Free Motion for Acquittal - District Court of Colorado - Colorado

Case 1:04-cr-00103-REB-MEH

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Criminal Action No. 04-cr-00103-REB UNITED STATES OF AMERICA, Plaintiff, v. 6. MICHAEL SMITH, Defendant.

MOTION FOR A JUDGMENT OF ACQUITTAL

COMES NOW Defendant Michael Smith and moves this court pursuant to Fed.R.Crim.Proc. 29(c)(1) and (2) for a Motion for a Judgment of Acquittal for at least the following reasons.

1.

During presentation of evidence and testimony, there was no actual evidence produced by which a reasonable juror could find Mr. Smith guilty of counts 23, 26, 27, the ONLY counts of which the jury found Mr. Smith guilty.

2.

The counts of Securities Fraud which the jury found against Mr. Smith, require either that Mr. Smith be found guilty because he acted in concert with others, or that he be found guilty because his actions were standalone from the

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conspiratorial acts of others. Based on the plain reading of the indictment and the jury instructions, no other construction is reasonably possible. 3. However, the pertinent jury instruction, Instruction #32, has a set of very clear prerequisite conditions which require their complete inclusion before a finding of guilt can be made. The following is a true and faithful rendition of the relevant portions of Jury Instruction #32 with emphasis added for clarity. To wit:
Three: that in the offer or sale of the security, the defendant whose case you are considering willfully employed a scheme to defraud as charged in the Indictment plus the following allegations: 1. It was a further part of the scheme for defendants, Norman Schmidt, George Alan Weed, Charles Lewis, Michael Smith, and George Beros, to conceal from and omit to state to current and prospective investors material facts, including but not limited to the following: a. That Norman Schmidt had previously been convicted of a felony, Wire Fraud, in violation of Title 18, United States Code, Section 1343, in the United States District Court for the District of Wyoming, in 1979; That Charles Lewis had previously been convicted of a felony, theft, in violation of Colorado Revised Statute Section 18-4-401 , in the District Court for the 18th Judicial District of Colorado, and during times relevant to this Indictment was on probation for that offense; That investor funds were moved at the defendants' will from the banks into which investors were told their funds would be deposited and would remain; That investor funds were being used for purposes unrelated to the high yield investment program;

b.

d.

e.

If you find after consideration of all the evidence that any one of these essential elements has not been proven beyond a reasonable doubt, then you must find the defendant whose case you are considering not guilty of the crime of securities fraud as charged ln Counts 18 through 29 of the Indictment and should so indicate on the verdict form for that defendant and for the specific count you are considering.

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4.

For the jury to find Mr. Smith guilty of counts 23, 26 & 27, they were required to consider the above ADDITIONAL ALLEGATIONS as comprising part of the government's burden of proof. See instruction #32. The burden upon the court is to examine the evidence in the record to determine whether a reasonable juror could find the defendant guilty beyond a reasonable doubt. ­ United States v. Kelly, 888 F.2d 732, 739 (11th Cir. 1989). U.S. v. Urena, 27 F.3d 1487 (10th Cir. 1994); United States v. Johnson, 42 F.3d 1312, 1319 (10th Cir. 1994), cert. denied, 115 S.CT. 1439 (1995); United States v. Grimes, 967 F.2d 1468, 1472 (10th Cir.), cert. denied sub nom. In evaluating the sufficiency of the evidence, we must view the evidence -- both direct and circumstantial, together with all reasonable inferences to be drawn therefrom -- in the light most favorable to the government. United States v. Blitstein, 626 F.2d 774, 776 (10th Cir. 1980), cert. denied, 449 U.S. 1102, 101 S.CT. 898, 66 L.Ed.2d 828 (1981). "[A]ll reasonable inferences and credibility choices [must be] made in support of the jury's verdict." A criminal conviction may be sustained on wholly circumstantial evidence. E.g., United States v. Downen, 496 F.2d 314, 318 (10th Cir.), cert denied, 419 U.S. 897, 95 S.CT. 177, 42 L.Ed.2d 142 (1974).

5.

