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People v. Thompson

Court of Appeals of Colorado, Third Division

June 14, 2018

The People of the State of Colorado, Plaintiff-Appellee,
v.
Steven Curtis Thompson, Defendant-Appellant.

          Douglas County District Court No. 12CR277 Honorable Paul A. King, Judge

          Cynthia H. Coffman, Attorney General, Nicole D. Wiggins, Assistant Attorney General, Denver, Colorado, for Plaintiff-Appellee

          Douglas K. Wilson, Colorado State Public Defender, Elizabeth Porter-Merrill, Deputy State Public Defender, Denver, Colorado, for Defendant-Appellant

          OPINION

          RICHMAN, JUDGE

         ¶ 1 Defendant, Steven Curtis Thompson, appeals the judgment of conviction entered upon jury verdicts finding him guilty of two counts of securities fraud and one count of theft. We affirm.

         I. Background

         ¶ 2 The People charged defendant based on transactions he had entered into with the victims, Tom and Debbie Witt (the Witts). Defendant was the sole member of SGD Timber Canyon LLC, (SGD), which held an interest in sixty-three undeveloped lots in the Timber Ridge subdivision. By October 2009, these lots were in foreclosure, and in February 2010, SGD filed for bankruptcy. Defendant did not disclose either of these facts to the Witts when he negotiated the transactions that gave rise to this case.

         ¶ 3 The Witts loaned defendant $200, 000 to acquire a lot in Timber Ridge and another $200, 000 for construction of a home on the lot, with the understanding that the loans would be repaid with a profit share of as much as $400, 000 when the home was sold to a prequalified buyer. In September 2010, the Witts wired $400, 000 to defendant's accounts.

         ¶ 4 Later, at defendant's urging, the Witts increased the loan amount to $2.4 million and converted their investment into a "bridge loan" to defendant, who represented that the proceeds would be used for continued development of Timber Ridge. Defendant told the Witts that the investment would be "no risk" to them and that they would receive a guaranteed profit. He suggested that the investment was a "no brainer" because he would secure the loan with other valuable property he owned. The Witts agreed to the new arrangement because they felt it was a "safer opportunity."

         ¶ 5 The Witts wired an additional $2 million to defendant's account in October 2010, and the parties executed a promissory note and guarantee agreement. Pursuant to the documents, defendant agreed to repay the loan with a "profit" of $240, 000, all bank fees, and 8% annual interest by January 2011. The promissory note was "secured by" defendant's "primary and second residences, " with collateral to convert to twenty-four lots in Timber Ridge "upon closing and final purchase of Timber Ridge."

         ¶ 6 Defendant did not tell the Witts that the collateralized properties were "heavily leveraged." He incorrectly listed the address of his "second residence" on the note. He represented the value of the Timber Ridge development to be $31 million, but mortgagee Flagstar Bank estimated the market value at $6.75 million. He did not reveal that Flagstar had initiated foreclosure proceedings, which had been delayed by SGD's bankruptcy petition. The Witts testified that they would not have given any money to defendant had they known his true financial condition.

         ¶ 7 Defendant used the money on items not related to Timber Ridge, including payment of his own attorney fees, checks made out to himself or for "cash, " and paying off the note on, and making improvements to, his "second residence."

         ¶ 8 In December 2010, Flagstar Bank completed foreclosure proceedings. Defendant did not tell the Witts of the foreclosure and instead told them that he was "moving forward" with the property. But he never developed the property in Timber Ridge.

         ¶ 9 In January 2011, when the Witts' note came due, defendant defaulted on the payment. He attempted to negotiate a new note with them, offering additional collateral, but the Witts refused. Defendant thereafter filed for personal bankruptcy, and his "primary residence" was sold at a public trustee sale. The Witts did not receive any money from the sale. Defendant eventually repaid only $70, 000 to the Witts. The Witts brought a civil suit against defendant, but did not recover any further monies from him.

         ¶ 10 The People charged defendant with two counts of securities fraud, under sections 11-51-501(1)(b) and (1)(c), C.R.S. 2017, and one count of theft under section 18-4-401(1)(b), C.R.S. 2017. Defendant's theory of defense was that he lacked the mens rea for the charged offenses. He argued that he was unable to repay the Witts because his business plan had failed.

         ¶ 11 A jury found defendant guilty of all three counts. The trial court sentenced him to twelve years in the custody of the Department of Corrections for each of the securities counts, to be served concurrently, and eighteen years for the theft conviction, to be served consecutively to the other sentences.

         ¶ 12 On appeal, defendant claims that (1) insufficient evidence supports his securities fraud convictions; (2) the trial court erred by tendering an inaccurate jury instruction regarding the definition of a security; (3) insufficient evidence supports his theft conviction; (4) the trial court erred by admitting propensity evidence; (5) the two securities convictions must be merged; and (6) his sentences must all run concurrently. We address and reject each contention in turn.

