Opinion
Record No. 0539-90-3
September 29, 1992
FROM THE CIRCUIT COURT OF ROANOKE COUNTY CLIFFORD R. WECKSTEIN, JUDGE.
William C. Cagney (Claire G. Cardwell; Lane Mittendorf, on briefs), for appellant.
John B. Russell, Jr., Assistant Attorney General (Mary Sue Terry, Attorney General; Michael T. Judge, Assistant Attorney General, on brief), for appellee.
Present: Judges Barrow, Elder and Bray.
Argued at Salem, Virginia.
Pursuant to Code § 17-116.010 this opinion is not designated publication.
On February 17, 1987, Donald D. Phau (defendant) was indicted on three counts of securities fraud and, on September 9, 1988, for conspiracy to commit securities fraud, all in violation of the Virginia Securities Act (the Act). A jury convicted defendant of all offenses, and he was sentenced to thirty-five years imprisonment, ten years of which were suspended. Citing numerous errors, defendant appeals those convictions. For the reasons set forth below, we affirm the judgment of the trial court.
Defendant was convicted of (1) the offer and sale of an unregistered security with the intent to defraud in violation of Code §§ 13.1-507 and 13.1-520(A), (2) transacting business as an unregistered securities broker, dealer or agent with the intent to defraud in violation of Code §§ 13.1-504 and 13.1-520(A), (3) the unlawful sale of a security with the intent to defraud in violation of Code §§ 13.1-502 and 13.1-520(A), and (4) conspiracy to commit the unlawful offer and sale of a security with the intent to defraud in violation of Code §§ 18.2-22, 13.1-502 and 13.1-520(A).
The parties are conversant with the record and this memorandum opinion recites only those facts necessary to explain disposition of the issues before the Court.
The evidence disclosed that, "[f]rom 1976 through 1986," defendant "was in charge of day-to-day operations" at the "National Finance Office" (Finance Office) of the "National Caucus of Labor Committees" (NCLC), the "political organization founded by" Lyndon H. LaRouche, Jr. Between 1983 and 1986, defendant also "serv[ed] as Secretary Treasurer of Campaigner Publications, Incorporated" (CPI), one of several "corporate entities" "within" the NCLC. The complete organizational structure of the NCLC was previously examined and detailed by this Court in Ascher v. Commonwealth, 12 Va. App. 1105, 408 S.E.2d 906 (1991), and will not be repeated here.
The NCLC, directly and indirectly, solicited and obtained loans from the general public, evidenced by promissory notes or letters of indebtedness issued by its related corporations. As early as 1984, defendant was aware that loans were being repaid only on a selective basis, "not . . . on time." As "head" of the Finance Office, he requested and "read . . . reports" of noteholder demands and pleas for payment and "hardship cases." From this and other financial information, defendant prepared a weekly "budget" for "loan repayments" which was never sufficient to "cover" the amounts due. Also during this period, defendant "signed" in behalf of the debtor corporations new "notes," despite knowledge that existing loans were then in default.
Defendant's convictions for securities fraud related specifically to transactions involving Dr. Edward G. Allen (Allen). In 1983 and 1984, Allen made several loans to CPI and related entities and received in exchange notes executed by defendant for the borrowers. In 1984, Allen invested in a business venture involving CPI, "the LaFayette/Leesburg Limited Partnership" (the partnership), and, similarly, received a CPI note signed by defendant as its secretary-treasurer. Subsequently, repayment problems developed, and Allen "broke off relations with" the "organization" in 1986.
A federal grand jury investigation into the activities of the NCLC and related corporations began in Boston, Massachusetts in 1984 and resulted in numerous indictments. In 1986, another federal grand jury investigation commenced in Alexandria, Virginia. Defendant, however, was indicted by neither the Boston nor Alexandria grand jury.
We turn first to defendant's argument that his convictions are barred by Code § 19.2-294 because the earlier federal grand jury proceedings arose from the same acts. This issue was recently addressed in Billington v. Commonwealth, 13 Va. App. 341, 412 S.E.2d 461 (1991). Billington, a fund-raiser for the NCLC, was also convicted of securities fraud and conspiracy to commit securities fraud. Id. at 343, 412 S.E.2d at 462. Unlike defendant, however, Billington was indicted by both the Boston and Alexandria federal grand juries. Id. at 343-44, 412 S.E.2d at 462. After an examination of the state and federal offenses subject of the several Billington indictments, we concluded that the acts charged in the Virginia indictments "were not the same acts upon which the federal proceedings were based and, therefore, [the] convictions [were] not barred by Code § 19.2-294." Id. at 342, 412 S.E.2d at 461-62.
Code § 19.2-294 provides that "if the same act be a violation of both a state and a federal statute a prosecution [or proceeding] under the federal statute shall be a bar to a prosecution under the state statute." Effective July 1, 1987, the bracketed language was deleted from Code § 19.2-294. As inBillington, however, we assume, for purposes of this opinion only, "that the language of the statute as it existed prior to the amendment is applicable," and that "a federal grand jury investigation may, under certain circumstances, constitute a `proceeding' within the meaning of this statute." 13 Va. App. at 344 n. 1, 412 S.E.2d at 462 n. 1.
