Free Reply to Response - District Court of Colorado - Colorado

Case 1:04-cr-00103-REB

Document 1472

Filed 02/28/2008

Page 1 of 8

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Judge Robert E. Blackburn Criminal Action No. 04-cr-00103-REB-6 UNITED STATES OF AMERICA, Plaintiff, v. 6. Michael Smith, Defendant. ____________________________________________________________________ DEFENDANT MICHAEL SMITH'S REPLY TO GOVERNMENT RESPONSE TO DEFENDANT'S MOTION FOR JUDGMENT OF ACQUITTAL _____________________________________________________________________ Defendant Michael Smith, through his court appointed attorney Richard N. Stuckey, respectfully submits the following Reply to the Government Response (Doc. 1287) to Defendant Smith's Motion for a Judgment of Acquittal (Doc. 1257). Defendant Smith, through prior counsel Declan O'Donnell, filed a written Motion for Judgment of Acquittal on June 5, 2007, following the trial in this matter. The government filed its Response to the Motion for Judgment of Acquittal on June 21, 2007. Attorney O'Donnell then filed a Motion for Leave to File a Reply Brief and Request for Oral Argument (Doc. 1305) on June 27, 2007. The Court granted the request to file a reply to the Government Response and denied the request for oral argument by order on January 30, 2008 (Doc. 1451). Present defense counsel is well aware that the Court denied a Rule 29 Motion for Judgment of Acquittal made by Defendant Smith at the conclusion of the government's

Case 1:04-cr-00103-REB

Document 1472

Filed 02/28/2008

Page 2 of 8

case on May 9, 2007 (Doc. 1196, Courtroom Minutes, page 4). Counsel is also aware that the Court allowed second motions for judgment of acquittal and argument on the same at the conclusion of all the evidence, and denied those motions, including one by Defendant Smith, on May 10, 2007 (Doc. 1197, page 1-2). In response to prior attorney O'Donnell's Motion for Judgment of Acquittal, the government argues that there are "two bases" to support the jury's convictions of Defendant Smith on Counts 23, 26 and 27 (page 5-7 of Government Response): 1. The government states that first the jury could have arrived at its verdict of guilty on the three counts in question by finding Defendant Smith was a knowing participant in the scheme to defraud investors, that he knew the investments were securities, that he was aware of the prior convictions of Schmidt and Lewis, that he was aware that funds were misused based on the transfers of money from Schmidt to Spokane, and that he was aware that there was no insurance. 2. Defendant Smith, as stated in his Motion for Judgment of Acquittal, and as he testified, denied categorically that he knew that the investment program was a scheme (a scheme with no trades and no insurance) and denied that he was any kind of a participant in it, being an investor himself. He therefore denies the assertion of the government as stated above that these five factors together could have been any basis for a jury verdict on the three counts in question. The not guilty verdicts on Counts 35 and 39, which charged money laundering transactions from Schmidt in Denver to Smith in Spokane, especially reinforce that Smith did not know Schmidt was misusing funds. 3. Interestingly, however, the government then recites authority in its response at paragraph 13, page 6-7, that the government need not prove every allegation of fraud

Case 1:04-cr-00103-REB

Document 1472

Filed 02/28/2008

Page 3 of 8

and that proof of one of the allegations is sufficient for a guilty verdict. This argument, which the defense does not dispute, parallels and mirrors the very argument made by Defendant Smith in his Sentencing Statement (Doc. No. 1314) that the basis for the three count guilty verdict was that Defendant Smith only failed to tell the named victims in Counts 23, 26 and 27 about the Nebraska Cease and Desist Order, and that this conclusion is borne out by the overall verdict of the jury. It is noted that the conclusion that since the government need not prove all the fraud allegations (and obviously did not, as shown by the overall verdict) negates the government argument on loss. That government argument on loss is that Defendant Smith was somehow convicted of all the allegations of the overall scheme and thus all the money invested from the first date of conviction to the end of the scheme was therefore reasonably foreseeable relevant conduct. Defendant Smith vigorously disputes this argument, and that issue will be dealt with during the sentencing procedure. It is only noted here that the government's positions on sufficiency of evidence regarding the Motion for Judgment of Acquittal, and on the loss issue for sentencing, are totally inconsistent. 4. Indeed, the government recognized in its Sentencing Statement (Doc. 1291) that the three verdicts against Defendant Smith clearly rested on the jury finding that Smith either failed to disclose to the victims alleged in those three counts that CoDefendant Charles Lewis had a prior conviction and/or that Nebraska had issued a Cease and Desist Order. This, as stated, was certainly the basis for the jury finding against Defendant Smith on those three counts, and nothing in those guilty verdicts show that the jury found Smith liable for any joint criminal activity, nor do those three verdicts somehow show the five points on which the government rests its first response

Case 1:04-cr-00103-REB

Document 1472

Filed 02/28/2008

Page 4 of 8

to the Motion for Judgment of Acquittal. 5. The government's second argument in response to the Motion for Judgment of Acquittal is that "aiding and abetting" could be a basis for the jury's three count guilty verdict. This argument still requires that the jury would have to have found that Defendant Smith was a knowing participant in the overall fraud scheme, and as already argued, he was not, because he had no knowledge of the lack of trading, the lack of insurance, or the misuse of funds by Norman Schmidt. 6. Then the government states that Defendant Smith's claim that the jury verdicts on conspiracy (not guilty) and the three securities fraud counts (guilty) are inconsistent is a faulty argument because the elements of those offenses are different (which they are). The government states: Defendant Smith's suggestion that the Second Superseding Indictment's incorporation of previous factual allegations from the conspiracy charge into the securities fraud charges somehow equates to the incorporation of the elements of conspiracy into the securities fraud charges is fanciful. (Government Response, paragraph 17, page 9, footnote omitted). Interestingly, this "fanciful" argument is the same one made by the government at paragraph 38 of its Sentencing Statement regarding loss. Although the government in its Sentencing Statement states that its rationale for including all investment monies in a loss calculation is reasonable foreseeable relevant conduct under Sentencing Guideline 1B1.3 (which of course Defendant Smith has disputed), the government also clearly argues that Defendant Smith's securities fraud count convictions "demonstrate that [Smith] . . . had joined the conspiracy and/or scheme charged in the indictment." So on the one hand, the government states that it is "fanciful" to argue that the conspiracy and

