United States v. Taansen Sumeru

NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS FILED
FOR THE NINTH CIRCUIT SEP 07 2011

MOLLY C. DWYER, CLERK
UNITED STATES OF AMERICA, No. 09-50187 U.S. COURT OF APPEALS

Plaintiff - Appellee, D.C. No. 2:05-cr-00121-SJO-1

v.
MEMORANDUM*
TAANSEN FAIRMONT SUMERU, aka
Seal A, David Freeston,

Defendant - Appellant.

UNITED STATES OF AMERICA, No. 09-50209

Plaintiff - Appellee, D.C. No. 2:05-cr-00121-SJO-2

v.

JEROME HAROLD HALL, AKA Jeru
Harold Hall, AKA Seal B,

Defendant - Appellant.

*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Cir. R. 36-3.
 -2-
Appeal from the United States District Court
for the Central District of California
S. James Otero, District Judge, Presiding

Argued and Submitted August 29, 2011
Pasadena, California

Before: ALARCÓN, O’SCANNLAIN, and SILVERMAN, Circuit Judges.

After a joint trial, a jury convicted Jerome Hall and Taansen Sumeru of

seven counts of securities fraud, and aiding and abetting securities fraud, in

violation of 15 U.S.C. §§ 77q(a), 77x and 18 U.S.C. § 2; and seven counts of wire

fraud, and aiding and abetting wire fraud, in violation of 18 U.S.C. §§ 2, 1343.

Sumeru was also convicted of one count of money laundering conspiracy, in

violation of 18 U.S.C. § 1956(h); and two counts of failing to file his income tax

returns, in violation of 26 U.S.C. § 7203. We have jurisdiction over this appeal

pursuant to 28 U.S.C. § 1291, and we affirm in all respects.

I. There Was Sufficient Evidence For A Rational Jury To Conclude
That The Certificates Of Deposit Were Securities.

Viewing the evidence in the light most favorable to the government, a

rational trier of fact could have found that the certificates of deposit offered and

sold by Hall and Sumeru were investment contracts and thus “securities” within the

meaning of the Securities Act of 1933, 15 U.S.C. § 77a et seq. See Hocking v.

Dubois, 885 F.2d 1449, 1455 (9th Cir. 1989) (en banc).
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It is undisputed that Sattva Bank’s investors invested their money in the CDs

with the expectation that their profits would be produced by the efforts of Hall and

Sumeru. The government also presented sufficient evidence for a rational jury to

conclude that there was vertical commonality, and thus a common enterprise,

between Sattva Bank’s investors, on the one hand, and Hall and Sumeru, on the

other hand. The investors’ fortunes were “interwoven with and dependent upon

the efforts and success of those seeking the investment or of third parties.” SEC v.

Glenn W. Turner Enters., Inc., 474 F.2d 476, 482 n.7 (9th Cir. 1973).

Furthermore, where, as here, “an investor’s avoidance of loss depends on the

promoter’s ‘sound management and continued solvency,’ a common enterprise

exists.” SEC v. Eurobond Exch., Ltd., 13 F.3d 1334, 1341 (9th Cir. 1994) (quoting

United States v. Carman, 577 F.2d 556, 563 (9th Cir. 1978)).

We reject Hall and Sumeru’s argument that Marine Bank v. Weaver, 455

U.S. 551 (1982), and its progeny require a contrary result. Just because Hall and

Sumeru characterized Sattva Bank’s products as “CDs” does not mean that they are

in fact genuine CDs, or that they are not subject to the Securities Act. “[T]he name

given to an instrument is not dispositive.” United Housing Found., Inc. v. Forman,

421 U.S. 837, 850 (1975). What matters is “what character the instrument is given

in commerce by the terms of the offer, the plan of distribution, and the economic
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inducements held out to the prospect.” Weaver, 455 U.S. at 556 (internal quotation

marks omitted). Every transaction must be examined based on “the content of the

instruments in question, the purposes intended to be served, and the factual setting

as a whole.” Id. at 560 n.11. Because there was sufficient evidence for a rational

jury to conclude that the CDs offered and sold by Hall and Sumeru were

investment contracts, the district court properly denied Hall and Sumeru’s motion

for judgment of acquittal on the securities fraud counts.1

We also reject Hall and Sumeru’s argument that the CDs at issue were not

subject to the Securities Act under Morrison v. National Australia Bank Ltd., —

U.S. —, 130 S. Ct. 2869 (2010). Morrison concerned the extraterritorial

application of § 10(b) of the Securities Exchange Act of 1934, which prohibits

certain fraudulent conduct “in connection with the purchase or sale” of securities.

