Bass, Berry & Sims attorney Chris Lazarini discussed a case in which the defendant appealed his criminal conviction for wire fraud, money laundering, and securities fraud claiming the government failed to prove fraudulent intent, reliance on material misstatements by some investors who had died before the trial, and the investments were “securities.” Viewing the evidence in the light most favorable to the prosecution, the court affirmed the conviction, finding any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.
Chris provided the analysis for Securities Online Litigation Alert (SOLA). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SOLA, please visit the SOLA website to sign up for the newsletter.
USA vs. Shelton, No. 18-5434 (6th Cir., 8/20/19)
*A court reviewing the appeal of a criminal conviction for allegedly insufficient evidence must view the evidence in the light most favorable to the prosecution and will uphold the conviction if it finds any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.
**A criminal conviction may be upheld based on circumstantial evidence alone.
In 2011, Defendant formed Escrow 2011, LP, and solicited investors ostensibly to purchase and operate a gas pipeline in Tennessee. All investors received an Escrow 2011 Quick Summary stating their funds would be held in escrow until $1.5 million was raised, at which point an unnamed bank would loan Escrow 2011 $15 million to acquire the pipeline. Following the acquisition, the Quick Summary stated the escrowed funds would be released and returned to investors who would also receive a 25% return on their investment. Some investors also received a Private Placement Memorandum which, in some respects, described the transaction differently. Defendant raised $1.3 million, but did not hold the funds in escrow. Instead, he used $1 million to purchase collateralized mortgage obligations and much of the rest for payroll and his salary. Defendant was later convicted of wire fraud, money laundering, and securities fraud. On appeal, Defendant argued the government failed to prove fraudulent intent, reliance on material misstatements by some investors who had died before the trial, and the investments were “securities.”
Viewing the evidence in the light most favorable to the prosecution, the Court affirms. The Court finds the government met its obligation to show fraudulent intent, because it had proven Defendant told investors their money would be held in escrow, but used the money for improper purposes when it was received, and because Defendant was evasive when responding to those investors who inquired about the status of their investment. The Court similarly finds the government met its reliance burden for those investors who died before trial, because it established their receipt of the Quick Summary. Among other things, the Quick Summary suggested that the $15 million bank financing had been approved pending Defendant raising $1.5 million. A jury could reasonably determine these representations were material to the deceased investors’ decisions to invest. Finally, the Court rejects Defendant’s argument that the investments were “loans,” not “securities.” The jury had ample evidence to conclude Defendant sold “securities,” most notably because the PPM called the investments “securities” 13 times on its first page and 36 times throughout the document.