A misrepresentation must be material to form the basis of a conviction for mail or securities fraud. For mail fraud, the test is whether the statement has a natural tendency to influence, or is capable of influencing, the addressee's decision. For securities fraud, a statement is material if there is a substantial likelihood that a reasonable investor would consider it important in making a decision.
Defendant and two co-defendants, David Colvin and John Larson, together participated in a fraudulent telemarketing scheme. They falsely represented to potential investors that Medical Advantage operated independent weight loss clinics around the country and had a projected 1997 revenue of $ 8.2 million, and that C. Everett Koop and Tom Brokaw supported or were affiliated with the company. Defendant and his co-defendants falsely represented to potential investors that Lamelli had developed a detoxification system that could detoxify a person of all alcohol or drugs in 15 minutes, that the system had won FDA approval. They falsely represented to potential investors that R.A.C. had generated $ 2.3 million in revenue in 1997 from sales of motor oil, car batteries, and tools, and that the company projected for 1998 revenues of approximately $ 3.5 million. Defendant and his co-defendants told potential investors that they would be investing by means of promissory notes, which would be held in a "trust" for a fixed term of between 90 and 180 days. Instead of holding the invested funds in trust as promised, however, Colvin and others used those funds for the benefit of Colvin, Larson, Defendant, and their associates, and the investors never saw their money again. After a nine-day trial, a jury convicted Defendant on six counts of securities fraud and four counts of mail fraud (vicarious liability conviction), arising out of sales made by other employees of the telemarketing firm. The district court sentenced him to 37 months' imprisonment on each count, with the sentences to run concurrently. Defendant timely appealed.
Was it proper to convict the defendant of mail fraud through vicarious liability?
Reversing the "vicarious liability" conviction but affirming the remaining convictions, the court held that (1) a reasonable factfinder could have found beyond a reasonable doubt that defendant knew of the fraudulent nature of the scheme in which he was participating; (2) there was no evidence that defendant intentionally aided any of his coworkers in committing their own frauds, and, thus, there was insufficient evidence for the jury to convict defendant on an aiding and abetting theory; (3) the district court's instruction that each of the crimes charged required proof that defendant acted "knowingly" was erroneous, but the error was harmless because the district court equated "knowingly" with "willfully," and the definition properly explained "willfully;" (4) the district court's "materiality" instruction, which followed Gaudin, was not an abuse of discretion; (5) the refusal to give defendant's proposed "puffing" instruction was not erroneous; and (6) any misconduct by the prosecutor did not rise to the level of reversible error.
In this case, there was no evidence that Defendant, when generating revenues, intentionally aided any of his coworkers in committing their own frauds, as distinct from making money for himself. Nor did the government present evidence that the money brought in by Defendant was used specifically to support the frauds charged in counts 7, 23, and 24. In the circumstances, there was insufficient evidence for the jury to convict Defendant on these counts based on an aiding and abetting theory.