[Cite as State v. Hannan, 2020-Ohio-755.]
COURT OF APPEALS
STARK COUNTY, OHIO
FIFTH APPELLATE DISTRICT
STATE OF OHIO JUDGES:
Hon. William B. Hoffman, P.J
Plaintiff-Appellee Hon. W. Scott Gwin, J.
Hon. Earle E. Wise, Jr., J.
-vs-
Case No. 2019CA00037
KIM HANNAN
Defendant-Appellant O P I N IO N
CHARACTER OF PROCEEDINGS: Appeal from the Stark County Court of
Common Pleas, Case No. 2018CR0520
JUDGMENT: Affirmed
DATE OF JUDGMENT ENTRY: March 2, 2020
APPEARANCES:
For Plaintiff-Appellee For Defendant-Appellant
JOHN D. FERRERO GEORGE URBAN
Prosecuting Attorney 116 Cleveland Avenue, N.W.
Stark County, Ohio 808 Courtyard Centre
Canton, Ohio 44702
RONALD MARK CALDWELL
Assistant Prosecuting Attorney
Appellate Section
110 Central Plaza, South – Suite 510
Canton, Ohio 44702-1413
Stark County, Case No. 2019CA00037 2
Hoffman, P.J.
{¶1} Appellant Kim Hannan appeals the judgment entered by the Stark County
Common Pleas Court convicting him of 51 counts of securities fraud (R.C. 1707.44(B)(4),
(G),(M)(1)(a),(b)), aggravated theft (R.C. 2913.02(A)(1),(2),(3)) and theft from a person in
a protected class (R.C. 2913.02(A)(1),(2),(3)), and sentencing him to an aggregate term
of incarceration of twenty years. Appellee is the state of Ohio.
STATEMENT OF THE FACTS AND CASE
{¶2} Appellant was a registered financial advisor who had worked for several
financial firms. He acquired clients from his employment, and after leaving the firms he
worked for, he became desperate for money. Appellant incurred debt due to personal
expenses, gambling, and spousal support obligations, and began to look for an alternate
method to make money. He started a dry cleaning business, followed by a doggie
daycare business, and finally a company called HR Resources. Beginning in 2014, he
looked to his clients to provide investment funds for his businesses.
{¶3} Buddy and Gloria Scott were two of Appellant’s clients from his employment
with investment firms. He asked the Scotts to invest in his dry cleaning business. They
initially gave Appellant $50,000, and Appellant gave them a cognovit note for $75,000.
Over a period of time, the Scotts gave Appellant $805,000 in six transactions, secured by
Appellant’s cognovit notes. They saw the money as an investment and not a loan.
Appellant continued to tell the Scotts the business was doing well, when in actuality the
business was losing money, he was unable to make payroll, and debt was mounting.
{¶4} Michael and Nanette Maletich also invested money in Appellant’s
businesses at his urging. They gave Appellant $168,225 over six transactions, secured
Stark County, Case No. 2019CA00037 3
by cognovit notes. Appellant told them only good news about the businesses, and sent
them monthly return checks on their investments.
{¶5} Nanette Maletich’s sister, Renee Leimgruber, was approached by Appellant
to invest in the doggie daycare business. She invested $30,000, secured by a cognovit
note. Appellant paid her $637.41 via three checks.
{¶6} Appellant approached John and Mary Ruth to invest in his dry cleaning
business, telling them they could receive a higher rate of return than by staying with their
investments previously made through his firm. They gave him $125,000 secured by a
cognovit note. He later convinced them to give him another $422,000. He told them the
dry cleaning business was doing well, and he expected $700,000 in profits, to encourage
further investment in the business.
{¶7} Appellant also convinced David and Anne Heinzman to invest $145,000
over four transfers, all secured by cognovit notes. He told them they could do better
investing in his businesses than by staying with their stock investments. They received
some payments from Appellant, which gave credence to Appellant’s representations the
businesses were doing well.
{¶8} In October, 2017, Appellant sent letters to all nine clients terminating the
relationships and admitting he could not pay them back. Appellant defrauded these
clients out of a total of $1,645,255.00
{¶9} Meanwhile, Appellant met Pamela Crawford via an online dating site, and
dated her from 2015, to 2017. Appellant told Crawford about his financial advising
business, as well as his dry cleaning business. He convinced Crawford to quit her job
and work at the dry cleaning business. She could tell something was wrong and the
Stark County, Case No. 2019CA00037 4
business was not doing well, and she quit working for Appellant after several weeks.
However, she continued to date Appellant. The dates included regular expensive dinners
out and trips to a casino in Cleveland, where they were comped rooms and the pit boss
called Appellant by his first name. Knowing Appellant was soliciting investments from
clients for his businesses, she feared the clients were not going to get their money back.
Crawford made an anonymous complaint with the Securities and Exchange Commission
(SEC) about Appellant’s activities.
