Thompson v. People

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ADVANCE SHEET HEADNOTE
September 14, 2020

2020 CO 72
No. 18SC543 Thompson v. People—Colorado Securities Act—Security—
Plain Error—Consecutive Sentencing.

This case requires the supreme court to decide whether the court should

adopt the family resemblance test from Reves v. Ernst & Young, 494 U.S. 56, 64–67

(1990), as the test for determining whether a note is a security for purposes of the

Colorado Securities Act, §§ 11-51-101 to -1008, C.R.S. (2019) (“CSA”). If so, the

court must then decide whether the division below erred in concluding that (1) the

promissory note at issue was a security under the family resemblance test; (2) any

error in the jury instruction defining “security” was not plain; and (3) consecutive

sentences were permissible because different evidence supported the defendant’s

securities fraud and theft convictions.

The court now adopts the family resemblance test for determining whether

a note is a security for purposes of the CSA. Applying that test to the facts before

it, the court concludes further that (1) the promissory note at issue was a security

for purposes of the CSA; (2) any instructional error regarding the element of a
“security” was not plain because any error was not substantial; and (3) the

convictions for securities fraud and theft at issue were not based on identical

evidence and therefore consecutive sentences were permissible.

Accordingly, the court affirms the judgment of the division below.
 The Supreme Court of the State of Colorado
2 East 14th Avenue • Denver, Colorado 80203

2020 CO 72

Supreme Court Case No. 18SC543
Certiorari to the Colorado Court of Appeals
Court of Appeals Case No. 14CA1332

Petitioner:

Steven Curtis Thompson,

v.

Respondent:

The People of the State of Colorado.

Judgment Affirmed
en banc
September 14, 2020

Attorneys for Petitioner:
Megan A. Ring, Colorado State Public Defender
Sean J. Lacefield, Deputy State Public Defender
Denver, Colorado

Attorneys for Respondent:
Philip J. Weiser, Attorney General
Brittany L. Limes, Assistant Attorney General
Denver, Colorado
Attorneys for Amicus Curiae, David S. Cheval, Acting Securities
Commissioner for the State of Colorado:
Philip J. Weiser, Attorney General
Robert W. Finke, Assistant Attorney General
Janna K. Fischer, Assistant Attorney General
Abby L. Chestnut, Assistant Attorney General
Denver, Colorado

JUSTICE GABRIEL delivered the Opinion of the Court.
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¶1 This case requires us to decide if this court should adopt the family

resemblance test from Reves v. Ernst & Young, 494 U.S. 56, 64–67 (1990), as the test

for determining whether a note is a security for purposes of the Colorado

Securities Act, §§ 11-51-101 to -1008, C.R.S. (2019) (“CSA”). If so, we must then

decide whether the division below erred in concluding that (1) the promissory

note at issue was a security under the family resemblance test; (2) any error in the

jury instruction defining “security” was not plain; and (3) consecutive sentences

were permissible because different evidence supported defendant Steven

Thompson’s securities fraud and theft convictions.1

¶2 We now adopt the family resemblance test for determining whether a note

is a security for purposes of the CSA. Applying that test to the facts before us, we

conclude further that (1) the promissory note at issue was a security for purposes

1 Specifically, we granted certiorari to review the following issues:
1. Whether the court of appeals erred in applying the family
resemblance test from Reves v. Ernst & Young, 494 U.S. 56 (1990), to
conclude that a promissory note was a security.
2. Whether the court of appeals erred in holding that the
instructional error regarding the element of a “security” was not
plain even though the error was plain at the time of appeal.
3. Whether the court of appeals erred in finding that the convictions
were not based on identical evidence and consecutive sentences
were permissible.

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of the CSA; (2) any instructional error regarding the element of a “security” was

not plain because any error was not substantial; and (3) the convictions for

securities fraud and theft at issue were not based on identical evidence and

therefore consecutive sentences were permissible.

¶3 Accordingly, we affirm the judgment of the division below.

I. Facts and Procedural History

¶4 Thompson worked as a real estate developer and was the sole member and

manager of SGD Timber Canyon, LLC (“Timber Canyon”), a real estate company

that, at the times pertinent here, held an interest in a number of undeveloped lots

in the Timber Ridge development in Castle Rock, Colorado. To buy those

properties, Timber Canyon had initially obtained an approximately $11.9 million

loan from Flagstar Bank. The properties struggled financially, however, and went

into foreclosure in October 2009. Thereafter, in February 2010, Timber Canyon

filed a bankruptcy petition, and Flagstar Bank sought relief from the automatic

stay to allow it to proceed with the foreclosure. The parties, however, entered into

a stipulation under which the bank agreed to forbear from exercising its remedies

against the properties, pending, among other things, Timber Canyon’s making a

$6.75 million payment by October 15, 2010.

¶5 Meanwhile, in the spring of 2010, Thompson met John Witt (“John”), a man

who had worked in the construction industry in Denver and who wanted to

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become a real estate developer.2 John eventually began working with Thompson

and signed a letter of intent indicating that John would eventually obtain an

ownership interest in Thompson’s company.

¶6 Shortly thereafter, and without disclosing the fact that the Timber Ridge

properties were in foreclosure and subject to a forbearance agreement, Thompson

solicited a $400,000 “investment” from John’s parents, Thomas and Debra Witt

(“the Witts”), whom he had met when they came to tour the properties.