There are two distinct problems with the jury's findings with regard to Mr. Smith's alleged guilt in counts 23, 26 & 27. 5.1 First: During trial there was absolutely no evidence submitted showing that

Mr. Smith knew of the above additional allegations but there WAS evidence submitted that Mr. Smith did not know.
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For example: Mr. Smith was NOT

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SHOWN at trial to have known that Norman Schmidt was a previously convicted felon. By simple reasoning, one cannot be guilty of failing to disclose what one did not know. The government did not tender ANY proof, much less proof

beyond a reasonable doubt that Mr. Smith knew of Norman Schmidt's previous conviction. Absent this proof, there absolutely is reasonable doubt as to Mr. Smith's guilty knowledge and without guilty knowledge no reasonable jury could find Mr. Smith guilty. 5.2 The same reasoning applies equally to the other additional allegations

contained in the jury instruction, which are prerequisites to a finding of guilt. Unless it can be shown to have been proven to the satisfaction of this court that Mr. Smith knew of the facts alleged to have been omitted, he cannot be found guilty of failing to disclose same. 5.3 There is simply no support in the record for the jury's verdict of guilty as

there is no evidence by which a reasonable jury could have determined, or even inferred from other circumstantial evidence that Mr. Smith KNOWINGLY acted in concert with other defendants in the unlawful sale of securities. 5.4 Second: The jury found Mr. Smith not guilty of conspiracy (Count 1). We

are required to observe that the jury found that the government had not provided sufficient evidence of a conspiracy involving Mr. Smith and the other defendants. Yet the counts they did find him guilty of required his knowing (willful) involvement with these defendants; and therefore it stands to reason that he cannot be guilty of the offenses in counts 23, 26 &27.
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This instant matter

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involving Defendant Smith is not susceptible to the qualification of viewing evidence in the light most favorable to the government as there is no such evidence. The jury instruction is clear. The jury must consider that Mr. Smith willfully employed a scheme to defraud as charged in the Indictment plus the additional allegations, as were listed in the instruction. The additional

allegations all required that to sustain a guilty verdict, that Mr. Smith have involved himself in a conspiracy with one or more other defendants, and to have done so KNOWINGLY. No such evidence was presented at trial. 5.4.1 The counts of which the jury found Mr. Smith guilty required

them to find that Mr. Smith had acted in concert with one or more of the defendants. This concept is born out in the indictment itself as the chart of offenses clearly shows with which defendants specifically Mr. Smith had to act in the referenced counts. Docket item #526, 2nd Superseding

Indictment, pages 12-17 Counts 18-29. 5.4.2 Indeed, the jury itself was apparently considering this very

aspect when it asked for clarification of the instructions by asking the below shown question:

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5.5

The court's response to the jury did not apparently clarify the minds of the

jury adequately, else they would have seen the dilemma posed by both issues raised above, and the law and instructions given them would have caused them to resolve the issues in favor of Mr. Smith. However, we do not need to

speculate about the clarity of the answer, as we have the finalized response of the jury: they found guilt where none can reasonably be found.

(Three paragraphs refer to the activity of conspiracy.) 6. 7. Furthermore, the indictment states on page 12, that: Defendant Smith draws the court's attention to the indictment at paragraphs 2-5 and 7-11. This language INCORPORATES into the allegations contained in

counts 18-29 all the relevant matters of CONSPIRACY. By such incorporation, the government intended1 that the elements described in those paragraphs are all part of the burden of proof for conviction in the Securities Fraud portion of the indictment, counts 18-29. Those preceding paragraphs incorporated at

paragraph 15, and further incorporated into Instruction #32,2 discuss an interrelated, interdependent scheme involving more conspirators than just Mr.

