Summary
The Ninth Circuit affirmed the convictions of Robert Jesenik, Andrew MacRitchie, and Brian Rice arising from the collapse of Aequitas Management LLC. The court rejected challenges concerning omissions and half-truths, materiality, contractual disclaimers, investor reliance, disclosure-based defenses, jury instructions, and the sufficiency of the evidence. Jesenik’s additional conviction for making a false statement on a loan application was also affirmed.
Topics
Practice areas
Questions Presented
- Whether the defendants were improperly convicted under an omissions-only theory of wire fraud without an instruction requiring proof of a special trusting relationship with the victims.
- Whether the evidence was sufficient to support Rice's wire-fraud conviction.
- Whether the district court improperly excluded or limited evidence and argument concerning Private Placement Memoranda, audited financial statements, investor negligence, investor non-reliance, and the defendants' good-faith and disclosure-based defenses.
- Whether contractual disclaimers rendered the defendants' oral statements and marketing materials immaterial in a criminal wire-fraud prosecution.
- Whether the jury instructions adequately stated the law concerning half-truths, materiality, puffing, and the effect of disclosures.
- Whether the government's closing argument that a defendant could not 'disclose your way out of fraud' prejudiced the defendants.
Holdings
- The convictions could stand because the government presented and argued a misrepresentation and misleading-half-truth theory, not an omissions-only theory. Evidence of undisclosed facts was admissible to show that affirmative statements were materially misleading, and the government sufficiently connected the non-disclosures to affirmative representations.
- The district court did not err or abuse its discretion in refusing the defendants' proposed independent-duty and omissions-only instructions because the defendants were charged with misrepresentations and half-truths, and the instructions as a whole fairly stated the law.
- Whether the defendants' statements about Aequitas's financial health were knowingly false statements of fact or merely puffing was properly left to the jury.
- The evidence was sufficient for a rational trier of fact to find Rice guilty beyond a reasonable doubt.
- Contractual disclaimers do not render other representations immaterial in criminal wire-fraud prosecutions, and representations made to accredited or sophisticated investors may still be material.
- The district court properly admitted evidence of investors' reliance on the defendants' representations because reliance, although not an element of wire fraud, is probative of materiality.
- The district court did not prevent the defendants from presenting a complete defense. It properly limited evidence offered to show investor negligence or non-reliance as a defense to materiality, while allowing the defendants to present evidence that the written disclosures were accurate, material, and indicative of good faith.
- The government's statement that one cannot 'disclose your way out of fraud' was not improper or prejudicial, and the court properly rejected an additional proposed half-truth instruction.
Key quotations
“Thus, consistent with other circuits that have addressed the issue, we hold that contractual disclaimers do not render immaterial other representations in criminal wire fraud prosecutions.” (35)
“We find no reason to adopt a different rule in this case, simply because the loans gave rise to promissory notes instead of mortgages.” (38)
“Moreover, the court gave a prompt curative instruction after the challenged statements, and “Jurors are presumed to follow the court’s instructions.”” (43)
Factual background
Aequitas Management LLC raised approximately $346 million from private investors between June 2014 and February 2016 through several investment programs. After Corinthian College defaulted on a major receivables obligation, Aequitas experienced severe liquidity shortfalls, used new investor funds to repay prior investors and fund operating expenses, and continued soliciting investments while its executives knew of the company's financial problems and an SEC investigation. The defendants, former Aequitas executives, were convicted based principally on evidence that they made affirmative statements and misleading half-truths about the use and security of investor funds, Aequitas's financial health, and its investment assets.
Procedural history
After Aequitas Management LLC collapsed and was placed in receivership, Jesenik, MacRitchie, and Rice were indicted in the District of Oregon. Following a six-week joint trial, a jury convicted each defendant of conspiracy to commit mail and wire fraud and 28 counts of wire fraud; Jesenik was also convicted of making a false statement on a loan application, while all defendants were acquitted of conspiracy to commit money laundering. The district court sentenced Jesenik to 168 months, MacRitchie to 70 months, and Rice to 37 months of imprisonment. The Ninth Circuit affirmed the judgments of conviction.