Justice PLEICONES:
Appellant was charged with three criminal offenses: securities fraud in violation of S.C.Code Ann. § 35-1-501(3) (Supp. 2010);
Appellant and several other businessmen invested in a company in the 1970s that leased railroad box cars. That company eventually declared bankruptcy, but emerged with one asset: a deferred tax asset (DTA). This DTA, which could be carried forward on a company's books to offset future profits, fluctuated in value depending on whether the company anticipated making a profit. This post-bankruptcy company was known as NRUC. In 1991, NRUC acquired a Pickens-based company, Carolina Investors, Inc. (CI).
CI had been founded in 1963, originally for the purpose of making loans to individuals purchasing cemetery plots. CI, which was funded by notes and subordinated debentures sold exclusively to South Carolina investors, eventually began making small household loans and, by 1970, was involved in non-conforming subprime mortgages. Non-conforming and subprime mortgages are made to persons who cannot qualify for regular (conforming) mortgages: non-conforming mortgages
CI had a policy of allowing investors to redeem their debentures at any time prior to maturity upon fifteen minutes' notice, albeit at a reduced interest rate. CI's investments were not federally insured, but because it made loans to persons who could not meet the credit standards required by conforming mortgage lenders, it paid higher than average interest rates on the notes and debentures.
NRUC was subsequently renamed Emergent and later HomeGold Financial (HGFin).
During the period 1995-97, the HGFin companies were very profitable. In 1996, HGFin went public, divesting itself of several subsidiaries and becoming a pure financial services entity. In late 1997, HGInc, the subprime lender subsidiary, lost its leader, who took much of his team with him. That loss, coupled with a worldwide credit crisis in 1998, caused HGInc to suffer enormous losses. In an effort to recover economic viability, HGFin sold most of its other financial service subsidiaries, keeping only HGInc and CI. From 1998 until HGFin declared bankruptcy in 2003, HGFin and HGInc
The retail mortgage lending business relies on "warehouse lines" from large lenders in order to operate. Essentially, the warehouse lines provide the working capital for the lending business, and the stability of those lines, which is dependent upon the large bank's confidence in the lender, is critical to the mortgage lender's business.
The HomeSense-HGInc merger was not a success. First, due diligence completed after the merger demonstrated that HomeSense had significantly overstated its net worth. HGInc and Sheppard subsequently canceled a mutual indemnity agreement in exchange for Sheppard's remaining a guarantor on certain HomeSense debts. Second, Sheppard proved to be an abrasive leader whose leadership style and aggressive accounting maneuvers caused a number of HGInc and HGFin officers and executives to leave. Sheppard also placed personal expenses on the company books using HGInc to subsidize his extravagant lifestyle.
After the merger, appellant ceased to be an employee, but remained as chair of both the HGFin and HGInc boards, and remained on CI's board. He continued to be supplied with an office, an administrative assistant, and a salary. Over the next three years, the financial decisions made on behalf of HGInc resulted in numerous resignations by CFOs and others. In addition, the HGInc-HomeSense merger permitted HGInc's largest warehouse lender (CIT) to end the relationship.
Appellant's defense was predicated in large part on the fact that the financial maneuvers that took place were approved by outside auditors, and that the Wyche Law Firm vetted and approved all of the companies' governmental filings and prospectuses. As stated above, the jury acquitted appellant of making false or misleading statements to the State Securities Division. Reliance upon the outside auditors' approval, however, is misleading. For example, the outside auditors agreed to an increase in the value of the DTA from $12 million to $22 million, as urged by appellant, in HGInc's unaudited third quarter 2000 10-Q. The auditor testified, however, that had he been told that this change in valuation was being made because HGInc needed to show a positive net equity in that quarter in order for it to renew its state mortgage licenses, that information would have "raised a red flag" and alerted him to the precarious nature of HGFin's finances.
Similarly, while the auditor was aware that CIT, HGInc's largest warehouse lender, was withdrawing its line of credit following the HomeSense merger, the auditor was never told that this secured lender had told appellant and others that it was ending the relationship because it "didn't want to be standing in front of a little old lady in Pickens County during a bankruptcy proceeding." Again, this information would have raised a red flag for the auditors, indicating that a secured creditor was fearful of HGInc's financial worth. Moreover, there was evidence that the auditors were not informed of certain regulatory inquiries, in violation of their management letter.