Thompson told the Witts that he would use the loan to purchase one of the lots in

Timber Ridge, construct a house on that lot, and then resell it to a buyer who had

been prequalified to purchase it. He told the Witts that because he had a

prequalified buyer lined up to purchase the house, they would get all of their

money back very quickly and that this would be a “very low risk investment.”

Thomas Witt thought the offer “didn’t sound too bad because there was a qualified

buyer for a huge profit in it.” The Witts therefore agreed to make the investment,

signed a document that Thompson had drawn up entitled “Timber Ridge Lot

Purchase Agreement,” and wired $400,000 in two equal wire transfers to

Thompson.

2Because John’s parents were also involved in the matters leading to this case, we
will, for clarity, refer to John by his first name. We intend no disrespect.

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¶7 A short time later, Thompson approached the Witts, through their son,

about converting their $400,000 investment into a “bridge loan,” which Thompson

claimed would be used for the continued development of Timber Ridge. In an

email to John, Thompson emphasized that the proposed “bridge loan” was a “no

brainer,” given that the loan was “very short term with lots of collateral” (namely,

the land), and he stated that he “would not even consider it if [he] thought there

were any risk to it.” Thompson further said that the Witts would “have no risk as

there is a guarantee takeout on the bridge loan” and that they “will make half of

what we save or $1 million for doing the loan with no risk.”

¶8 Ultimately, the Witts agreed to increase their initial $400,000 investment to

$2.4 million, and they wired Thompson the additional $2 million. The Witts

agreed to do so because (1) it was “a no risk—very low, low risk investment”;

(2) they would make a profit on the deal, as the properties were allegedly

appraised at $31 million; (3) Thompson had represented that the loan was “very

short-term”; and (4) it would help their son as he was beginning his career as a

developer.

¶9 In exchange for the Witts’ investment, Thompson delivered a promissory

note in the amount of $2.4 million and a guaranty agreement, listing a Mary

Littman, who was purported to be the owner of Thompson’s primary residence,

as guarantor. The note and guaranty agreement identified Thompson’s primary

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residence (owned by Littman) and his second residence (owned by an LLC that

Thompson controlled) as collateral, although the address stated for the second

residence turned out to be incorrect. In addition, in the note, Thompson promised

to repay the Witts their $2.4 million loan in full, as well as a “profit” of $240,000

and 8% annual interest, by January 12, 2011. At no point did Thompson disclose

to the Witts that (1) his two alleged residences were already highly leveraged;

(2) Timber Canyon had declared bankruptcy; (3) the Timber Ridge properties had

been in foreclosure and were subject to a forbearance agreement; or (4) Flagstar

Bank had valued the Timber Ridge properties at only $6.75 million (i.e.,

significantly less than the $31 million value that Thompson had represented to the

Witts during their negotiations). Thomas Witt would later say that had he known

these facts at the time he was dealing with Thompson, he “wouldn’t have given

[Thompson] a dime.”

¶10 At about the same time during which Thompson was negotiating the

increased investment from the Witts, Timber Canyon failed to pay Flagstar Bank

the $6.75 million required to keep the properties out of foreclosure. Thompson,

however, continued to keep the Witts in the dark regarding Timber Ridge’s

financial problems. Thereafter, in December 2010, the entire development sold at

a public trustee sale for only $6.75 million. Thompson did not tell the Witts of the

foreclosure sale and continued to maintain that he was “moving forward” with

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the Timber Ridge development project. In reality, though, throughout the fall of

2010 and winter of 2011, Thompson used the Witts’ money for items not related to

Timber Ridge, including for the payment of his own attorney fees, checks made

out to himself or to “cash,” paying off the note on one of his two residences, and

making improvements to that residence.

¶11 When the Witts’ note ultimately came due in the winter of 2011, Thompson

defaulted. He tried to renegotiate the note, offering different collateral, but the

Witts refused.

¶12 After Thompson paid the Witts only $70,000 of the amount that he owed

them, the Witts filed a civil lawsuit against him and also contacted law

enforcement. Thereafter, the People charged Thompson with two counts of

securities fraud under subsections 11-51-501(1)(b) and (1)(c), C.R.S. (2019), and one

count of theft under section 18-4-401(1)(b), C.R.S. (2019). Thompson pleaded not

guilty, and the case proceeded to trial.

¶13 At trial, the court instructed the jury, consistent with section 11-51-201(17),

C.R.S. (2019), that a security is defined to include, among other things, “any note.”

Thompson did not object to this instruction, nor did he argue during the trial that

the note that he gave the Witts was not a security. The jury ultimately convicted

Thompson on all counts, and the court sentenced him to the Department of

Corrections for twelve years on each of the securities fraud counts, to be served

8
concurrently, and eighteen years on the theft count, to be served consecutively to

the securities fraud counts.

¶14 Thompson appealed, and, in a unanimous, published opinion, a division of

the court of appeals affirmed his convictions. People v. Thompson, 2018 COA 83,

__ P.3d __. As pertinent here, Thompson argued that (1) because the note at issue

was not a security, insufficient evidence supported his securities fraud

convictions; (2) the trial court erred by tendering an incorrect jury instruction

regarding the meaning of “security”; and (3) his theft conviction had to run

concurrently with his securities fraud convictions. Id. at ¶ 12. The division

rejected each of these arguments in turn.