The government had time from at least March 7, 2003 until trial to get the indictment polished and precise. We can only assume at this point that they did, and that the language reflects EXACTLY what the government intended. See page 3 of Jury Instruction #32 which incorporates basically the language of the indictment at numbered paragraph 1 on that page 3. Page 6 of 14
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Smith. They are in fact, the description of a conspiracy. By the very wording of the indictment itself, we reason that without a conviction on the sole count of conspiracy, that no conviction on counts 23, 26 & 27 can reasonably be found since the government failed to present evidence that Mr Smith KNOWINGLY engaged in the proscribed conduct with one or more of the defendants named at counts 23, 26 or 27. "Knowingly" involves the conscious act of violating a known legal duty ­ Ratzlaf V. United States, 510 U.S. 135 (1994). 8. The apparent care with which the indictment was crafted (witnessed by two superseding indictments) and the obvious great care the court took in crafting the instructions, can only support the concept that everyone concerned with the effective prosecution, including the court, intended the jury to carefully consider the WILLFUL or KNOWING aspect of Mr. Smith's involvement with the sale of Capital Holdings while engaging in conduct WITH OTHER CONSPIRATORS. This language and careful instructing of the jury that to find Mr. Smith guilty, that his behavior be seen beyond a reasonable doubt as having been KNOWINGLY INVOLVED IN A SCHEME TO DEFRAUD. This scheme, which the instruction makes plain, was a scheme involving the active participation of Mr. Smith and other defendants. However, not a single witness or document presented to the jury supports a finding of guilt when viewed through the lens of the instructions. 9. Finally, the jury saw from the government's own exhibits, EXHIBIT 3003, a letter from Attorney Norman Sirak, a legal opinion letter, which clearly states that the sale of Capital Holdings (alleged) securities, for which Mr. Smith was
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subsequently found guilty, were NOT SECURITIES. Regardless of the truth of those statements, Mr. Smith relied upon this letter. Jury Instruction #37 suggests a finding of NOT GUILTY for this reason alone. Reliance upon this letter

suggests a finding of not guilty by the jury for the counts of Securities Fraud. 10. In the case of U.S.A. vs. Wenger, 427 F.3d 840; 2005 U.S. App Lexis #23137, (10th Cir, 2005); cert. denied in WENGER v. U.S., 05-11088 (2006) 126 S.Ct. 2950. Wegner, the defendant, was convicted of Securities Fraud despite his claim of reliance on the advice of a qualified lawyer. The material element is distinguished from this case, however, as Wenger knew that he was touting a security, the over-the-counter stock of a client, on his radio program. The

counsel's advice to Wenger was that his constitutional right to free speech would protect him against full disclosure of his pay for touting and his holdings in stock of that client company, so it need not be disclosed: 10.1 This case gives us an up to date rendition of how to evaluate Defendant

Michael Smith's reliance on counsel: both Mr. Gary Herbert and Mr. Norman L. Sirak. These attorneys advised Clients of Capital Holdings, including Mr. Smith, that the Capital Holdings program did not involve securities sales. And

importantly, the letter itself states that people like Mr. Smith and CLIENTS OF CAPITAL HOLDINGS can rely upon this letter. exhibit is reproduced below. The relevant portion of the

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11.

Good faith reliance on counsel is a defense to the mens rea element of a criminal prosecution under the Securities Act of 1933. Arthur Lipper Corp. v. SEC, 547 F.2d 171, 181-82 (2d Cir. 1976). The mens rea element is defined in Section 24 of the Act, 15 U.S.C. § 77x, (the section Mr. Smith is charged with violating) which states that the government must prove that the defendant "willfully violate[d]" the Act's provisions. If the jury finds that the defendant relied in good faith on the advice of counsel it may acquit him on the grounds that the defendant's conduct was not willful. United States v. United Medical & Surgical Supply Corp., 989 F.2d 1390, 1403 (4th Cir. 1992). The foregoing is cited as authority in U.S.A. vs. Wenger, supra at 853.

12.