Over time, the only thing keeping HGInc in the retail mortgage business was the influx of cash from CI investors. In 1999, the intercompany debt, owed by HGInc to CI, was about $67 million; in 2000, $100 million; by the end of 2001, $144 million; and at year end 2002, more than $243 million.
By 2001, the outside auditors expressed grave concerns over HGInc's ability to repay the intercompany debt to CI and its ability to remain a going concern, and they criticized a number of its accounting decisions. HGFin and HGInc continued to rely on overly optimistic projections to suggest that the companies
On March 14, 2002, the auditors told HGFin that they would place a "going concern" paragraph in HGFin's 2001 audited financial statements. A "going concern" paragraph is an expression of doubt whether the business will still exist in a year. Moreover, the accountants rejected a valuation of HGInc for debt impairment purposes done by CBIZ, which had valued HGInc's net worth at approximately $170 million. HGFin then ordered a loan impairment valuation from Deloitte and Touche, which valued HGInc at between $130-$140 million. This valuation was accepted by the auditors, but because the 2001 year-end debt owed to CI stood at approximately $144 million, the auditors were required to report that the intercompany loan was impaired. As a result, HGFin's 2001 audited financial statement included both a "going concern" statement and a "loan impairment" opinion for the outside auditors. This impairment opinion stated that the auditors had determined that HGInc could not repay $6.7 million of the $144 million 2001 year-end debt owed to CI.
In April 2002, the CI prospectus acknowledged the "going concern" opinion of HGFin's outside auditors and the loan impairment, but also referred to the CBIZ and Deloitte valuations. Inclusion of these valuations violated the terms of the contracts between HGFin and the two companies, which provided the valuations were not for public use and were to be used solely for financial reporting purposes in calculating loan impairment. Although there was evidence that the inclusion of these valuations was improper and misleading to the extent they suggested a reliable market price for HGInc, these references in the CI prospectus were approved by the Wyche firm, which did the securities work for HGFin and its subsidiaries.
Throughout 2002, HGFin struggled. Following a run on CI deposits in August 2002, the HGFin board, from which appellant had resigned as chairman in June 2002 but remained as a member, met with a bankruptcy attorney. This meeting included a discussion whether CI should be placed in a conservatorship or receivership. Appellant was also on CI's board. As for CI, only appellant and Sheppard, who were both on CI's board, were aware of this meeting at which the future of CI was discussed.
In mid-2002, HGFin had begun a search for a buyer for HGInc, the retail mortgage operation. HGInc's warehouse lines were being reduced or withdrawn as a result of the going concern opinion and the loan impairment opinion in the company's 2001 financial statement. HGFin officers misled CI's board into believing that legitimate outside buyers were interested in purchasing HGInc's mortgage business, when in fact no viable deal could be found. Recall that appellant was on both the HGFin board and CI's board. In November 2002, the HGFin board agreed to allow Sheppard to form a corporation (EMMCO) to buy the HGInc subprime mortgage business, and began talking about a possible receivership for CI. Sheppard resigned from the HGFin board at this juncture. The CI board members who were not also on HGFin's board were unaware for several weeks of this November 2002 plan to sell HGInc to the new Sheppard business venture.
Although the CI board was told that HGFin and HGInc were no longer taking money from CI in August 2002, in fact HGFin continued to use these funds to keep HGInc in business. In January 2003, appellant asked two CI board members, Earle Morris and Larry Owen, to meet him at a restaurant. Appellant told Morris and Owen that HGFin was looking into bankruptcy, but minimized the possibility. In February 2003, Larry Owen, president of CI and one of the CI board members who was at the restaurant meeting, learned from the state securities division that, in fact, HGFin
In March 2003, matters came to a head. During the week of March 17, 2003, HGFin was monitoring CI's money situation closely, requiring CI to frequently report deposits made, and transferring money only as needed for CI to pay investor redemptions. In a March 20 call to the CI board, Karen Miller, then CFO for HGFin, told the CI board that HGInc should have money available very soon that would ease CI's cash flow issues. Appellant, who had remained on the CI board, resigned that night. At 9 am on March 21, Miller called and informed CI that it would have only $84,000 for the day, and scheduled another CI board call for 2 pm. At that 2 pm call, the CI board was informed that HGFin was filing bankruptcy, and that CI needed to find an attorney to represent it. Both CI and HGFin ceased operations on that Friday, and both subsequently declared bankruptcy.
Appellant contends the lower court erred in permitting five CI investors to testify. This issue is not preserved for appellate review.