¶15 First, the division rejected Thompson’s contention that because the note was

not a “security” within the meaning of the CSA, insufficient evidence supported

his securities fraud convictions. Id. at ¶¶ 13–32. Following the so-called “family

resemblance test” developed by the United States Supreme Court in Reves and

adopted by a prior division in People v. Mendenhall, 2015 COA 107M, ¶¶ 32–37,

363 P.3d 758, 767–68, which test we discuss more fully below, the division below

concluded that the promissory note at issue was a security. Thompson, ¶¶ 16–17,

23–32.

¶16 Second, the division concluded that the trial court did not plainly err when

it instructed the jury that a “security” included “any note.” Id. at ¶¶ 33–37. The

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division began by observing that in assessing plain error, a court only considers

the status of the law at the time of a defendant’s trial. Id. at ¶ 34. Because, at the

time of Thompson’s trial, Colorado case law had not directly addressed the issue

of whether “any note” is a security, the division concluded that the law was not

“well-settled” at the time of trial and therefore any error in the instruction would

not have been obvious. Id. at ¶¶ 36–37.

¶17 Third, the division rejected Thompson’s assertion that because his theft and

securities fraud convictions were based on identical evidence, his sentence on the

theft conviction had to run concurrently with his sentences on the securities fraud

convictions. Id. at ¶¶ 67–72. In so concluding, the division determined that the

convictions for securities fraud were based on Thompson’s “misstatements and

material omissions” in connection with the sale of a security to the Witts and that

this element of securities fraud was not required for theft. Id. at ¶ 71. Conversely,

the division concluded that Thompson’s retention and use of the funds that he had

received from the Witts for his personal benefit, which permanently deprived the

Witts of the money’s use, supported his conviction for theft but was not an element

of evidence required for securities fraud. Id. The division thus concluded that

different evidence supported each offense and therefore the imposition of a

consecutive sentence on the theft conviction was proper. Id. at ¶ 72.

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¶18 Thompson then petitioned for a writ of certiorari, and we granted that

petition.

II. Analysis

¶19 We begin by addressing Thompson’s claim that the division improperly

applied the Reves family resemblance test to determine that the promissory note at

issue was a security. After concluding that the family resemblance test applies to

determine whether a note is a security under the CSA, we apply that test and

conclude that the division did not err in determining that the Witts’ note was a

security for purposes of the CSA.

¶20 Next, we turn to Thompson’s claim of instructional error and conclude that

any error committed by the trial court in instructing the jury that a security

includes “any note” was not plain because, whether assessed at the time of trial or

the time of appeal, any such error was not substantial. Accordingly, we need not

reach Thompson’s argument that we should adopt a “time of appeal” standard for

assessing plain error.

¶21 Finally, we address Thompson’s claim that the division erred in upholding

his consecutive sentences for securities fraud and theft and conclude that the

division properly determined that different evidence supported these convictions.

We therefore conclude that the trial court did not abuse its discretion in imposing

consecutive sentences in this case.

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 A. Reves v. Ernst & Young

¶22 The question of whether we should adopt the family resemblance test for

determining whether a note is a security involves both statutory interpretation and

consideration of the proper legal standard to be applied here. We review issues of

statutory interpretation de novo. McCoy v. People, 2019 CO 44, ¶ 37, 442 P.3d 379,

389. In construing a statute, we seek to ascertain and give effect to the General

Assembly’s intent. Id. To do so, we look first to the statutory language, giving its

words and phrases their plain and ordinary meanings. Id. We read such words

and phrases in context, and we construe them according to the rules of grammar

and common usage. Id. Additionally, we “endeavor to effectuate the purpose of

the legislative scheme.” Id. at ¶ 38, 442 P.3d at 389. In doing so, we read that

scheme as a whole, giving consistent, harmonious, and sensible effect to all of its

parts, and we avoid constructions that would render any words or phrases

superfluous or lead to illogical or absurd results. Id. If the statute is unambiguous,

then we apply it as written. Id. If the statute is ambiguous, however, then we may

consider other aids to statutory construction, including the consequences of a

given construction, the end to be achieved by the statute, and the statute’s

legislative history. Id. A statute is ambiguous when it is reasonably susceptible of

multiple interpretations. Id.

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¶23 A determination of the proper legal standard to be applied in a case and the

application of that standard to the particular facts of the case present questions of

law that we also review de novo. A.R. v. D.R., 2020 CO 10, ¶ 37, 456 P.3d 1266,

1276.

¶24 The CSA’s purpose is “to protect investors and maintain public confidence

in securities markets while avoiding unreasonable burdens on participants in

capital markets.” § 11-51-101(2), C.R.S. (2019). Additionally, the CSA is “remedial

in nature and is to be broadly construed to effectuate its purposes.” Id. And,

pertinent here, the CSA’s provisions are to be “coordinated with the federal acts

and statutes” that the CSA references “to the extent coordination is consistent with

both the purposes and the provisions” of the CSA. § 11-51-101(3).

¶25 The CSA defines a “security” to include, in pertinent part, “any note.”

§ 11-51-201(17). Notwithstanding this broad language, the parties agree that this

definition, like its counterpart under the federal Securities Exchange Act of 1934

(the “1934 Act”), 15 U.S.C. § 78c(a)(10) (2012), is not to be construed literally and

that the family resemblance test adopted in Reves, 494 U.S. at 64–67, should apply

here. We also agree, and an understanding of federal jurisprudence regarding the

definition of a “note” is important to our analysis in this regard.