{¶10} As a result of Crawford’s tip, Ohio authorities began to investigate
Appellant’s activities. Leo Fernandez, a fraud investigator with the Ohio Auditor’s Office,
and Janice Hitzeman, an Attorney Inspector with the Ohio Department of Commerce,
began the investigation. A search warrant was executed on Appellant’s businesses, and
bank and financial records were obtained through subpoenas. Fernandez determined
Appellant received over $1.6 million from the nine targeted investors, the businesses were
failures, and Appellant used some of the investment money to pay for gambling, spousal
support, and other personal expenses. In addition, Appellant used some of the money
from the nine investors to pay the other investors a return on their investments. The audit
revealed Appellant commingled personal and business expenses. When Fernandez
interviewed Appellant, Appellant stated he wasn’t making enough money in his
investment advisory business, so he reached out to clients to invest in his other
businesses. Appellant claimed all the invested money had been spent on operating
expenses for the businesses.
{¶11} At a later investigative interview, Appellant admitted his transactions were
securities violations. For purposes of the Ohio Securities Act, both a loan and an
Stark County, Case No. 2019CA00037 5
investment are defined as a security, and a cognovit note is also a security. While
investments and loans are not guaranteed to be profitable, the decision to make an
investment or loan must be done knowingly, with full disclosure of material information.
Hitzeman concluded from her investigation Appellant deceived his nine investors into
giving him money, the transfers constituted sales, and Appellant made false
representations in order to obtain their money. She further concluded Appellant should
have put all of the investment money into the businesses instead of using it for personal
expenses.
{¶12} In 2018, the Stark County Grand Jury charged Appellant with 53 counts of
state securities fraud, one count of theft from a person in a protected class, and one count
of aggravated theft.
{¶13} Before trial, Appellant waived his right to counsel and proceeded pro se.
The State offered Appellant a plea deal, which he rejected. The case proceeded to jury
trial in the Stark County Common Pleas Court. On the second day of trial, Appellant
indicated he wished to plead guilty. After reviewing the plea forms, he recanted and opted
to proceed to trial. He also requested his standby counsel represent him. The trial court
declared a mistrial and referred Appellant for a competency evaluation.
{¶14} Appellant was found competent to stand trial. Before the second jury trial,
the State dismissed two counts of securities fraud. The case proceeded to trial on the
remaining counts. Appellant was convicted of the remaining 51 counts of securities fraud,
as well as the aggravated theft and theft counts. He was sentenced to an aggregate term
of incarceration of 20 years and ordered to pay restitution in the amount of $1,645,255.00.
Stark County, Case No. 2019CA00037 6
{¶15} It is from the February 14, 2019, judgment of conviction and sentence
Appellant prosecutes this appeal, assigning as error:
I. APPELLANT’S CONVICTIONS WERE AGAINST THE
SUFFICIENCY AND/OR MANIFEST WEIGHT OF THE EVIDENCE.
II. THE TRIAL COURT ERRED BY OVERRULING APPELLANT’S
OBJECTION AND PERMITTING JIM LUPICA TO TESTIFY ABOUT
FIDUCIARY DUTY.
I.
{¶16} In his first assignment of error, Appellant argues the judgment is against the
sufficiency and manifest weight of the evidence because the State did not prove he
intended to defraud any of his clients.
{¶17} In determining whether a verdict is against the manifest weight of the
evidence, the appellate court acts as a thirteenth juror and “in reviewing the entire record,
weighs the evidence and all reasonable inferences, considers the credibility of witnesses,
and determines whether in resolving conflicts in evidence the jury ‘clearly lost its way and
created such a manifest miscarriage of justice that the conviction must be reversed and
a new trial ordered.’” State v. Thompkins, 78 Ohio St. 3d 380, 387, 1997-Ohio-52, 678
N.E.2d 541, quoting State v. Martin, 20 Ohio App. 3d 172, 175, 485 N.E.2d 717 (1983).
{¶18} An appellate court's function when reviewing the sufficiency of the evidence
is to determine whether, after viewing the evidence in a light most favorable to the
prosecution, any rational trier of fact could have found the essential elements of the crime
Stark County, Case No. 2019CA00037 7
proven beyond a reasonable doubt. State v. Jenks, 61 Ohio St. 3d 259, 574 N.E.2d 492,
paragraph two of the syllabus (1991).
{¶19} Appellant was convicted of theft and aggravated theft in violation of R.C.
2913.02(A)(1), (2), and (3), which provides:
(A) No person, with purpose to deprive the owner of property or
services, shall knowingly obtain or exert control over either the property or
services in any of the following ways:
(1) Without the consent of the owner or person authorized to give
consent;
(2) Beyond the scope of the express or implied consent of the owner
or person authorized to give consent;
(3) By deception.
{¶20} He was convicted of 51 counts of securities fraud in violation of the following
sections of R.C. 1707.44:
(B) No person shall knowingly make or cause to be made any false
representation concerning a material and relevant fact, in any oral
statement or in any prospectus, circular, description, application, or written
statement, for any of the following purposes:
(4) Selling any securities in this state.