The record contains a partial transcript from a hearing before Judge Johnson on September 7, 2007. In the course of this transcript, Judge Johnson is apparently reviewing pretrial motions, and states that he has before him a motion to exclude some "kind of invested [sic] testimony." Judge Johnson then says that "a determination of whether or not the testimony being tendered by a particular investor is relevant and I don't know that I can make that all without hearing what the
The record also includes "Defendant's Confidential Trial Brief for Judge Cottingham Only." This brief was presented to Judge Cottingham before the trial commenced on February 9, 2009.
There is no mention of this document nor any objection to any investor testimony in the record. Shortly before this case was to be heard on appeal, appellant's appellate attorneys filed a motion to supplement the record with the affidavit of his trial attorneys, which this Court granted without prejudice to
This affidavit does not: (1) clarify when the objection was renewed at trial, and since the CI investors did not testify sequentially, it is impossible to determine whether one or more testified without objection; (2) specify what arguments were raised in this in camera motion; or (3) reflect the basis for the trial court's ruling.
Appellant argues that the testimony of the CI investors was irrelevant to the question whether he had the intent to defraud them, as they had never met or spoken with him. However, the State was required to prove that at least one investor lost money, and if appellant was convicted, his sentence would be determined by the amount of money lost. See S.C.Code Ann. § 35-1-508(a) (Supp.2010). The CI investors' testimony was not "wholly irrelevant."
Appellant argued in his pretrial brief that the anticipated testimony of the investors about the impact of those losses on their lives, coupled with the testimony of the amount of the losses, was more prejudicial than probative and should therefore be excluded under Rule 403, SCRE. We agree that it appears evidence of the impact is irrelevant to appellant's criminal charges, but in this situation it is critical to know exactly what appellant's Rule 403 argument was and exactly why the trial judge exercised his discretion and permitted this testimony. While it appears that the CI investors' testimony should have been limited to the amount of their pecuniary losses, there is no evidence appellant sought to limit their testimony in this manner. Rather, from the record, it appears that he sought to exclude these witnesses from testifying at all. On this record, we are unable to find any error in the
At the close of the State's case, appellant made the following directed verdict motion:
At the end of the testimony, the following exchange occurred:
A directed verdict is properly denied where there is any evidence, direct or circumstantial, which reasonably tends to prove the defendant's guilt. State v. Brandt, 393 S.C. 526, 713 S.E.2d 591 (2011). When reviewing a denial of a directed verdict, "an appellate court views the evidence and all reasonable inferences in the light most favorable to the State." Id. (citation omitted). A general directed verdict motion, however, does not preserve any issue for appeal. State v. Bailey, 298 S.C. 1, 377 S.E.2d 581 (1989).
At trial, the only count for which appellant identified deficiencies in the State's case was count 2, one of the two charges of which appellant was acquitted. There is no proper directed verdict issue concerning count 1 preserved for our review. State v. Bailey, supra. In any case, had a proper motion been made, it should have been denied. Appellant's indictment specifies numerous ways in which he is alleged to have violated § 35-1-501(3). In order to withstand appellant's directed verdict motion on count 1, the State need only have presented some evidence to support any one of these allegations.
Paragraph 32(i) of the indictment alleges that after appellant learned that the outside auditors were going to place a going concern statement and loan impairment in HGFin's audited 2001 financial statement, which would then be included in CI's 2002 prospectus, he
As explained below, the State presented evidence that appellant, "directly or indirectly ... engage[d] in an act ... that operate[d] ... as a fraud or deceit upon another person" in violation of § 35-1-501(3) in connection with this meeting.
Appellant, Owen, and an HG officer spoke at this meeting. The investment counselors were told to play up the positives in the prospectus, including the valuations done by CBIZ and Deloitte of HGInc's financial worth. Recall that these valuations were specifically restricted to private use to determine loan impairment only. As Owen explained, the point of the memorandum and meeting were to simplify and minimize the negative financial information in the prospectus because:
Appellant helped prepare the memorandum by discussing most of its contents, and he was present at and participated in the meeting. There was evidence that the purpose of the April 2002 meeting and the memorandum was to divert the attention of investors (including the investment counselors present) from the grim news in the prospectus by directing it to the optimistic projections and valuations after having pointed out the impairment and going concern paragraphs. Indeed, an investment counselor testified that she left the meeting "feeling that the going concern language was not something that was that dire," at least in part because it had been emphasized that if HGInc were sold for the appraised
The State presented sufficient evidence to withstand any directed verdict motion on count 1, as the jury could have found from this evidence that appellant knew the misleading information he shared at the April 2002 meeting would be disseminated to "investors" as charged in ¶ 32(i).
