PEOPLE v. STEWART (1986)

In this case we hold:  (1) it was harmless error for the court to decide certain financial transactions were securities as a matter of law;  (2) in order for a defendant to claim a good faith defense to securities violations under Corporations Code section 25700,¹ he or she must present evidence of an explicit written approval by the Department of Corporations as to the charged activity;  (3) specific intent is not an element of the crimes of violating sections 25401 (sale of or offer to sell securities by means of a material misrepresentation or omission) and 25541 (use of a scheme, device or artifice to defraud in connection with a sale of or offer to sell securities);  and (4) when a defendant is charged with the crime of making a material misrepresentation or omission in connection with a security sale or offer in violation of section 25401, and evidence is presented of more than one such statement or omission, the trial court must instruct the jury that it must agree there is proof beyond a reasonable doubt as to the same misrepresentation or omission, but this instruction is inappropriate with respect to charges of securities fraud under section 25541 when there is only one scheme charged or with respect to the sale of unqualified securities in violation of section 25110 (sale of or offer to sell unqualified securities) when there is only one sale per victim charged.

Douglas Gregor Stewart was charged with 23 counts of violating section 25401, 23 counts of violating section 25110 and a single count of violating section 25541.   The jury found Stewart guilty of counts submitted to it.²  We affirm in part and reverse in part.

I.

D.G. Stewart, Inc. (DGS), acquired an interest in a company named Nichols Placer (NP) in Spring 1980.   NP, which leased mining equipment and services to mining developers, was started by Joseph Nichols and his sons in 1979.

Nichols and DGS also entered into a joint venture agreement with three other men to develop the Seneca Gold Mining Company (Seneca) in June 1980.   DGS retained a 50 percent interest in Seneca and the others held the rest.   The joint venture agreement provided that DGS would supply the capital to develop the mine and the other partners were to “operate” it.   The agreement contemplated DGS would be paid back when the mine went into production or was sold, or when a public stock company was formed to develop the mine.   At approximately the same time Nichols assigned to DGS, in return for $1,750,000, the right to make invoices for the equipment NP leased to and the work NP did for Seneca.

The three other partners terminated their relationship with Seneca in March 1981, leaving DGS and Nichols as the only remaining partners, equally sharing the equity.   Between 1980 and 1982, DGS put approximately $4 million into the development of Seneca.   DGS was the sole source of funds for Seneca throughout 1982.   The money was used to pay miners' salaries, to lease equipment, and for other operating expenses.   In 1981 and 1982 due to a number of setbacks, such as mine cave-ins, Seneca failed to produce any gold, other than samples.   Nichols told Stewart that if he did not keep putting more money into the mine he would lose all of his investment up to that point.

Stewart and Nichols explored many avenues to obtain financing for Seneca.   They hired Victor DiSuvero, President of Rand Financial Corporation, to raise capital for the mining project, but DiSuvero was unable to do so.   From Nichols' testimony it can be inferred that the right to draw up invoices which he assigned to DGS was part of the general plan to raise capital for the mine.   Nichols regularly sent a detailed, written list of his expenditures on the mine to Stewart.

During this time, Stewart ran a “factoring” business through DGS.   Factoring involves buying accounts receivable for cash at a discount from companies to which the money is owed and reselling the receivables to investors at a higher price, but one which remained below the face amount of the accounts receivable.

In late Fall 1981, Francis Driscoll heard about Stewart's factoring business from DiSuvero.   In early 1982, Driscoll contacted Stewart about his factoring business because Driscoll had a client with a substantial amount of money to invest for a short period of time.   Stewart told Driscoll that “he would be prepared to take money for the purchase of prime paper,” which Stewart referred to as the debt obligations of such companies as Pacific Telephone (Pac Tel), Crown Zellerbach, and Pacific Gas and Electric (PG & E).   Stewart explained he bought these 30-day obligations at 92 percent of their face value and would sell them to investors at 96 percent.   If the accounts were not paid by the end of the 30-day period, DGS would redeem them at face value in an additional 21 days.   If the debts were timely paid, the investors could roll-over the entire amount at the end of the 30 days, roll-over just the principal and withdraw the interest, or withdraw the entire amount.