¶26 Although not itself involving a note, the Supreme Court’s decision in

S.E.C. v. W.J. Howey Co., 328 U.S. 293, 301 (1946), provides the starting point for

13
our discussion. In Howey, the Supreme Court defined an “investment contract”

for purposes of the 1934 Act as a “scheme involv[ing] an investment of money in

a common enterprise with profits to come solely from the efforts of others.” Id.

We adopted the same test, for purposes of the CSA, in Lowery v. Ford Hill

Investment Co., 556 P.2d 1201, 1204–05 (Colo. 1976), noting that although we are

not bound by federal law in construing the CSA, we deem federal authorities

persuasive, given that the provisions and purposes of the CSA parallel those of

federal enactments.

¶27 Thereafter, in People v. Milne, 690 P.2d 829, 833 (Colo. 1984), we appear to

have expanded the application of Howey to financial instruments other than

investment contracts, including “investment notes.” We opined, “The touchstone

of a security is the presence of an investment in a common enterprise that is

premised on a reasonable expectation of profits to be derived from the

entreprenurial [sic] or managerial efforts of others.” Id.

¶28 Notwithstanding our apparent decision to extend the Howey test beyond

investment contracts, federal courts disagreed as to the proper test for determining

whether a note is a security, with the Eighth and D.C. Circuits relying on Howey’s

definition of an investment contract and other courts developing different tests.

Compare Arthur Young & Co. v. Reves, 856 F.2d 52, 54 (8th Cir. 1988) (relying on

Howey’s definition of an investment contract to determine whether the “demand

14
notes” at issue were securities), rev’d sub nom. Reves v. Ernst & Young, 494 U.S. 56

(1990), and Baurer v. Planning Grp., Inc., 669 F.2d 770, 778–79 (D.C. Cir. 1981)

(relying on Howey to conclude that the short-term promissory note at issue was a

security), rejected by Reves v. Ernst & Young, 494 U.S. 56, 64 (1990), with Futura Dev.

Corp. v. Centex Corp., 761 F.2d 33, 40–41 (1st Cir. 1985) (adopting the

“commercial/investment test” to determine whether a note is a security); Union

Planters Nat’l Bank of Memphis v. Commercial Credit Bus. Loans, Inc., 651 F.2d 1174,

1181–82 (6th Cir. 1981) (applying Howey and the so-called “risk capital” test to

determine whether a loan participation was a security); and Exch. Nat’l Bank of

Chicago v. Touche Ross & Co., 544 F.2d 1126, 1137–39 (2d Cir. 1976) (applying the

“family resemblance test” to determine that certain notes were securities).

¶29 In Reves, 494 U.S. at 64–67, the Supreme Court finally resolved this debate.

As an initial matter, the Court declined to expand the Howey test to the context of

notes because, in the Court’s view, “To hold that a ‘note’ is not a ‘security’ unless

it meets a test designed for an entirely different variety of instrument ‘would make

the [federal Securities] Acts’ enumeration of many types of instruments

superfluous’ and would be inconsistent with Congress’ intent to regulate the

entire body of instruments sold as investments.” Id. at 64 (quoting Landreth Timber

Co. v. Landreth, 471 U.S. 681, 692 (1985)).

15
¶30 The Court then proceeded to adopt the so-called “family resemblance test”

for determining whether a note is a security. Id. at 64–65. Under that test, a note

is presumed to be a security unless it fits into one of seven enumerated categories

of non-securities: (1) notes delivered in consumer financing; (2) notes secured by a

mortgage on a home; (3) short-term notes secured by liens on a small business or

some of its assets; (4) notes evidencing a “character” loan to a bank customer;

(5) short-term notes secured by an assignment of accounts receivable; (6) notes that

simply formalize an open-account debt incurred in the ordinary course of

business; or (7) notes evidencing loans by commercial banks for current

operations. Id. at 65.

¶31 The presumption that a note is a security if it does not fit within one of these

seven enumerated categories may be overcome, however, if it bears a “strong

family resemblance” to one of those types of notes. Id. at 66–67. To determine if a

note bears such a resemblance, a court examines four factors:

First, we examine the transaction to assess the motivations that would
prompt a reasonable seller and buyer to enter into it. If the seller’s
purpose is to raise money for the general use of a business enterprise
or to finance substantial investments and the buyer is interested
primarily in the profit the note is expected to generate, the instrument
is likely to be a “security.” If the note is exchanged to facilitate the
purchase and sale of a minor asset or consumer good, to correct for
the seller’s cash-flow difficulties, or to advance some other
commercial or consumer purpose, on the other hand, the note is less
sensibly described as a “security.” Second, we examine the “plan of
distribution” of the instrument to determine whether it is an
instrument in which there is “common trading for speculation or
16
 investment.” Third, we examine the reasonable expectations of the
investing public: The Court will consider instruments to be
“securities” on the basis of such public expectations, even where an
economic analysis of the circumstances of the particular transaction
might suggest that the instruments are not “securities” as used in that
transaction. Finally, we examine whether some factor such as the
existence of another regulatory scheme significantly reduces the risk
of the instrument, thereby rendering application of the Securities Acts
unnecessary.

Id. (citations omitted).

¶32 If an instrument is not sufficiently similar to one of the items on the list, then

the decision as to whether another category should be added is to be made by

examining the same factors. Id. at 67.