The factual bedrock in Wenger, supra, distinguishes it by legal necessity from Smith. Mr. Wenger was a professional dealing in securities transactions on a daily basis. He also dealt with securities lawyers regularly. In net effect he is considered sophisticated in securities and in the securities industry. There was no evidence presented that Mr. Smith ever had any familiarity with securities or that he ever had a professional status as a dealer, let alone as ever having had a license to sell securities. Mr. Smith testified on cross examination that he held a
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Series 65 license with Praxis: this related to marketing of his principles "money management services. It did not relate to the sale of securities. It also related only to 1995. 13. Not only is there no evidence that he knew, understood, and appreciated the higher world of securities law, (that which he is now guilty of specifically intending to "willfully violate"), to the contrary, Mr. Smith is employed as a mortgage loan agent trainer, a former insurance agent, and, during 2002, the owner of a company known to do national marketing, of products outside of securities. 14. Mr. Smith is to Capital Holdings "sale of securities" as he would be to Mr. Wegner, had he been a salesperson marketing and selling audio tapes of programs produced by Mr. Wegner from time to time. Mr. Smith had no voice in what was produced and no education, no training, no work duties, or work experience to know a security from a non-security ­ which was precisely why, when the question was raised to him, he required Mr. Schmidt to secure a legal opinion ­ an effort which was delegated to Mr. Herbert, the Capital Holdings/Norm Schmidt attorney. 15. The usual and practical first complaint by the Securities and Exchange Commission is that of seeking an injunction, a level of involvement that is not in the criminal jurisdiction, and one that seeks to educate the defendants on requirements of the industry. In this case such an action is pending, and Mr. Smith is a party defendant: It is known as SEC v. Capital Holdings LLC, et al, 2003-CV-0923, U.S. District Court, District of Colorado, pending in this court.
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Whatever the outcome in that case, it cannot be determined by the jury in this case, that Mr. Smith knew or had knowledge he was selling a security, whereas it was evidenced to the jury that he had good reason to believe the opposite. Reliance on legal opinion eliminates the criminal aspect of WILLFULNESS as is contemplated in the statues which Mr. Smith was charged with violating. 16. Because the Wegner, supra, case was denied certiorari by the U.S. Supreme Court in 2006, our Tenth Circuit standards are reliably clear. If the U.S. Attorney chooses to appeal this Court's favorable ruling on Mr. Smith's Rule 29 Motion for Acquittal, that Court will say that audio tape salesmen, delivery truck drivers, and retail store owners were not liable as was Mr. Wegner. These people, without evidence to the contrary, could not have willfully violated securities laws. Certainly, in this matter Mr. Smith can not be so liable, despite his marketing successes. 17. The government's argument is difficult, if not impossible, when resting on the shoulders of two licensed lawyers' opinions. The Wegner, supra, case clearly allows that reliance on counsel is never a complete defense, merely a "grounds for finding a lack of criminal intent." Therefore, the argument is based more generally on the jury Instruction #37, which reads in relevant part:

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18.

To be acquitted for lack of criminal intent, Smith need not have presented any evidence. Intent is an element of the offense the government must prove. U.S. v. White, 887 F.2d 267 (D.C. Cir. 1989).

19.

As to securities fraud, this reasoning is abundantly applicable because, as repeatedly stated in the Wegner case, the Government must prove that the defendant "willfully violated" the 1933 Act's criminal provisions. It is

unreasonable to require of a marketing company with no securities education or experience, not to mention two licensed lawyers, clearly pointing the way for Mr. Smith and unambiguously telling him that he was NOT selling a security. 20. Mr. Philip Feigin, a well qualified securities law expert, asserted in 2005 and ratified his assertion in 2007 by his testimony during trial, that the scheme was so well done that the true facts were well concealed. Much to Mr. Feigin's credit, he referred to each element in the scheme and testified that they were wellconcealed, "each and every one of them." 21. By presenting this Rule 29 Motion for Judgment of Acquittal to the trial court, without the benefit of the record of the proceedings, the Defendant does not intend to waive any arguments or issues for appeals jurisdiction. This would include, without limitation, other substantive issues relating to securities laws and many procedural issues, and constitutional issues, particularly that the weight of the evidence in this case does not justify three felonies for securities fraud for a salesperson in a marketing company who has no prior contact with securities sales. The sole purpose of this motion at the trial court level is to highlight an
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argument that the trial judge may care to deal with because of the status of the Defendant being more of a messenger, rather than one who creates the messages. WHEREFORE, Defendant (6) Michael Smith requests judgment of acquittal notwithstanding a jury verdict to the contrary on three counts of securities fraud.

Dated: June 5, 2007.

Respectfully submitted,

s/Declan J. O'Donnell Declan J. O'Donnell, PC 777 Fifth Street Castle Rock, CO 80104 Phone (303) 688-1193 Facsimile (303) 663-8595 Email: [email protected] Attorney for Defendant Michael Smith

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CERTIFICATE OF SERVICE I hereby certify that on June 5, 2007, I electronically filed the foregoing with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses: Matthew T. Kirsch, AUSA [email protected] Wyatt Angelo, AUSA [email protected] Peter Bornstein, Esq. [email protected] Thomas Hammond, Esq. [email protected] Daniel T. Smith, Esq. [email protected] Thomas Goodreid, Esq. [email protected] Ron Gainor, Esq. [email protected] Mitchell Baker, Esq. [email protected] Richard K. Kornfeld, Esq. [email protected]

s/ Declan J. O'Donnell Declan J. O'Donnell, PC 777 Fifth Street Castle Rock, CO 80104 Phone (303) 688-1193 Facsimile (303) 663-8595 Email: [email protected] Attorney for Defendant Michael Smith

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