         II. Sufficient Evidence of Securities Fraud

         ¶ 13 First, defendant claims that the evidence is insufficient to support his securities fraud convictions because the promissory note and guarantee he provided to the Witts do not constitute a security. The jury was instructed, as relevant here and pursuant to section 11-51-201(17), C.R.S. 2017, that security "means any note, . . . or . . . guarantee of. . . any of the foregoing." Defendant correctly states that securities fraud cannot occur absent a security and argues that, despite the statutory definition, not all notes are securities. See People v. Mendenhall, 2015 COA 107M.

         A. Definition of a Security

         ¶ 14 The securities fraud statute requires that fraud must be perpetrated in connection with the offer, sale, or purchase of any security. § 11-51-501(1). At the time of defendant's trial, the test for determining whether a note was a security was "the presence of an investment in a common enterprise that is premised on a reasonable expectation of profits to be derived from the entrepren[e]urial or managerial efforts of others." People v. Milne, 690 P.2d 829, 833 (Colo. 1984); see also Sec. & Exch. Comm'n v. W.J. Howey Co., 328 U.S. 293, 301 (1946) ("The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others."). In Milne, the court concluded that the notes issued by the defendant were securities because the noteholders (1) "entrusted money with the defendant in return for 'investment notes, ' with the expectation of receiving periodic interest payments in addition to repayment of the principal amount"; (2) "invested with the primary purpose of receiving profits"; and (3) "had no ability to control or manage the funds they invested or otherwise ensure that their promised return was actually paid." 690 P.2d at 833-34.

         ¶ 15 The federal definition of securities, on which Colorado's definition is based, is purposely broad "to regulate investments, in whatever form they are made and by whatever name they are called." Reves v. Ernst & Young, 494 U.S. 56, 61 (1990). Recognizing "the virtually limitless scope of human ingenuity, especially in the creation of 'countless and variable schemes devised by those who seek the use of the money of others on the promise of profits, '" Congress enacted a definition of "security" sufficiently broad to encompass virtually any instrument that might be sold as an investment. Id. at 60-61 (citation omitted).

         ¶ 16 In 2015, the year after defendant's trial, a division of this court held that the "family resemblance" test adopted by the Supreme Court in Reves applies to determine when a note is a security under the Colorado Securities Act (CSA). Mendenhall, ¶ 37.[1]

         ¶ 17 Under the family resemblance test, a note is presumed to be a security, but that presumption may be rebutted by a showing that the note strongly resembles instruments such as

notes delivered in consumer financing; notes secured by a mortgage on a home; short-term notes secured by a lien on a small business or some of its assets; notes evidencing a "character" loan to a bank customer; short-term notes secured by an assignment of accounts receivable; notes which simply formalize an open-account debt incurred in the ordinary course of business; and notes evidencing loans by commercial banks for current operations.

Id. at ¶ 33. This showing may be established by four factors, which we will describe and analyze below. See id. at ¶ 34.

         B. Standard of Review

         ¶ 18 Defendant did not argue at trial that his promissory note was not a security, or that not all notes are securities. But he frames his claim on appeal as a sufficiency of the evidence claim and asserts that preservation is "not required." Though he moved for judgment of acquittal, he only argued that the evidence was generally insufficient to support a finding of guilt on any of the charges. The People agree with defendant's statement regarding issue preservation.

         ¶ 19 Ordinarily, a defendant may raise a sufficiency claim for the first time on appeal. People v. Garcia, 2012 COA 79, ¶ 35. When reviewing for sufficiency, we view the evidence in the light most favorable to the prosecution to determine if the conviction was supported beyond a reasonable doubt. Id. at ¶ 34. But defendant's argument is no ordinary sufficiency challenge; rather, his claim is premised solely on a novel interpretation of the securities fraud statute.

         ¶ 20 Some divisions of this court have held that when a defendant does not raise a sufficiency of evidence claim turning on a statutory interpretation in the trial court, his argument on appeal provides a basis for is reversal only if any error is plain. See People v. Kadell, 2017 COA 124; People v. Maestas, (Colo.App. No. 11CA2084, Jan. 15, 2015) (not published pursuant to C.A.R. 35(f)) (cert. granted Oct. 26, 2015); People v. Lacallo, 2014 COA 78, ¶¶ 6, 20.

         ¶ 21 Other divisions have held that even in absence of preservation, we may reverse a conviction if it fails the substantial evidence test. See People v. McCoy, 2015 COA 76M, ¶ 37 (cert. granted Oct. 3, 2016).

         ¶ 22 We need not resolve this conflict, because we conclude that even applying the broader substantial ...


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