¶33 The question thus becomes whether we should overrule Milne, which, as

noted above, appears to have adopted the Howey test for determining whether a

note is a security, and adopt the Reves family resemblance test instead. Cognizant

of the principles of stare decisis, but also recognizing that those principles allow

us to depart from prior precedent when sound reasons exist for doing so, Russell v.

People, 2020 CO 37, ¶ 20, 462 P.3d 1092, 1096, we conclude that we should overrule

Milne and adopt the family resemblance test. We reach this conclusion for several

reasons.

¶34 First, as noted above, section 11-51-101(3) provides that the CSA is to be

coordinated with the federal acts and statutes that it references. As our case law

shows, historically, we have tracked the Supreme Court’s interpretation of parallel

17
provisions of the federal securities laws, see Milne, 690 P.2d at 833–34; Lowery,

556 P.2d at 1204–05, and we perceive no basis for declining to do so here. This is

particularly so given that (1) the definition of a “security” is identical in the CSA

and the 1934 Act and (2) we have previously observed that “insofar as the

provisions and purposes of our statute parallel those of the federal enactments,

such federal authorities are highly persuasive.” Cagle v. Mathers Family Tr., 2013

CO 7, ¶ 19, 295 P.3d 460, 465 (quoting Lowery, 556 P.2d at 1204).

¶35 Second, the statutory definition of “security” in both the 1934 Act and the

CSA includes many different types of financial instruments, including, but not

limited to, notes and investment contracts. See 15 U.S.C. § 78c(a)(10);

§ 11-51-201(17). To apply the Howey test, which deals with the types of investment

contracts that constitute securities, to determine whether any other kind of

financial instrument constitutes a security would render the CSA’s enumeration

of many different types of instruments superfluous. See Reves, 494 U.S. at 64. We,

however, may not do so. See McCoy, ¶ 38, 442 P.3d at 389.

¶36 Third, in our view, the family resemblance test provides an analytical

framework that harmonizes (1) the CSA’s broad definition of a security, which

includes “any note”; (2) federal and state case law recognizing that,

notwithstanding such broad language, some notes are not, in fact, securities; and

(3) the above-referenced purposes to be achieved by the CSA. See § 11-51-101(2);

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§ 11-51-201(17); Lowery, 556 P.2d at 1205 (“The hallmark of state and federal

securities regulation has always been close attention to the facts of each case and

a substantive appraisal of the commercial realities of the offering.”). Specifically,

the family resemblance test takes into account the language of and policy

considerations animating the CSA while providing courts the flexibility to address

the “countless and variable schemes devised by those who seek the use of the

money of others on the promise of profits.” Reves, 494 U.S. at 61 (quoting Howey,

328 U.S. at 299).

¶37 Finally, we note that the clear trend among state courts around the country

is to adopt the family resemblance test for determining whether a note is a security

for purposes of their state securities acts. See, e.g., Silvia v. Sec. Div., 810 N.E.2d

825, 831–32 (Mass. Ct. App. 2004) (replacing the Howey test with the Reves test to

determine whether certain agreements that were akin to promissory notes were

securities under the Massachusetts Uniform Securities Act); State v. Friend, 40 P.3d

436, 439–40 (Nev. 2002) (adopting the family resemblance test for determining

whether a note is a security under the Nevada Uniform Securities Act); cf. State v.

Pedersen, 95 P.3d 385, 388 (Wash. Ct. App. 2004) (applying the family resemblance

test to determine whether certain trust certificates and a loan agreement were

securities under the Securities Act of Washington). Although we, of course, are

not bound by such determinations, we have often found persuasive our sister

19
states’ interpretations of statutes and rules with language similar to our own, and

for the reasons noted above, we do so here. See, e.g., People v. Julien, 47 P.3d 1194,

1198 (Colo. 2002) (considering federal precedent and that of states with judicial

ethics rules similar to Colorado’s in construing the provisions of a parallel

Colorado rule); Showpiece Homes Corp. v. Assurance Co. of Am., 38 P.3d 47, 54–55

(Colo. 2001) (finding persuasive the Washington Supreme Court’s interpretation

of provisions of the Washington Consumer Protection Act in construing the

Colorado Consumer Protection Act because of the similar provisions of those acts).

¶38 For these reasons, we now overrule Milne and adopt the family resemblance

test for determining whether a note is a security within the meaning of the CSA.

We thus turn to the facts before us and consider whether the note at issue was a

security under that test.

¶39 To begin, we observe that the note at issue did not expressly fall within any

of the seven enumerated categories of non-securities because it was neither (1) a

note delivered in consumer financing; (2) a note secured by a mortgage on a home;

(3) a short-term note secured by a lien on a small business or some of its assets;

(4) a note evidencing a “character” loan to a bank customer; (5) a short-term note

secured by an assignment of accounts receivable; (6) a note that simply formalizes

an open-account debt incurred in the ordinary course of business; nor (7) a note

evidencing a loan by a commercial bank for current operations. See Reves, 494 U.S.

20
at 65. Accordingly, we must presume that the note was a security unless it bore a

strong family resemblance to one of the foregoing enumerated types of notes. See

id. at 65–67. To determine whether the note bore such a resemblance, we must

consider the four factors described above. See id. at 66–67. In doing so, we do not

agree with Thompson’s contention that the note at issue bore a strong family

resemblance to a short-term loan secured by a lien on a small business or some of

its assets.

