Reckless Security Broker Not a Criminal

The Court of Appeals reversed a conviction for securities fraud today based on the trial court's misleading jury instructions. Shawn Moore was convicted at trial of securities fraud, sale by an unlicensed agent, and pattern of unlawful activity. His defense was that his actions were not "willful."

The trial judge instructed the jury about the mes rea necessary for conviction in three instructions, but the most problematic was Instruction 50. While the judge instructed the jury about willful mens rea in two other instructions, those instructions were also incomplete and did not remedy the problems in Instruction 50.

Instruction 50 - The most problematic instruction

In securities law, salespeople are under a duty to investigate.
A salesperson cannot deliberately ignore that which he has a duty to know and recklessly state facts about matters of which he is ignorant. A salesperson cannot recommend a security unless there is an adequate and reasonable basis for such recommendation. By his recommendation he implies that a reasonable investigation has been made and that his recommendation rests on the conclusions based on such investigation.
Where the salesperson lacks essential information about a security, he should disclose this as well as the risks which arise from his lack of information. A salesperson may not rely blindly upon the issuer of the security for information concerning a company.

This instruction clearly conflates the willful mens rea required by the statute with the much lower reckless mens rea by actually using the word "recklessly." The Court of Appeals also stated that "Nowhere in the applicable statutory framework is there any language akin to Instruction 50 imposing criminal liability for acts amounting to willful blindness or a violation of a duty to know."

Surprisingly, the trial court drew the language for Instruction 50 from an SEC case suspending brokers' licenses. That case held that the standard for the license revocation was much lower than the criminal or even the civil standard.

Interesting Dicta
Judge Davis, who authored the opinion, went on to briefly address certain issues that he thought might arise on remand but that he was not required to reach because the Instruction 50 issue was dispositive. The other judges on the panel disagreed that the issues should be reached and, so, did not join. Nevertheless, his thoughts on the subjects could be helpful. The following are the issues he addressed.

1. In criminal cases, experts cannot offer opinions on whether the defendant possessed a certain mental state.
2. Trial judges must address all the mandatory factors in making a restitution ruling.

2015 UT App 112, http://www.utcourts.gov/opinions/appopin/State v. Moore20150430.pdf