Stewart told Driscoll DGS was doing business in excess of $4 million a month and had never had an account receivable fail to pay off.   He also said there was no need for licensing because the transaction was simply an option to repurchase by him.   Driscoll informed Stewart he would be investing money on behalf of his clients, and Stewart expressed a preference to deal with “institutional investors” like Driscoll rather than individuals for bookkeeping reasons.

In February 1982, Frank Leonesio, a certified financial planner, also began channeling investor funds into Stewart's factoring business.   Throughout January and February 1982, Stewart made representations to Leonesio which were similar to those made to Driscoll.

Both Driscoll and Leonesio stated at trial that they passed on to their clients the information Stewart gave them.   Those clients confirmed the information both men claimed to have given to them, and in addition, testified they invested a substantial amount of money in reliance on that information and lost the entire principal without ever realizing any gain.

In May 1982, when Driscoll began receiving invoices showing accounts receivable from Seneca Gold Mining Company instead of the “prime companies” originally discussed, he called DGS.   Bill Davis, Stewart's assistant at DGS, told him the “Stewart organization considered that the paper was better [than the prime companies] since the Stewart organization had an equity position in the gold mining company and would, in fact, be able to guarantee the payments.”   Because he was satisfied with Davis' explanation, Driscoll did not pass on the information to his clients.

Two DGS employees testified about DGS business operations.   Sylvia Bagley handled the “single invoice” accounts.   She matched “invoices” (i.e., accounts receivable) with individual investors according to the face amount of the invoice and the amount of investment, and she kept track of roll-over dates.   The invoices included debt obligations from Seneca/NP, Lodestar Mine Development Group/Rand Financial Corporation, and Western American Graphics (art prints).   She was not aware of any Pac Tel or Crown Zellerbach invoices at DGS, but did know DGS held PG & E invoices although she never assigned one to an investor.

Bagley received blank invoices on Seneca, Lodestar, and the art prints on which she could type any amount without limit, except that there was a certain aggregate amount for each company which she could not exceed.   At Stewart's direction, Bagley assigned the same invoices over and over to different investors whether or not they had been paid by the debtor company.   Stewart told Bagley he intended to ultimately pay off the investors by getting financing on the mines.

Davis testified the primary source of funds at DGS was the investors and the only way to pay the old investors was with the money obtained from new investors.   He also testified that investor money went into the development of Seneca.   All the factoring funds were deposited in the same “factoring” account.

Davis' job in 1982 was to keep peace among the investors and forestall legal action because there was no money to pay off the investors' interest due to the lack of gold production at Seneca.   Davis was also in charge of marketing the art prints, which were owned by Stewart or DGS and which Davis described as being unframed and in “terrible condition ․ laying all over the floor and they were scattered rather loosely.”   The prints remained unsold during the time he worked at DGS.   Stewart told Davis he would repay his investors when the mine went into production.

In Fall 1982, Driscoll and Leonesio learned that DGS had filed for bankruptcy.   None of their clients were able to regain the principal they invested in the invoices.

In May 1984, Stewart was convicted of 45 counts of corporate securities violations, along with several enhancements.

II.

Stewart alternatively argues:  (1) the court should have submitted the question of whether the accounts receivable were securities to the jury;  and (2) if the court had authority to decide the issue as a matter of law, it incorrectly concluded the accounts receivable were securities.