Appellant did not properly preserve any directed verdict motion as to count 1. State v. Bailey, supra. Moreover, as there is evidence that he "engaged in an act that operated as a fraud or deceit upon another person" in violation of § 35-1-501(3), had the issue been raised, the trial judge would have been correct in denying a directed verdict on count 1.
South Carolina law makes it unlawful for an individual to either directly or indirectly "engage in an act, practice or course of business that operates or would operate as a fraud or deceit upon another person in connection with the offer, sale, or purchase of a security." § 35-1-501(3). An individual who willfully violates this statute is punished in accordance with the provisions of § 35-1-508; see § 35-1-501 cmt. 6, "The culpability required to be pled or proved under section 501 is addressed in the relevant enforcement context ... e.g. section 508 ... where "willfulness" must be proven ...." Conduct is willful within the meaning of § 35-1-508 if the person acts intentionally, that is, he is aware of what he is doing. Willfulness does not require that the person act with an evil motive or with the intent or knowledge that the law, in this case § 35-1-501(3), is being violated. § 35-1-508 cmt. 2.
Thus, in order to violate the statute there must be evidence that the defendant's conduct was willful or intentional (§ 35-1-508) and that he did something that would or did operate as a fraud or deceit on another person (§ 35-1-501). Knowledge or intent that his conduct violated the securities law is not required (cmt.2, supra) but the State must present evidence that the defendant made statements or committed acts that he knew presented a danger of misleading an investor. State v. Morris, 376 S.C. 189, 656 S.E.2d 359 (2008). In
Appellant's jury was charged:
Following the charge, appellant objected to the severe recklessness language as it related to count one on the ground the charge (1) is inconsistent with the statutory definition of intent and conflicts with federal authority; and (2) effectively lowers the burden of proof, violating both a defendant's right to a fair trial and due process. The objection was overruled on the basis that the charge was taken directly from the case of State v. Morris, supra, which this Court had recently affirmed. Appellant lodged no further objection to the charge, nor did he object to the trial court's remedies when the jury subsequently sought clarification of the charge.
We first address the issues raised at trial. Neither § 35-1-501 nor § 35-1-508 includes the word `intent,' and we therefore do not understand the contention that the Morris charge
In Morris, we construed the statute making it unlawful to engage in conduct that operates as a fraud or deceit upon another person (§ 35-1-501) with the statute (§ 35-1-508) that criminalizes an unlawful violation of § 35-1-501. In so doing, we were guided by the official comments to § 35-1-508, which informed us that willful means only that the person's conduct was intentional, not that his state of mind was evil or that he intended to violate § 35-1-501.
On appeal, appellant seeks to raise additional challenges to the jury charge. It is axiomatic that a party may not change his grounds of objection on appeal. E.g., State v. Meyers, 262 S.C. 222, 203 S.E.2d 678 (1974). We therefore address these arguments only briefly.
First, appellant contends he is arguing about the absence of a "willfully with bad purpose" charge. Under our securities act, "proof of evil motive or intent to violate that law" is not required. See cmt. 2 to § 35-1-508; State v. Morris, supra.
Appellant also complains that the jury charge given in connection with count 1 was confusing, and refers to the jury's
Appellant now argues that the ruling in Morris upholding the jury charge on severe recklessness is dicta because the Court also held that the evidence showed Morris intentionally misled investors, and therefore Morris was not prejudiced by the charge even if it were improper. Appellant's argument admits too much: as was the case in Morris, there is abundant evidence that appellant intentionally engaged in acts, procedures, and a course of business that operated as a fraud or deceit upon others. Accordingly, even if we were to now alter or abandon the charge, appellant could not show any prejudice warranting relief.
Appellant's conviction and sentence are
TOAL, C.J., BEATTY, J., and Acting Justice JAMES E. MOORE, concur. HEARN, J., concurring in part and dissenting in part in a separate opinion.
Justice HEARN:
Respectfully, I concur in part and dissent in part. I agree with the majority that Sterling's challenges to the circuit court's denial of his motion for a directed verdict and the admissibility of investor impact testimony are not preserved for review.
I charge you that a material element of the securities fraud prosecution is the demonstration of the existence of what is called scienter.