¶40 The first factor of the family resemblance test considers the motivation of

the buyer and seller to enter into the transaction. Id. at 66. Specifically, if the record

demonstrates that the seller’s purpose was to raise money for the general use of a

business enterprise or to finance substantial investments and the buyer’s principal

motivation was to make a profit on the transaction, then the note is likely to be a

security. Id. If, in contrast, the parties entered into the transaction to correct for

the seller’s cash-flow difficulties or advance some other commercial or consumer

purpose, among other things, then the note is less likely to be deemed a security.

Id.

¶41 Here, the record demonstrates that Thompson’s stated motivation in

entering the transaction was (1) to raise money to buy more properties in Timber

Ridge for residential development and (2) to pay a lower interest rate and fees on

the loan than he would have obtained from a different lender. These facts alone

21
tend to undermine Thompson’s suggestion that the note at issue was merely a

short-term loan to cover Timber Canyon’s temporary cash-flow problems. See

Douglass v. Stanger, 2 P.3d 998, 1004 (Wash. Ct. App. 2000) (observing that a note

that “anticipated the purchase of land and development of a substantial shopping

center” was not a “short-term note for a noncommercial purpose,” as a developer

had alleged).

¶42 The Witts, in turn, testified that they agreed to the deal because it was a “no

risk” investment that essentially guaranteed them a substantial profit. Indeed, the

note at issue reflected the primacy of the Witts’ profit motive, as it required

Thompson to repay the $2.4 million in full plus a “profit” of $240,000 and 8%

annual interest. Accordingly, the first factor of the family resemblance test

supports a finding that the note at issue was a security.

¶43 The second factor requires a court to examine the plan of distribution of the

note to determine whether it was an instrument in which there was “common

trading for speculation or investment.” Reves, 494 U.S. at 66 (quoting S.E.C. v. C.M.

Joiner Leasing Corp., 320 U.S. 344, 351 (1943)). This does not mean, however, that

the seller must have had a plan for distribution of the note to a broad segment of

the public. McNabb v. S.E.C., 298 F.3d 1126, 1132 (9th Cir. 2002). To the contrary,

the limited distribution of an instrument like that at issue here “must be weighed

against the purchasing individual’s need for the protection of the securities laws.”

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Id. Thus, even if an investment instrument will not be commonly distributed, it

may contemplate a “speculative venture” that would be deemed to satisfy the

second prong of the family resemblance test. See Douglass, 2 P.3d at 1004; see also

Speculation, Black’s Law Dictionary (11th ed. 2019) (defining “speculation” as

“[t]he buying or selling of something with the expectation of profiting from price

fluctuations”).

¶44 Here, the promissory note and guaranty secured a $2.4 million loan in a real

estate development project that, while allegedly “low risk,” was still a speculative

venture, as its success was contingent on Thompson’s being able to secure

longer-term, permanent financing that would “take out” what was represented to

be the short-term loan and to complete the purchase of the lots that would further

secure the Witts’ investment. We therefore conclude that the second factor

likewise tends to support the conclusion that the note at issue was a security.

¶45 The third factor requires a court to consider the reasonable expectations of

the investing public regarding the character of the note. Reves, 494 U.S. at 66. The

“fundamental essence of a ‘security’ [is] its character as an ‘investment.’” Id. at

68–69. Thus, in deciding whether notes are securities, a court must consider

“whether a reasonable member of the investing public would consider these notes

as investments.” McNabb, 298 F.3d at 1132. “Under this step, we must determine

if the seller of the notes calls them investments and, if so, whether it is reasonable

23
for a prospective purchaser to believe them.” Friend, 40 P.3d at 441; see also

Stoiber v. S.E.C., 161 F.3d 745, 751 (D.C. Cir. 1998) (explaining that when a seller

calls a note an “investment,” it is reasonable for a prospective purchaser to take

the seller at its word, absent indications to the contrary).

¶46 We have little difficulty concluding that a reasonable member of the

investing public would have considered the note at issue to be an investment. In

soliciting the loan, Thompson himself repeatedly referenced the fact that the Witts

were making an “investment.” In addition, he emphasized that he would use the

money from the Witts to purchase additional lots in Timber Ridge. And the note

specified that the Witts not only would be paid back in full, but also would receive

8% interest and $240,000 in “profit.” Because these facts speak to motivations and

business objectives commonly associated with securities, a reasonable member of

the investing public would likely believe that the investment was a security. See

S.E.C. v. Wallenbrock, 313 F.3d 532, 539 (9th Cir. 2002) (noting that the third Reves

factor “is closely related to the first factor—motivation for the transaction—and

thus the considerations discussed vis-à-vis that factor also come into play here”).

¶47 Finally, the fourth factor requires a court to consider the existence of any

other regulatory scheme that significantly reduces the risk of the instrument,

thereby making the application of the securities laws unnecessary. Reves, 494 U.S.

at 67. Thompson contends that because the note was secured by his two personal

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residences, against which the Witts could proceed, this factor weighs in favor of a

finding that the note was not a security. As noted above, however, this purported

collateral was already heavily leveraged, a fact that Thompson never disclosed to

the Witts. In such circumstances, the fact that collateral was provided in name did

not reduce the risk of the investment so as to make the application of the securities

laws unnecessary. See Pedersen, 95 P.3d at 390 (rejecting the defendant’s argument

that the purported collateral significantly reduced the risk of the instrument at

issue when such collateral was unavailable because it “had previously been

assigned to other creditors”).

¶48 Accordingly, consideration of the family resemblance test’s four factors

persuades us that the note at issue was a security.