 Recently, the California Supreme Court held the question of whether financial transactions constitute a security within the meaning of section 25019 ³ is a question of fact for the jury to decide.  (People v. Figueroa (1986) 41 Cal.3d 714, 224 Cal.Rptr. 719, 715 P.2d 680.)   The Figueroa court further held any instruction which informs the jury that the financial transaction at issue is a “security” as a matter of law is erroneous regardless of the strength of the prosecution's evidence or the defendant's failure to seriously dispute the “security” element of the offense.  (Id., at p. 733, 224 Cal.Rptr. 719, 715 P.2d 680;  emphasis added.) ⁴

The trial court in the present case erroneously instructed the jury that the accounts receivable Stewart sold through Driscoll and Leonesio constituted securities as a matter of law.   Under Figueroa, the court's erroneous instruction deprived Stewart of his due process rights and his right to a jury trial on the issue of whether the accounts receivable fell within the prohibitions of the Securities Act.

Next we must decide the prejudicial effect of the court's erroneous instruction.   In Figueroa, the court suggested in a footnote that an instructional error of this type does not require automatic reversal.   “[I]nstructions like the one given here may not always constitute prejudicial error.   While reversal of the judgment for the error discussed in Part II of this opinion renders it unnecessary to decide what standard of prejudice should be used to assess the trial court's instruction, today's opinion should not be read as compelling a reversal in every case in which similar instructions were given.  (Cf. People v. Garcia, supra, 36 Cal.3d at pp. 550–557 [205 Cal.Rptr. 265, 684 P.2d 826].)”  (People v. Figueroa, supra, 41 Cal.3d at p. 734, fn. 24, 224 Cal.Rptr. 719, 715 P.2d 680.)

 The court's reference to People v. Garcia (1984) 36 Cal.3d 539, 205 Cal.Rptr. 265, 684 P.2d 826, implies the proper standard of prejudice is reversible error per se, with four exceptions:  (1) “if the erroneous instruction was given in connection with an offense for which the defendant was acquitted and if the instruction had no bearing on the offenses for which he was convicted” (Connecticut v. Johnson (1982) 460 U.S. 73, 87, 103 S.Ct. 969, 977, 74 L.Ed.2d 823);  (2) “if the defendant conceded the issue of intent” (Ibid.);  (3) where “it is possible to determine that although [the] instruction was erroneously omitted, the factual question posed by the omitted instruction was necessarily resolved adversely to the defendant under other, properly given instructions ․ in another context” (People v. Sedeno (1974) 10 Cal.3d 703, 721, 112 Cal.Rptr. 1, 518 P.2d 913, disapproved on other grounds in People v. Flannel (1979) 25 Cal.3d 668, 684–685, 160 Cal.Rptr. 84, 603 P.2d 1);  and (4) when “the parties recognized that [the element] was in issue, presented all evidence at their command on that issue, and in which the record not only established the [element] as a matter of law but shows the contrary evidence not worthy of consideration.”  (People v. Cantrell (1973) 8 Cal.3d 672, 685, 105 Cal.Rptr. 792, 504 P.2d 1256, disapproved on other grounds in People v. Flannel, supra, 25 Cal.3d at pp. 684–685, 160 Cal.Rptr. 84, 603 P.2d 1;  People v. Thornton (1974) 11 Cal.3d 738, 114 Cal.Rptr. 467, 523 P.2d 267, disapproved on other grounds in People v. Flannel, supra, 25 Cal.3d at p. 684, 160 Cal.Rptr. 84, 603 P.2d 1.)

In Garcia, the trial court neglected to instruct the jury it must find the defendant intended to kill the victim in order to convict the defendant of felony-murder with special circumstances enabling the state to impose the death penalty.   This omission allowed the jury to convict Garcia of the charged offense without considering the intent element of that offense.

In the process of articulating a standard of prejudice, the Garcia court grappled with the ambivalence of the United States Supreme Court in Connecticut v. Johnson, supra, 460 U.S. 73, 103 S.Ct. 969.   In Johnson, the United States Supreme Court evenly divided on the question of whether instructional error which shifts the burden of persuasion to the defendant on an essential element of the charged offense can ever be harmless error.⁵  Although the Johnson court did not actually decide whether an erroneous instruction which completely removed an essential element of the charged offense from the jury could ever be harmless error, the Garcia court anticipated that “at least eight justices of the United States Supreme Court (all except Justice Stevens, who took no position on the issue) agree that a jury instruction which does take an issue completely from the jury is reversible per se.”  (People v. Garcia, supra, 36 Cal.3d at p. 554, 205 Cal.Rptr. 265, 684 P.2d 826.)