The Commonwealth asserts that defendant waived this claim because the pretrial motions and related exhibits pertaining to Code § 19.2-294 were not made a part of the record on appeal. However, we find that the § 19.2-294 proceedings are properly included with this record.
The acts underlying defendant's convictions in the instant prosecution are likewise distinct from those targeted in the Boston and Alexandria "proceedings." The Boston indictments focused upon wire fraud involving the unauthorized use of credit card accounts, while the Alexandria indictments related to mail fraud. See id. at 346, 412 S.E.2d at 463-64. No transactions with Dr. Allen were subject to federal prosecution.
Nevertheless, defendant contends that the "acts" were the "same" because the federal proceedings "encompassed the total loan debt, and thus all loans, all lenders, and all fundraising participants." However, the "mere fact that evidence of a state crime may be captured in the broad sweep of an inquiry before a federal grand jury does not bar prosecution by the state for that crime." Id. at 347, 412 S.E.2d at 464. There must be "`a step in the process of prosecution, under [a] Federal statute' . . . for the `same act' before Code § 19.2-294 is a bar to a later state prosecution." Id. (quoting Sigmon v. Commonwealth, 200 Va. 258, 268, 105 S.E.2d 171, 179 (1958)). The mere "collection of evidence by a federal grand jury which coincidentally, inadvertently or unavoidably includes evidence of a state crime is not [such] `a step' and does not bar prosecution by the state for that crime." Id. at 347-48, 417 S.E.2d at 464. Thus, we conclude that Code § 19.2-294 did not preclude defendant's prosecution and conviction for the instant offenses.
Defendant further argues that his convictions for securities fraud on the first three counts of the indictment offend the constitutional prohibition against multiple punishments for the same offense. See North Carolina v. Pearce, 395 U.S. 711, 717 (1969). To determine if these offenses are the "same," the "test . . . is `whether each [offense] requires proof of a fact which the other does not.'" Blythe v. Commonwealth, 222 Va. 722, 726, 284 S.E.2d 796, 798 (1981) (quoting Blockburger v. United States, 284 U.S. 299, 304 (1932)). See also Fitzgerald v. Commonwealth, 11 Va. App. 625, 627, 401 S.E.2d 208, 210,aff'd en banc 13 Va. App. 281, 411 S.E.2d 228 (1991). Count one of the indictment required proof of the offer and sale of an unregistered security. Count two required proof that the dealer, broker or agent involved in the transaction was not registered. Count three required proof that fraud occurred in the offer and sale of a security. Thus, each offense required proofs unnecessary to the others, and the three were not the "same."
Defendant's reliance on Grady v. Corbin, 495 U.S. 508 (1990) as support for a contrary result is misplaced. Grady's conductbased test is applicable only to "successive prosecutions" and defendant's convictions occurred in a single trial. Id. at 518;Stevens v. Commonwealth, ___ Va. App. ___, ___, 415 S.E.2d 881, 884 (1992).
Defendant next assigns error to the trial court's denial of his motion to strike on the ground that the promissory notes were not securities as contemplated by the Act. Viewing the evidence in the light most favorable to the Commonwealth and granting to it all reasonable inferences therefrom, Josephs v. Commonwealth, 10 Va. App. 87, 99, 390 S.E.2d 491, 497 (1990) (en banc), we conclude that the evidence was clearly sufficient to find that the notes were securities. See Ascher, 12 Va. App. at 1120-21, 408 S.E.2d at 915-16.
Defendant contends that the trial court improperly instructed the jury on the definition of a "security." At trial, however, defendant "withdr[e]w" his objection to this instruction. An "objection must be timely made and the grounds stated with specificity" in order to be considered on appeal, and defendant's withdrawal of his objection to the instruction bars consideration of this issue. Marlowe v. Commonwealth, 2 Va. App. 619, 621, 347 S.E.2d 167, 168 (1986); Rule 5A:18.
Defendant further complains that the trial court neglected to instruct the jury that knowledge that the notes were securities was an essential element of the offense. This instruction was neither requested by defendant nor refused by the trial court and, thus, defendant again waived his objection. Rule 5A:18.See Martin v. Commonwealth, 11 Va. App. 397, 409, 399 S.E.2d 623, 629 (1990).
Defendant asserts that the securities at issue in counts one, two and three were statutorily exempted from the Act by Code § 13.1-514(B)(15) (former Code § 13.1-514(c)(2)). This statute applies to "[a]ny transaction incident to a right of conversion or a statutory or judicially approved . . . consolidation." Code § 13.1-514(B)(15). The Act "is intended to protect investors from fraudulent sales of securities" and its exemptions must be "narrowly" construed. Pollok v. Commonwealth, 217 Va. 411, 413, 229 S.E.2d 858, 859-60 (1976). Clearly, the transactions in issue were neither "statutory" nor "judicially approved" and, consequently, not included among the exemptions.
Defendant's claim that "the trial court erred in shifting the burden of proof to the defense on this issue" is equally without merit. Code § 13.1-514(C) expressly provides that, "[i]n any proceeding under this chapter, the burden of proving an exemption shall be upon the person claiming it."