Scienter is a mental state embracing intent to deceive, manipulate or defraud. Mere negligence will not suffer [sic] for conviction. Allegations of scienter must be based on a substantial factual basis in order to create a strong inference that the defendant acted with the required state of mind as required [sic].
When broken down, this charge permitted the jury to convict Sterling based on any one of three different levels of intent: (1) knowing misconduct; (2) conscious disregard of a known risk; or (3) disregarding a risk that Sterling should have known about, but did not. My objection to the charge is twofold. First, I believe the charge approved by the Court in Morris sanctioning a conscious disregard standard was erroneous and thus the circuit court here did not correctly charge the jury on the law of securities fraud in South Carolina. Second, assuming the correctness of Morris charge, the circuit court's charge in this case permitted a conviction upon a "should have known" standard, which is an even lower mens rea than that sanctioned by Morris. I would therefore reverse and remand for a new trial.
In Morris, this Court held that knowing and intentional conduct is not required for a conviction of securities fraud. This holding was grounded in its belief that Section 35-1-508(a) of the South Carolina Code (Supp.2010)
As the comments to section 35-1-508 provide, willfulness requires "proof that a person acted intentionally in the sense that the person was aware of what he or she was doing. Proof of evil motive or intent to violate the law or knowledge that the law was being violated is not required." Id. cmt.2. Willfulness in this context thus goes
21 Am.Jur.2d Criminal Law § 130 (2011). When read with section 35-1-501(3), section 35-1-508(a) consequently criminalizes actions taken by a person who knowingly and intentionally
Morris, however, held that a conviction for securities fraud will stand when the defendant either intentionally misled investors or he "knew there was a danger that his conduct would mislead investors." 376 S.C. at 201, 656 S.E.2d at 365. The Court therefore approved of a recklessness-based conscious disregard standard: the defendant knew there was a risk his statements could mislead investors, but he proceeded anyway. 21 Am.Jur.2d Criminal Law § 127 ("Recklessness involves a subjective realization of a risk of a particular result and a conscious decision to ignore it, but it does not involve intentional conduct, because one who acts recklessly does not have a conscious objective to cause a particular result."); see also State v. Rowell, 326 S.C. 313, 315, 487 S.E.2d 185, 186 (1997) (noting that recklessness "connotes a conscious failure to exercise due care or ordinary care or a conscious indifference to the rights and safety of others or a reckless disregard thereof"). Thus, intentional conduct is not required to convict under this standard. Instead, the actor must merely be aware his actions could mislead and yet still engages in them.
Based on my reading of the statute, I believe this charge does not state the appropriate mens rea under section 35-1-508(a). Contrary to the Court's holding in Morris and the majority's position in this case, intentional and knowing conduct is required for criminal securities fraud. A person must therefore act knowing his conduct will operate as a fraud upon another, not simply consciously disregard the risk that his conduct may do so. While Morris may have a persuasive policy rationale in that a person should be prohibited from acting when he knows of the danger, it is not found in the language of the statute.
As to the majority's contention that my analysis conflates the concepts of the mental state required for one's conduct and mens rea, I do not dispute this as I see no meaningful difference between the two. Indeed, the majority's reference to State v. Reid, 383 S.C. 285, 679 S.E.2d 194 (Ct.App.2009), validates my position. It is hornbook law that most crimes require both an actus reus and a mens rea. See id. at 293 n. 2, 679 S.E.2d at 198 n. 2. Section 35-1-501(3) provides the actus reus for this type of securities fraud, viz. engaging in
It may be that our disagreement emanates from the confusion occasioned by the statute as to the nature of securities fraud. Comment 2 to section 35-1-508 states that "[p]roof of evil motive or intent to violate the law or knowledge that the law was being violated is not required" in a prosecution for violations of section 35-1-501. Section 35-1-501(3), however, prohibits "engag[ing] in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person" when done "in connection with the offer, sale, or purchase of a security." Thus, the very conduct proscribed by section 35-1-501(3) is fraud, an act which is evil in and of itself. See Huff v. Anderson, 212 Ga. 32, 90 S.E.2d 329, 331 (1955) ("It appears from the authorities to be the rule without exception, that the offense of obtaining money from another by fraud or false pretenses, or larceny after trust, are crimes malum in se, involving moral turpitude."). Proving that a person's conduct in contravention of section 35-1-501(3) was intentional, willful, and knowing (which the majority acknowledges is required) therefore necessitates the proof of an evil motive—an intent to deceive. Although section 35-1-508 suggests scienter is not required, the language in section 35-1-501 necessitates fraud. Because section 35-1-501(3) is the more specific statute, I believe it controls and intent to defraud is necessary.