¶49 In so concluding, we are unconvinced by Thompson’s reliance on Bass v.

Janney Montgomery Scott, Inc., 210 F.3d 577 (6th Cir. 2000). In Bass, a sophisticated

investor agreed to provide financing to a Canadian company that manufactured

golf simulators. Id. at 581. The investor made two loans that “were intended to

serve as ‘bridge loans’ to help [the borrower] meet its operations costs in the period

leading up to the issuance of [the borrower’s] securities in a private placement.”

Id. at 580. The loans were secured by a lien on “virtually all assets” of the borrower

and a related company. Id. at 581. In addition, the investor received a purchase

warrant for the borrower’s stock, as well as a hypothecation and pledge of all of

25
the related company shares held by the borrower and an assignment of a

debenture held by it. Id.

¶50 Ultimately, the private placement failed due to insufficient subscription,

and the borrower defaulted on the bridge loans. Id. at 582. The investor then filed

a civil suit under the 1934 Act and other federal and state securities laws, but the

Sixth Circuit subsequently concluded, as pertinent here, that the notes at issue (as

distinct from the purchase warrant) were not securities. Id. at 585–86. In support

of this determination, the court observed that (1) the first and third Reves factors

were “washouts” because the notes at issue had characteristics of both securities

and non-securities; (2) the plan of distribution tilted against the notes being

securities, given that the transaction was unique and heavily negotiated with a

single buyer; and (3) the extensive collateral securing the notes militated against

deeming them securities. Id.

¶51 Here, it is true that Thompson characterized the Witts’ $2.4 million

investment as a bridge loan with a “guarantee takeout.” The record, however,

demonstrates that Thompson did not, in fact, use the loan as a “bridge loan” is

typically used. “Bridge loans are short-term loans that ordinarily are intended to

meet a company’s capital needs until it is able to obtain long-term financing.”

David J. Kendall, Venture Capital Lending: Usury and Fiduciary Duty Concerns,

33 Colo. Law. 49, 49 (Apr. 2004). Thompson did not solicit the loan for purposes

26
of short-term operational funding for existing operations. Rather, he told the Witts

that he would use the funds to purchase additional lots in the Timber Ridge

project. Moreover, Thompson did not provide the “guarantee takeout” (i.e., the

permanent financing that would be the source of repayment of the Witts’ loan)

that the note required. See 2 Alvin L. Arnold & Myron Kove, Construction and

Development Financing § 5:1 (3d ed. Supp. June 2020) (defining “takeout”). And the

record shows that the Witts entered into the arrangement at issue because it was a

“no risk” investment in additional lots that would make them a profit, not because

it was a stop-gap resource to alleviate Thompson’s momentary cash-flow

difficulties. Lastly, as noted above, the collateral that Thompson allegedly

provided to secure the Witts’ loan was already highly leveraged, unlike the assets

that the borrower in Bass had provided as collateral. See Bass, 210 F.3d at 581, 585.

¶52 For all of these reasons, Bass is distinguishable from the present case, and

we conclude that the division correctly determined that the promissory note

between Thompson and the Witts was a security for purposes of the CSA.

B. Jury Instruction
¶53 Thompson next contends that the division erred in concluding that any error

in the trial court’s instruction regarding the definition of a “security” was not

plain. Although Thompson acknowledges that the law on this issue was unsettled

at the time of trial, he argues that under Mendenhall, ¶ 37, 363 P.3d at 768, the error

27
in the instruction was plain at the time of appeal, and he urges this court to follow

Henderson v. United States, 568 U.S. 266, 273 (2013), and conclude that plain error is

to be assessed at the time of appeal. We need not decide whether plain error

should be assessed at the time of appeal, as opposed to at the time of trial,

however, because we conclude that, at either time, any error was not plain.

¶54 When, as here, a defendant does not object to an asserted error at trial, we

review any such error under the plain error standard. People v. Miller, 113 P.3d

743, 745 (Colo. 2005). Plain error addresses error that is both obvious and

substantial and that so undermined the fundamental fairness of the trial itself as

to cast serious doubt on the reliability of the judgment of conviction. Id. at 750.

An error is obvious when it contravenes a clear statutory command, a well-settled

legal principle, or Colorado case law. Scott v. People, 2017 CO 16, ¶ 16, 390 P.3d

832, 835. “Moreover, an erroneous jury instruction does not normally constitute

plain error where the issue is not contested at trial or where the record contains

overwhelming evidence of the defendant’s guilt.” Miller, 113 P.3d at 750.

¶55 Here, tracking the statutory definition contained in section 11-51-201(17)

almost verbatim, the trial court instructed the jury, in pertinent part:

“Security” means any note . . . or, in general, any interest or
instrument commonly known as a “security,” or any certificate of
interest or participation, temporary or interim certificate for,
guarantee of, or warrant or right to subscribe to or purchase any of
the foregoing.

28
¶56 Although we have now made clear that not every note is, in fact, a security,

Thompson never disputed at trial that the note at issue was a security. He

essentially argued, instead, that he had been honest with the Witts about the

financial condition of his companies and of the Timber Ridge development, the

risks associated with their loan, and his issues with Flagstar Bank and that

therefore he did not commit securities fraud. Moreover, although Thompson did

not expressly refer to the note as a “security,” his counsel referred in her opening

statement to the deal as a “really good investment opportunity,” and she spoke in

both her opening statement and closing argument about the Witts’ “investment”

and the “profit” that they had hoped to make on the loan, all of which tended to

suggest that the note was, in fact, a security.