Defendant next argues that the trial court erred in permitting an amendment of the indictment at the conclusion of all the evidence. On motion of the Commonwealth's Attorney, the language in count three was revised to read "between the 7th day of March, 1984 and the 28th day of January, 1986," rather than "on or about the 7th day of March, 1984, and on or about the 28th day of January, 1986." Count four was altered to include "the name Gerry Rose as a listed and identified co-conspirator."
Code § 19.2-231 authorizes the trial court to "permit amendment" of an indictment at any time before the jury returns a verdict, provided the "nature or character of the offense charged" remains unchanged. See Willis v. Commonwealth, 10 Va. App. 430, 437, 393 S.E.2d 405, 408 (1990). This statute "is to be liberally construed." Id. See also Cantwell v. Commonwealth, 2 Va. App. 606, 608, 347 S.E.2d 523, 524 (1986).
In the instant case, defendant was advised by the Commonwealth at a pretrial hearing that he was "charged with" a "continuing offense," committed "between the two dates alleged in the indictment." Moreover, after the motion to amend was granted, defendant declined the trial court's offer of a continuance.See Code § 19.2-231. Count four of the original indictment referenced unidentified "others" as co-conspirators, and the addition of "Gerry Rose" did not change the nature or character of this charge. Thus, the amendments complied with statute and visited no surprise or prejudice on defendant.
Notwithstanding the propriety of the amendments, defendant complains that he was not rearraigned following the changes. Again, defendant neglected to present this issue to the trial court, and we are precluded from considering it on appeal. Rule 5A:18. See also Code § 19.2-231.
Lastly, defendant objects to several evidentiary rulings by the trial court. It is well established that both the admissibility of evidence and the "balancing test to determine whether [its] prejudicial effect . . . is greater than its probative value" are matters "submitted to the sound discretion of the trial court, and will not be disturbed on appeal absent a clear abuse of discretion." Wise v. Commonwealth, 6 Va. App. 178, 188, 367 S.E.2d 197, 203 (1988); Evans-Smith v. Commonwealth, 5 Va. App. 188, 196, 361 S.E.2d 436, 441 (1987). We next examine these issues guided by this standard of review.
Defendant claims that the trial court erred in admitting letters from a deceased lender that related the lender's financial plight and sought repayment, and documents submitted to defendant that reported the pleas and demands of other noteholders. These letters and reports were admitted to show that defendant "had notice of repayment problems and complaints," "not to prove the truth or falsity of their content," and, thus, were "not hearsay." Ascher, 12 Va. App. at 1118, 408 S.E.2d at 915. Such knowledge "was a factor which the jury could consider in determining" defendant's "motive or criminal intent." Id. Additionally, the "letters and related testimony . . . tended to prove the conspiracy charge." Id. The evidence was therefore "highly relevant," and its "probative value outweighed any claim of prejudice." Id. at 1119, 408 S.E.2d at 915.
In Ascher, 12 Va. App. at 1118, 408 S.E.2d at 915, this Court ruled that the same letters were admissible.
Defendant next contends that the trial court erred in allowing evidence of the partnership. However, the notes and testimony with respect to the partnership were relevant and admissible because they also tended to prove the conspiracy offense. As earlier noted, defendant's related argument that the trial court erred in "not requiring the Commonwealth to prove non-exemption" of the partnership notes is without merit.
Defendant complains that the trial court improperly excluded both the testimony of Michael Tulloch (Tulloch) and a "Ronald Reagan Congressional Victory Fund" note, each offered to show that defendant did not possess any intent to commit securities fraud. Tulloch was a Texas attorney retained by CDI, yet another entity "within" NCLC, to respond to a letter from the State Corporation Commission that advised that CDI's "investment opportunity may constitute a security."
To be admissible, evidence must be "material to the issues in the case. `Matters which have no logical bearing upon the case are . . . immaterial.'" Evans-Smith, 5 Va. App. at 198, 361 S.E.2d at 442 (quoting C. Friend, The Law of Evidence in Virginia § 134 (2d ed. 1983)). We agree with the trial court that the Tulloch/Victory Fund evidence was remote from any issue before the court and was properly excluded. However, the trial court properly admitted, as material and relevant evidence, a memorandum addressed to defendant from Richard Welsh, whom defendant "referred to . . . on accounting." See Evans-Smith, 5 Va. App. at 196, 361 S.E.2d at 441.
Defendant objects to the exclusion of a federal bankruptcy court opinion, that indicated "that the companies issuing the loans were bankrupted in 1987 by the U.S. Government in . . . bad faith." Although defendant was permitted to testify regarding this bankruptcy, the trial judge ruled that the opinion was irrelevant, cumulative and "confusing and misleading to the trier of fact." Under the circumstances, the trial judge did not abuse his discretion. See id.
Finally, defendant asserts that the cumulative effect of the numerous erroneous evidentiary rulings by the trial court rendered his trial fundamentally unfair. However, defendant once again did not raise this issue before the trial court, and it will not be considered on appeal. Rule 5A:18.
Accordingly, defendant's convictions are affirmed.
Affirmed.