But even the United States Supreme Court established two exceptions to the reversible error per se rule.  (See ante, at pp. 280–281.)   Taking the lead from the high court, the Garcia court added two more exceptions, the Sedeno and Cantrell-Thornton exceptions.  (See ante, at pp. 280–281.)   These added exceptions are analogous to, and in some ways appear to be specific instances of, the harmless error rule.⁶

We are bound by the Garcia rule until further resolution by the United States Supreme Court.   The first three exceptions do not apply to the present case.   Stewart was not acquitted of any of the charged offenses and the erroneous instruction directly affected each charge.   Stewart never conceded the financial transactions at issue were sales of securities.   Finally, the factual issue of whether the transactions at issue involved securities was not resolved or considered by the jury.

The Cantrell-Thornton exception, however, has special significance to Figueroa-type error.  “[T]here may be no unfairness in assuming—for purposes of appeal and subject to the filing of a petition for writ of habeas corpus containing allegations to the contrary—that the record as made is no different from the record that would have been made” had the parties known the jury, rather than the judge, would decide whether the transactions at issue were in fact securities.  (People v. Croy (1985) 41 Cal.3d 1, 14, 221 Cal.Rptr. 592, 710 P.2d 392, fn. omitted.)   In either case the defendant has substantial incentive to offer into evidence anything which would take the transaction outside the definition of “securities.”   Likewise, the prosecution had substantial incentive to produce contrary evidence.

Furthermore, the unique nature of a “security” makes the issue of its identification particularly well-suited for examination under the Cantrell-Thornton exception.   A security is a creation of the law.   Its existence is a question of fact, but establishing its existence is not like establishing the existence of cars, weapons or people.   The kind of evidence presented on the “security” issue is not typically the type which turns on credibility of witnesses, as in most crimes where the identity or intent of the perpetrator is at issue.   The evidence mostly comes in the form of papers, bank accounts and contracts.   Such evidence lends itself to reliable review by an appellate court.

Courts traditionally have been vested with the discretion to see that both society and the defendant are treated fairly.   In this regard, realizing that no perfect trial has yet been held, Chapman v. California, supra, 386 U.S. 18, 87 S.Ct. 824, recognizes that in the context of an entire trial, some errors have little, if any, likelihood of affecting the jury's verdict.   This is such a case.   No reasonable juror rationally could have concluded the financial transactions Stewart engaged in did not constitute securities given the test for “securities” under California law.⁷  There can be no doubt that the accounts receivable “form” of the transactions at issue was merely a facade for the attraction of risk capital to develop the Seneca Gold Mine.

 The test traditionally employed by California courts in assessing whether a transaction is a security is the “risk capital” test.  (People v. Figueroa, supra, 41 Cal.3d at p. 736, 224 Cal.Rptr. 719, 715 P.2d 680;  see also People v. Schock (1984) 152 Cal.App.3d 379, 385, 199 Cal.Rptr. 327.)   This test has been refined to require consideration of the following factors:  (1) funds are raised for a business venture or enterprise (Ibid.);  (2) transaction is indiscriminately offered to the public at large (Ibid.);  (3) investors are substantially powerless to affect the success of the enterprise (People v. Coster (1984) 151 Cal.App.3d 1188, 1194, 199 Cal.Rptr. 253);  and (4) investors' money is substantially at risk because it is inadequately secured.  (Hamilton Jewelers v. Department of Corporations (1974) 37 Cal.App.3d 330, 336, 112 Cal.Rptr. 387.)