¶57 Because Thompson never contested at trial that the note at issue was a

security, we cannot say that any error by the trial court in defining the term

“security” so undermined the fundamental fairness of the trial so as to cast serious

doubt on the reliability of the judgment of conviction. And we would reach this

conclusion whether the error were reviewed as of the time of trial or the time of

appeal. Accordingly, we conclude that any such error was not substantial and

therefore was not plain. See People v. Lozano-Ruiz, 2018 CO 86, ¶ 7, 429 P.3d 577,

578 (concluding that the trial court did not plainly err in defining the term “sexual

29
penetration” as it did when the defendant never contested at trial that sexual

penetration had occurred).

C. Sentencing

¶58 Finally, Thompson asserts that the division erred in concluding that because

his convictions were not based on identical evidence, his consecutive sentences on

the securities fraud and theft charges were proper. We are not persuaded.

¶59 Absent legislation to the contrary, sentencing courts in Colorado have

discretion to order sentences for different convictions to be served either

consecutively or concurrently. Schneider v. People, 2016 CO 70, ¶ 22, 382 P.3d 835,

841. When, however, identical evidence supports each of multiple convictions,

then the court must sentence the defendant concurrently, except when multiple

victims are involved, in which case the court may, in its discretion, impose

consecutive sentences. § 18-1-408(3), C.R.S. (2019).

¶60 In construing section 18-1-408(3), we have analyzed identical evidence by

considering whether the acts underlying the convictions were sufficiently

separate. Allman v. People, 2019 CO 78, ¶ 23, 451 P.3d 826, 832. Specifically, we

have said that to decide whether identical evidence supported multiple

convictions, we must “determine if the separate convictions were based on more

than one distinct act and if so, whether those acts were separated by time and

place.” Juhl v. People, 172 P.3d 896, 901 (Colo. 2007). In conducting this analysis,

30
we focus on the evidence that supported the convictions, not on the evidence

necessarily required to prove the elements of those convictions. Id. at 902.

¶61 A trial court loses its discretion to choose between consecutive or concurrent

sentences “only if the evidence supports no other conclusion than that the charges

are based on identical evidence.” People v. Muckle, 107 P.3d 380, 383 (Colo. 2005).

The mere possibility that the jury may have relied on identical evidence in

returning more than one conviction is not alone sufficient to trigger the mandatory

concurrent sentencing provision. Id.

¶62 Here, the prosecution charged Thompson with one count of securities fraud

(untrue statement or material omission), one count of securities fraud (fraud or

deceit), and one count of theft of a thing of value of $20,000 or more. Securities

fraud (untrue statement or material omission) required the prosecution to prove

that Thompson had made an untrue statement of a material fact, or omitted to state

a material fact necessary to make the statements made not misleading, in

connection with the offer, sale, or purchase of any security. § 11-51-501(1)(b).

Securities fraud (fraud or deceit) required the prosecution to prove that in

connection with the offer, sale, or purchase of any security, Thompson had

engaged in “any act, practice, or course of business which operates or would

operate as a fraud or deceit upon any person.” § 11-51-501(1)(c). And the theft

count required the prosecution to prove that Thompson had obtained, retained, or

31
exercised control over anything of value of the Witts’, without authorization or by

threat or deception, and that he had knowingly used, concealed, or abandoned

that thing of value in such a manner as to deprive the Witts permanently of its use

or benefit. § 18-4-401(1)(b).

¶63 On the record before us, we cannot say that the evidence supports no other

conclusion than that these charges were based on identical evidence. With regard

to his securities fraud convictions, Thompson’s statements to the Witts during

their loan negotiations that “no risk” was associated with the loan and his failure

to tell the Witts that (1) Timber Canyon had filed for bankruptcy protection; (2) the

Timber Ridge properties were in foreclosure; and (3) his personal residences were

highly leveraged and thus did not provide sufficient collateral are all evidence of

untrue statements, material omissions, and fraud and deceit in connection with

the offer, sale, or purchase of a security. Thompson’s theft conviction, in contrast,

was supported by the fact that after he had obtained the Witts’ money, Thompson

used that money to pay personal expenses, including making improvements on

one of his two homes, paying off a note on that home, and giving monetary gifts

to his children. The mere fact that the jury could have relied on the statements that

Thompson had made during the loan negotiations to find one of the elements of

the theft count, namely, that Thompson had obtained a thing of value from the

Witts through deception, is not alone sufficient to trigger the mandatory

32
concurrent sentencing provision, given that other, different acts also supported the

theft conviction. See Muckle, 107 P.3d at 383.

¶64 Because distinct acts that occurred at different times supported Thompson’s

securities fraud convictions, on the one hand, and his theft conviction, on the other,

we conclude that the trial court did not err in imposing consecutive sentences for

those convictions.

III. Conclusion

¶65 For the forgoing reasons, we adopt the family resemblance test for

determining whether a note is a security under the CSA, and applying that test

here, we conclude that the note at issue was a security for purposes of the CSA.

We further conclude that because Thompson did not contest at trial the fact that

the note at issue was a security, the trial court did not plainly err in instructing the

jury that a security includes “any note.” Finally, because different evidence

supported Thompson’s convictions for theft and securities fraud, we conclude that

the trial court did not err in ordering consecutive sentences on those counts.

¶66 Accordingly, we affirm the judgment of the division below.

33