaseco’s accounts prior to
its audits. See United States v. Ward, 747 F.3d 1184, 1189, 1192 (9th Cir. 2014).37
We reject this argument because the Master Leaseco fraud was sufficiently charged
in the indictment. The indictment was not constructively amended. See United
States v. Hartz,
458 F.3d 1011, 1021 (9th Cir. 2006).38
(L) Prosecutorial misconduct during closing argument
There was no error, harmless or otherwise,39 in the prosecutor’s comment on
the defense’s ability to subpoena missing witnesses or in its description of the
intent required for securities fraud. First, the prosecutor’s comment regarding the
defense’s subpoena power did not touch on the Appellants’ failure to testify or
shift the burden of proof to the Appellants, and was proper rebuttal in light of the
closing argument of one of the Appellants. See id. at 1250; United States v.
37
They concede that this issue is reviewed for plain error.
38
Because the proof matched the allegations of the indictment, there was also
no variance. See Ward, 747 F.3d at 1189.
39
United States v. Cabrera, 201 F.3d 1243, 1246 (9th Cir. 2000).
23
Williams, 990 F.2d 507, 510 (9th Cir. 1993). Second, the prosecutor correctly told
the jury that securities fraud did not require an “‘intent to cheat,’” specifically
responding to the Appellants’ argument that they did not intend to cheat investors.
This is far short of a statement that the government did not have to prove any
fraudulent intent for securities fraud. There was no prosecutorial misconduct.
(M) Cumulative error
We reject the Appellants’ argument that the district court’s errors
cumulatively require reversal. Most of the district court’s rulings were not
erroneous, and as to the particular rulings that were erroneous but nevertheless did
not require reversal individually, we likewise conclude that their cumulative effect
was harmless. See United States v. Fernandez, 388 F.3d 1199, 1256–57 (9th Cir.
2004), modified,
425 F.3d 1248, 1249 (9th Cir. 2005); United States v. Necoechea,
986 F.2d 1273, 1282–83 (9th Cir. 1993).
(N) Douglas’s sentence
Douglas challenges his sentence on the grounds that the district court
procedurally erred in calculating the loss attributable to his offenses, and that his
below-Guidelines sentence was substantively unreasonable. See United States v.
Carty, 520 F.3d 984, 993 (9th Cir. 2008) (en banc); see also United States v.
Gasca-Ruiz,
852 F.3d 1167, 1170 (9th Cir. 2017) (en banc).
24
Clear and convincing evidence40 supported the district court’s calculation of
the reasonably foreseeable actual loss41 attributable to Douglas’s fraud as
$103,466,840: the sum of the purchase premiums paid by investors in connection
with the TIC offerings for which Douglas was convicted and the amount raised in
the 2008 Notes Offering, reduced by the amount distributed by the bankruptcy
trustee to victims of the 2008 Notes Offering. The record demonstrates that it was
also a reasonable estimate42 of the loss. The district court did not clearly err by
calculating the loss from Douglas’s fraud using this measure of actual loss, in lieu
of Douglas’s preferred alternative measure of his gain from the fraud. See USSG §
2B1.1 comment. (n.3(B)).
The district court also did not abuse its discretion43 in sentencing Douglas to
concurrent prison sentences of 60 months for securities fraud and 240 months for
wire fraud. Douglas’s below-Guidelines sentence was substantively reasonable in
light of the district court’s thorough consideration of the applicable sentencing
40
See United States v. Staten, 466 F.3d 708, 717–18 (9th Cir. 2006).
41
USSG § 2B1.1 comment. (n.3(A)(i), (iv)); see also United States v. Morris,
744 F.3d 1373, 1375 (9th Cir. 2014).
42
United Staets v. Garro, 517 F.3d 1163, 1167 (9th Cir. 2008); see also
USSG § 2B1.1 comment. (n.3(C)).
43
United States v. Autery, 555 F.3d 864, 871 (9th Cir. 2009).
25
criteria,44 including the seriousness of the offenses, Douglas’s personal
characteristics, his role in the offenses, and the staggering losses to the victims.
See United States v. Bendtzen, 542 F.3d 722, 729 (9th Cir. 2008).
(O) Restitution
We review the district court’s factual findings supporting its $32,158,501
order of restitution45 against Ellison, David, and Jeremy for clear error. See United
States v. Thomsen, 830 F.3d 1049, 1064 (9th Cir. 2016).46 The government
concedes that the order “double-counted” the victim investors’ accountable
reserves; accordingly, we vacate the restitution order so that it may be reduced by
$3,408,413 to reflect the victims’ actual losses. See
Thomsen, 830 F.3d at 1065.
However, we reject Ellison’s, David’s, and Jeremy’s argument that individual
victims and their loss amounts were not sufficiently identified. See 18 U.S.C. §
3663A(c)(1)(B). The district court did not clearly err by relying on the
government’s master spreadsheet, which contained the identity of and amount of
44
18 U.S.C. § 3553(a).
45
18 U.S.C. § 3663A(c)(1)(A)(ii); United States v. Gordon, 393 F.3d 1044,
1048 (9th Cir. 2004).
46
Douglas appeals the restitution and forfeiture orders against him only on
the ground that they cannot stand if his convictions are overturned. Because we
affirm his convictions, we also affirm the restitution and forfeiture orders against
him.
26
loss for each victim.
(P) No Knowledge Clause (15 U.S.C. § 78ff(a))
The district court properly interpreted47 the No Knowledge Clause as
requiring that Jeremy and David prove “they were unaware that it was a violation
of a rule or regulation to willfully engage in any act or course of business that
operates as a fraud or deceit upon another person.” See Reyes, 577 F.3d at 1081;
see also United States v. Laurienti,
731 F.3d 967, 972 (9th Cir. 2013). Perhaps, it
is true that in light of the nature of a Rule 10b-5 violation, which requires culpable
intent, a convicted defendant would struggle to prove that he did not know that his
conduct violated a rule or regulation prohibiting fraud or deceit. See
O’Hagan,
521 U.S. at 665–66, 117 S. Ct. at 2214; see also
Tarallo, 380 F.3d at 1188. But
that difficulty arises from the very nature of the conduct prohibited by Rule 10b-5,
not from any defect in the construction or interpretation of the No Knowledge
Clause. Moreover, the district court did not clearly err by determining that the
affidavits submitted by Jeremy and David failed to show by a preponderance of the
evidence that they were “unaware that federal law prohibits securities fraud.” See
47
See United States v. Onyesoh, 674 F.3d 1157, 1158 (9th Cir. 2012).
27
Laurienti, 731 F.3d at 972.
AFFIRMED IN PART, VACATED IN PART,48 AND REMANDED.49
48
This as to the amount of the restitution order against Ellison, David, and
Jeremy. See supra. at 25–26.
49
We also deny Appellants’ Motion to Supplement the Record on Appeal,
which was filed January 15, 2016.
28