Stark County, Case No. 2019CA00037 8
(G) No person in purchasing or selling securities shall knowingly
engage in any act or practice that is, in this chapter, declared illegal, defined
as fraudulent, or prohibited.
(M)(1) No investment adviser or investment adviser representative
shall do any of the following:
(a) Employ any device, scheme, or artifice to defraud any person;
(b) Engage in any act, practice, or course of business that operates
or would operate as a fraud or deceit upon any person.
{¶21} Appellant argues the State did not present any evidence he made false
representations in order to obtain the money of his nine clients. He asserts he was not
trying to mislead his clients, and no one testified to specific fraudulent acts. He argues
misfortune does not constitute fraud.
{¶22} The testimony demonstrated Appellant persuaded his clients investing in
his businesses would be more profitable than a stock portfolio. He continued to solicit
more money from his clients, telling them the businesses were doing well and making a
profit, when in actuality, the businesses were losing money. He buttressed his claims the
businesses were doing well by paying the clients a return on their investment, which he
took from other investors rather than from the profits of the businesses. John Ruth
testified Appellant told him specifically the dry cleaning business was projected to make
$700,000 in profit one year.
{¶23} The State presented evidence instead of using the money to invest in the
businesses, he used the money to support a lavish lifestyle and pay his personal debts,
Stark County, Case No. 2019CA00037 9
which alarmed Crawford (his paramour) to the extent she reported his activities to the
SEC. The evidence reflected Appellant did not tell the investors he was using the money
on personal expenses and to pay false “returns” to other investors, but rather they
believed the money was invested in his businesses.
{¶24} The State presented evidence, if believed by the jury, to support a finding
Appellant intentionally made false representations to obtain money from his nine clients.
{¶25} While Appellant argues generally the witnesses were not credible and the
investigation into his activities was not thorough, we find the jury did not lose its way in
believing the testimony of Appellant’s clients and the investigators, and the verdict is not
against the manifest weight of the evidence.
{¶26} The first assignment of error is overruled.
II.
{¶27} In his second assignment of error, Appellant argues the court erred in
allowing Jim Lupica to testify concerning the concept of “fiduciary duty,” as the concept
was not relevant to the case and created a danger the jury convicted Appellant for
breaching a duty owed to his clients rather than for violation of statute.
{¶28} Jim Lupica testified about his working relationship with Appellant while
Appellant was employed at Stratos Wealth Partners. Appellant worked there for about a
year, during which time Lupica formed a partnership with Appellant’s investment
business. Lupica testified brokers and advisors owe their clients a fiduciary duty when
managing their money. He defined fiduciary duty as “putting the client first; [y]ou are
subordinated to that client; you are working for that client and you owe them full loyalty,
full disclosure of all investment advice that you’re giving.” Tr. (II) 188. Lupica further
Stark County, Case No. 2019CA00037 10
testified to tell the client only the good aspects of a product is a violation of fiduciary duty.
Appellant’s objection to Lupica’s testimony was overruled.
{¶29} “[A] trial court is vested with broad discretion in determining the admissibility
of evidence in any particular case, so long as such discretion is exercised in line with the
rules of procedure and evidence.” Rigby v. Lake Cty., 58 Ohio St. 3d 269, 271, 569
N.E.2d 1056 (1991).
{¶30} Evid. R. 401 defines relevant evidence as “evidence having any tendency
to make the existence of any fact that is of consequence to the determination of the action
more probable or less probable than it would be without the evidence.” Evid. R. 402
provides:
All relevant evidence is admissible, except as otherwise provided by
the Constitution of the United States, by the Constitution of the State of
Ohio, by statute enacted by the General Assembly not in conflict with a rule
of the Supreme Court of Ohio, by these rules, or by other rules prescribed
by the Supreme Court of Ohio. Evidence which is not relevant is not
admissible.
{¶31} As Appellant argued in his first assignment of error, the State was required
to prove Appellant defrauded his clients. The concept of fraud is intertwined with
Appellant’s fiduciary duties owed his clients in this case. The fact he not only lied to his
clients about how the businesses were doing but also failed to tell them both good and
bad facts material to their investment decisions relates directly to both the fiduciary duties
Stark County, Case No. 2019CA00037 11
owed his clients and his intent to defraud them. Appellant’s violation of the fiduciary duties
he owed his clients, duties he was aware of as a license financial advisor, reflects upon
his intent when he persuaded his clients to give him money for his businesses. We find
the concept of fiduciary duty was relevant in the instant case, and the trial court did not
err in admitting Lupica’s testimony over Appellant’s objection.
{¶32} The second assignment of error is overruled.
{¶33} The judgment of the Stark County Common Pleas Court is affirmed.
By: Hoffman, P.J.
Gwin, J. and
Wise, Earle J. concur