Even if Morris did correctly hold that criminal recklessness is sufficient under section 35-1-508(a),
Crucial to the concept of recklessness is the notion that the actor must subjectively be aware of the risk, and one is not criminally reckless for acting despite a risk he should have known. 21 Am.Jur.2d Criminal Law § 127. In other words, liability for recklessness "cannot be predicated solely on an objective consideration of what a defendant `should have known.'" Id. A hallmark of criminal negligence, on the other hand, is disregarding a risk one should have known about. State v. Taylor, 323 S.C. 162, 166, 473 S.E.2d 817, 818 (Ct.App. 1996); 21 Am.Jur.2d Criminal Law § 126 ("A person acts with criminal negligence when he or she should have been aware of a substantial and unjustifiable risk he or she has created."). Thus, a defendant's subjective knowledge of the risk is irrelevant for criminal negligence. 21 Am.Jur.2d Criminal Law § 126. Hence, the charge approved of in Morris includes both recklessness and the lower mens rea of negligence.
However, I do not believe the Morris Court actually intended to approve of criminal negligence as a permissible mens rea for securities fraud. Instead, I read Morris as only criminalizing acting with actual knowledge that one's conduct may mislead investors. Apart from this language, the Court never mentioned the negligence standard again. Notably, after quoting this "should have known" standard the Court wrote, "Stated differently, the court charged that in order to support a conviction, the jury needed to find that [Morris] intentionally misled investors, or that [Morris] knew that there was a danger that his conduct would mislead investors." Morris, 376 at 201, 656 S.E.2d at 365. Clearly, the Court believed the charge it was reviewing only concerned recklessness. It accordingly appears the Court unintentionally lowered the standard by implicitly sanctioning the "should have known" language when attempting to hold recklessness will sustain a conviction for securities fraud.
Furthermore, the Court's ultimate holding was a policy decision rooted in the notion that one should not be able to escape criminal liability for statements made with actual knowledge that they will mislead investors. Id. at 202, 656 S.E.2d at 366. However, this policy was limited by the Court to just acting with actual knowledge of the risk and did not embrace a situation where one should have known of the risk. I therefore read the Court's decision as only permitting a charge on recklessness, and the Court was neither asked to nor attempted to expand the net cast by section 35-1-508(a) to include negligence. Thus, the Court's references to the "should have known" standard are dicta. See Ex parte Goodyear Tire & Rubber Co., 248 S.C. 412, 418, 150 S.E.2d 525, 527 (1966) ("`[G]eneral expressions, in every opinion, are to be taken in connection with the case in which those expressions are used. If they go beyond the case, they may be respected, but ought not to control the judgment in a subsequent suit....'" (quoting Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 398, 5 L.Ed. 257 (1821))). I can also find nothing in section 35-1-508 itself which permits a conviction of securities fraud to stand on mere criminal negligence.
The majority today opines that the "should have known" language from Morris is not rooted in criminal negligence but instead is a species of knowing misconduct. After parsing the language of the charge, the majority's contention is that it sanctioned a willful blindness standard, not an accidental blindness one. While I may disagree with the majority's ultimate reading of the charge and whether it in fact states a willful blindness standard, there is an inherent danger in giving such a charge because it may permit the jury to slip down the slope into negligence. As the Fifth Circuit stated, "Because the instruction permits a jury to convict a defendant without a finding that the defendant was actually aware of the existence of illegal conduct, the deliberate ignorance instruction poses the risk that a jury might convict the defendant on
United States v. Skilling, 554 F.3d 529, 548-49 (5th Cir.2009), aff'd in part, vacated in part, and remanded, ___ U.S. ___, 130 S.Ct. 2896, 177 L.Ed.2d 619 (2010). While this charge may be warranted under certain facts, I do not find them present in this case.
Even if recklessness is enough for a conviction, I still find sufficient evidence in the record that Sterling was not aware of the risks he took to warrant a finding of prejudice. I would therefore reverse Sterling's conviction and remand for a new trial.
In sum, I would overrule Morris and hold that intentional and knowing conduct is required for a conviction of securities fraud. Because the charge given to Sterling's jury permitted a conviction on something less than willfulness, I would reverse and remand for a new trial. However, even assuming Morris correctly held that recklessness is sufficient for criminal