15 U.S.C. § 78j(b); Morrison, 130 S. Ct. at 2881-82. Section 77q(a), by contrast,

concerns certain fraudulent conduct “in the offer or sale of any securities.” 15

U.S.C. § 77q(a) (emphasis added). The “offer” of securities is defined to “include

every attempt or offer to dispose of, or solicitation of an offer to buy, a security or

1
Because the government did not rely on a “note” theory at trial, and
because there was sufficient evidence that the CDs were investment contracts, we
decline to address the government’s alternative argument that the CDs offered and
sold by Sumeru were notes, and thus securities, subject to the Securities Act.
 -5-
interest in a security, for value.” 15 U.S.C. § 77b(a)(3). Even assuming that

Morrison’s holding applies to § 77q(a) and prohibits that statute’s extraterritorial

application, there was sufficient evidence for a rational jury to conclude that Hall

and Sumeru made numerous domestic offers of securities by soliciting potential

investors in the United States. Both defendants, for example, met with potential

investors in Santa Barbara, California and solicited potential investors through the

U.S. mail. Given this evidence and the textual difference between § 10(b) of the

Exchange Act and § 77q(a), nothing in Morrison renders the securities fraud

convictions infirm here.

II. The District Court Did Not Commit Structural Error or
Plain Error In Instructing The Jury On The “Securities” Element
Of The Securities Fraud Offense.

When read in context, and considered as a whole, the district court’s

securities fraud instructions were not plainly erroneous, as they informed the jury

of the statutory definition of a security and set forth the correct test for determining

whether an instrument qualifies as an investment contract. Furthermore, the

government presented “strong and convincing evidence” that the CDs were

investment contracts, and thus securities. United States v. Moreland, 622 F.3d

1147, 1167 (9th Cir. 2010) (internal quotation marks omitted). Neither Hall nor

Sumeru disputed this element, or provided any evidence to the contrary at trial, or
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objected to the instruction given. Cf. United States v. Lacy, 119 F.3d 742, 750 (9th

Cir. 1997).

III. The Government’s Theory Of Conviction On The Wire Fraud
Counts Was Legally Sufficient.

The government’s theory of conviction on the wire fraud counts was not, as

Hall and Sumeru contend, legally invalid. The jury was instructed that it could

find Hall and Sumeru guilty of wire fraud on the basis of “actual, direct false

statements,” “half-truths,” or “the knowing concealment of facts.” At trial, the vast

majority of evidence in support of the wire fraud counts involved affirmative,

material misrepresentations. The mere fact that the government argued in closing

that a few pieces of evidence represented material omissions, without also proving

the existence of a trust or fiduciary relationship, does not render the wire fraud

convictions infirm. This is so because “even in the absence of a trust relationship,

a broker cannot affirmatively tell a misleading half-truth about a material fact to a

potential investor.” United States v. Laurienti, 611 F.3d 530, 541 (9th Cir. 2010).

The duty to disclose in such circumstances “arises from the telling of a half-truth,

independent of any responsibilities arising from a trust relationship.” Id. At trial,

the government elicited sufficient evidence for a rational jury to conclude that the

alleged material omissions were actually “half-truths.” For that reason, and
 -7-
because the jury was instructed on a “half-truth” theory, the government was not

required to prove the existence of a trust or fiduciary relationship between the

defendants and Sattva Bank’s investors. There was no risk, as Hall and Sumeru

claim, that the general verdict returned by the jury rested on a legally invalid basis.

IV. The District Court Did Not Commit Plain Error By Giving A
“Deliberate Avoidance” Instruction.

The district court did not plainly err by giving a “deliberate avoidance”

instruction. Given the evidence of Hall and Sumeru’s claimed investment

experience and due diligence, as well as the nature of Sattva Bank’s claims and

financial products, a jury could rationally infer that if the defendants were not

actually aware that the claims they made about the bank’s products were false,

their ignorance resulted from deliberately avoiding the truth. The circumstances

surrounding Sattva Bank’s operation, in short, “would have put any reasonable

person on notice that there was a ‘high probability’ that the undisclosed venture

was illegal.” United States v. Nicholson, 677 F.2d 706, 710 (9th Cir. 1982). There

was therefore no plain error in giving the instruction.

V. There Was Sufficient Evidence For A Rational Jury To Conclude
That Hall Committed Securities Fraud and Wire Fraud.

The government presented evidence that Hall played a major, active, and

integral role in the formation and operation of Sattva Bank. Under his watch,
 -8-
Sattva made numerous false and material misrepresentations to prospective

investors, including that the bank was insured by the International Deposit

Indemnity Corporation, that the CDs would reap returns of up to 200 percent, and

that the bank traded in “high quality investment grade” instruments. The

government also presented evidence that Hall personally made material

misrepresentations to investors, gave investors conflicting excuses when Sattva

Bank could no longer make good on its scheduled interest payments, and falsely

represented that things at the bank “were going very good” after the fraudulent

scheme began to unravel. The government also presented an expert witness who

testified that Sattva Bank displayed numerous “hallmarks of fraud in its operation.”

When considered as a whole, this evidence was sufficient for a rational jury to

conclude that Hall harbored the requisite fraudulent intent. See United States v.