Case 1:04-cr-00103-REB

Document 1472

Filed 02/28/2008

Page 5 of 8

securities charges "equate," and on the other hand, for sentencing purposes, they argue that the securities convictions show an incorporation of the conspiracy count of which Defendant Smith was acquitted. 7. And the government argues that Defendant Smith's argument regarding his reliance on good faith and the advice of counsel is merely a request for the Court to reweigh the evidence regarding that issue. But as argued in the original attorney O'Donnell Motion for a Judgment of Acquittal, paragraphs 9-20, pages 7-12, the evidence relating to Defendant Smith's good faith and his reliance on counsel are substantial grounds on which a granting of the Motion for Judgment of Acquittal might now be based. 8. Defendant Smith is entitled to judgment of acquittal as a matter of law because no rational trier of fact could have found that he intentionally violated the securities laws with which he was charged. Absent intent, he must be acquitted, regardless of whether other essential elements of the offenses were proven. 9. At trial, non-controverted testimonial and documentary evidence was introduced showing that Defendant Smith fully relied on the written opinion of legal counsel he sought out. Specifically, evidence shows that Defendant Smith first initiated contact with Attorney Gary Herbert to seek his legal opinion concerning matters pertaining to Capital Holdings. See Michael Smith Defense Exhibits 2, 3 & 4, and Transcript of Direct Examination of Michael Smith, page 27 beginning at line 18 through and including page 37, line 5. 10. Evidence also showed that Attorney Herbert subsequently contacted Attorney Norman Sirak who provided a written legal opinion and granted permission for

Case 1:04-cr-00103-REB

Document 1472

Filed 02/28/2008

Page 6 of 8

Defendant Smith and others to use his opinion. That written opinion advised Defendant Smith that "funds deposited in Monarch Capital Custodial Accounts are not securities." See Michael Smith Defense Exhibit 4. Once he received a copy of Attorney Sirak's opinion, Defendant Smith felt reassured that he was not acting in any manner that would run afoul of federal securities laws as to any of Norman Schmidt's investment programs, since they all operated just like Monarch. Moreover, he completely believed in good faith that Mr. Sirak's opinion was a true and accurate legal opinion on which he could rely. 11. United States v. Wenger, 427 F.3d 840, 853 (10th Cir. 2005), cert. denied 126 S.Ct. 2950 (2006), cited in attorney O'Donnell's Motion for Judgment of Acquittal at page 8, held that good faith reliance on the advice of counsel is a defense to the mens rea element of a criminal securities fraud prosecution. Under Wenger, to establish a defense of good faith reliance on counsel, Defendant Smith only needed to show the following: (1) that he requested advice from counsel on the legality of a proposed action, (2) that he fully disclosed the relevant facts to counsel, (3) that he received advice from counsel that the action to be taken will be legal, and (4) that he relied in good faith on counsel's advice. As stated, the evidence showed that Mr. Smith satisfied each element and acted accordingly afterward. 12. Jury Instruction 37 plainly instructed that the "good faith" of a defendant is a complete defense to the securities fraud charges. The government did not introduce satisfactory evidence that contradicted the evidence upon which Defendant Smith relied as to the legality of his conduct. Defendant Smith was not an attorney or skilled in the law. Nonetheless, he still met the prerequisites establishing his reliance on counsel

Case 1:04-cr-00103-REB

Document 1472

Filed 02/28/2008

Page 7 of 8

defense. The evidence showed his good faith effort to seek out legal counsel for opinion or advice concerning Norman Schmidt's programs, full disclosure of the relevant facts (which the attorneys already presumably had), and then relying on the advice afterwards. This showing of good faith reliance on an attorney's advice should now compel a ruling that there was insufficient evidence on the three securities fraud counts on which Defendant Smith was convicted. WHEREFORE Defendant Michael Smith respectfully requests that the Court enter a judgment of acquittal notwithstanding the jury's verdicts of guilty on Counts 23, 26 and 27.

Dated: February 28, 2008.

Respectfully submitted,

s/ Richard N. Stuckey Richard N. Stuckey Richard N. Stuckey, Attorney at Law, PC 1801 Broadway, Suite 1100 Denver, CO 80202 Telephone: 303-292-0110 Fax: 303-292-0522 E-mail [email protected] Attorney for Defendant Michael Smith

CERTIFICATE OF SERVICE I hereby certify that on February 28, 2008, I electronically filed the foregoing with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses: Matthew T. Kirsch, AUSA Wyatt Angelo, AUSA [email protected]

[email protected]

Case 1:04-cr-00103-REB

Document 1472

Filed 02/28/2008

Page 8 of 8

Peter Bornstein, Esq.

[email protected]

Thomas Hammond, Esq. [email protected] Thomas Goodreid, Esq. [email protected] Ron Gainor, Esq. gains_2000@hotmailcom

Paula M. Ray [email protected]

s/ Richard N. Stuckey Richard N. Stuckey Richard N. Stuckey, Attorney at Law, PC 1801 Broadway, Suite 1100 Denver, CO 80202 Telephone: 303-292-0110 Fax: 303-292-0522 E-mail: [email protected] Attorney for Defendant Michael Smith