Lothian, 976 F.2d 1257, 1267 (9th Cir. 1992); see also United States v. Sullivan,

522 F.3d 967, 974 (9th Cir. 2008) (per curiam).

VI. There Was Sufficient Evidence For A Rational Jury To Conclude
That Sumeru Committed Money Laundering Conspiracy.

There was sufficient evidence for a rational jury to conclude that Sumeru

conspired to participate in one or more financial transactions involving the

“proceeds of some form of unlawful activity.” 18 U.S.C. §§ 1956 (a), (h). The
 -9-
government’s charging of Sumeru with securities fraud, wire fraud, and money

laundering conspiracy did not, as Sumeru contends, “present a ‘merger’ problem of

the kind that troubled the plurality and concurrence in [United States v. Santos, 553

U.S. 507 (2008)].” United States v. Van Alstyne, 584 F.3d 803, 814 (9th Cir.

2009). The securities fraud counts were primarily premised on the defendants’

mailing of promotional materials, CDs, and account statements and notices, and the

wire fraud counts were premised on several transfers of funds from banks in

California to Sattva Bank’s accounts or to accounts controlled by FIBG. The

money laundering conspiracy count, by contrast, was premised on Sumeru’s

agreement and conspiracy to have the proceeds of Sattva Bank’s illegal activities

transferred to his offshore accounts to fund personal purchases. This conduct was

not a “central component of the ‘scheme to defraud.’” Id. at 815. Nor was it

“central to carrying out the scheme’s objective of encouraging further investment.”

Moreland, 622 F.3d at 1166. Furthermore, the necessity of the transfers was

limited to Sumeru’s “personal interest in veiling the sources of his income from

public authorities.” United States v. Bush, 626 F.3d 527, 538 (9th Cir. 2010).

Taking such extra lengths to conceal completed criminal conduct “is not central to

the solicitations necessary for a Ponzi scheme to continue operating.” Id. We will
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not “endorse a merger rule that would reward criminals for increasing nefarious

behavior by taking additional steps to avoid justice.” Id.

VII. The District Court Did Not Commit Plain Error In Instructing
The Jury On The Money Laundering Conspiracy Count.

The district also did not commit plain error in instructing the jury on the

money laundering conspiracy count. First, the court was not required to define

“proceeds” as “profits” because the “‘merger’ problem of the kind that troubled the

plurality and concurrence in Santos” is not present here, as explained above. See

Van Alstyne, 584 F.3d at 814. Second, when viewed as a whole, the money-

laundering-conspiracy instructions adequately advised the jury of the mental state

required for the offense. See 18 U.S.C. § 1956(c)(1). Although the court gave a

general “knowingly” instruction, it expressly informed the jury that the general

definition did not apply for the money-laundering offense. In its specific money-

laundering instructions, it set forth the statutory text of 18 U.S.C. §§

1956(a)(1)(B)(i) and (a)(2)(B)(i), both of which include an essential requirement

that the defendant know that either the property or funds involved in the

transaction represents some form of unlawful activity. The court then instructed

the jury that the government was required to prove, beyond a reasonable doubt,

that there was “an agreement between two or more persons to commit money
 -11-
laundering” in contravention of at least one of those two statutes, and that Sumeru

“became a member of the conspiracy knowing of at least one of its objects and

intending to help accomplish it.” When considered as a whole, these instructions

properly advised the jury of the requisite knowledge for the money-laundering

count. Furthermore, there was strong and convincing evidence that Sumeru took

pains to conceal Sattva Bank’s activities from securities brokers and government

regulators and thus actually knew that Sattva Bank’s funds represented the

proceeds of illegal activity.

VIII. The District Court Did Not Commit Plain Error In Instructing
The Jury On The Failure-To-File Counts.

The district court’s instructions on the failure-to-file counts were not plainly

erroneous. In instructing the jury that it had to find beyond a reasonable doubt that

Sumeru “acted for the purpose of evading his duty under the tax laws and not as

the result of accident or negligence,” the district court adequately informed the jury

of the mental state required for a violation of 26 U.S.C. § 7203. In order to

establish willfulness, the government is required to prove “the law imposed a duty

on the defendant, that the defendant knew of this duty, and that he voluntarily and

intentionally violated that duty.” Cheek v. United States, 498 U.S. 192, 201

(1991). But a defendant cannot act with the purpose of evading his duty under the
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tax laws without at least knowing of that duty and intending to violate that duty.

There was therefore no plain error in the district court’s instructions.

IX. The District Court Did Not Abuse Its Discretion By Denying
Hall’s Motion To Sever.

The district court did not abuse its discretion by denying Hall’s motion to

sever his trial from Sumeru’s trial because the joint trial was not “so manifestly

prejudicial as to require the trial judge to exercise his discretion in one way, by

ordering a separate trial,” United States v. Abushi, 682 F.2d 1289, 1296 (9th Cir.

1982), and the failure to sever did not “prevent[] [Hall] from obtaining a fair trial,”

United States v. Johnson, 297 F.3d 845, 855 (9th Cir. 2002). Hall and Sumeru’s

defenses were not mutually antagonistic, the evidence of which Hall complains

would have been cross-admissible in separate trials, and any risk of prejudice was

cured by the district court’s frequent use of limiting instructions before, during,

and after the close of evidence at trial.

AFFIRMED.