 DGS provided $4 million for the development of Seneca over approximately two years.   The primary source of funds for DGS at that time was investor money.   The invoices were a sham.   They were randomly drawn up according to the amount an investor wanted to invest and were reused without regard to being paid in full.   None of the debtor companies had ever produced any income with which to pay off the debts, yet Stewart represented them as “prime companies.”

Stewart sold these securities to the general public.   He offered an opportunity to numerous anonymous investors, through Driscoll and Leonesio, to provide capital to Seneca.   Furthermore, those investors were passive.   They had no “power to affect the success of the enterprise.”   There was no evidence presented at trial that any of the investors participated in the operation or management of DGS, Seneca, Lodestar, or the art prints.

Finally, there was substantial risk involved because inadequate collateral was provided to guarantee the investments if the mines did not produce.   Stewart's representation that DGS would guarantee the invoices is irrelevant to the risk factor because the invoices were a sham and there was no money in DGS with which to make payments without production from the mine.

In addition, the evidence offered by Stewart is not worthy of consideration.   Most of the evidence Stewart presented related to his reputation for honesty, to Davis' reputation for dishonesty and unreliability, and to Stewart's honest belief that the Department of Corporations had exempted the DGS single invoice transactions from a qualification requirement.   None of Stewart's evidence placed in doubt or contradicted the prosecution's evidence that the investors' money was used to develop the gold mines and that the investors would not be able to recover their investments unless the mines went into production or were refinanced, or DGS stayed solvent.   Thus although Stewart never actually conceded the accounts receivable were securities, he made no effort to dispute that they were.

 Stewart also argues the investment contracts themselves show the investors were not “passive” because they could exercise their option to rescind the sale within three days of purchase.   Exercise of a contractual right to rescind an agreement, however, does not constitute “substantial power to affect the success of the enterprise.”   There must be some indication an investor's “success requires professional or managerial skill on his part, and he has the authority corresponding with his responsibility․   When he is relatively uninformed and unskilled and then turns his money over to others, essentially depending upon their representations and their honesty and skill in managing it, the transaction is an investment contract.”  (People v. Coster, supra, 151 Cal.App.3d at p. 1194, 199 Cal.Rptr. 253.)

III.

Stewart next argues the trial court erroneously excluded his attorneys' testimony for two reasons:  (1) it was relevant to support his defense that the Department of Corporations implicitly approved the transactions at issue;  and (2) it was relevant to his mistake of fact defense.⁸

Section 25700 provides a defense to Corporations Code violations whenever a defendant acts “in good faith in conformity with any rule, form, permit, order, or written interpretive opinion of the [Department of Corporations] commissioner, or any such opinion of the Attorney General ․”   Stewart sought to take advantage of this statutory defense by proving the Department of Corporations inspected the entire business operations of DGS for the purpose of finding Corporations Code violations and then issued a desist and refrain order for only one part of the business.⁹  Stewart contends in such situations the Department's desist and refrain order tacitly approves the other parts of defendant's business within the meaning of section 25700.

Section 25700 by its own terms applies only to written documents.   A commentary to the Corporate Securities Law of 1968 (Corp.Code, § 25000 et seq.) identified the source of section 25700 as the Uniform Securities Act (USA) section 412, subdivision (e).¹⁰  (1A Marsh & Volk, Practice Under the Cal. Securities Laws (1971), Commentary, App. A–1, p. 641.)   The USA does not specifically state a written document is required in order to claim good faith reliance.

It is significant that the drafters of the California code chose to include the word “written” in our analogous section.   The addition of this word strongly implies an intent on the part of the drafters to exclude from protection any oral or otherwise unwritten opinions of the Corporations Department.   Marsh and Volk's analysis of section 25700 supports this conclusion, “It is important to note that the opinion upon which the person relies, in order for him to receive the protection of this section, must be contained in a written document of the type described.”  (1 Marsh & Volk, supra, ch. 14, § 11, p. 14–74.)

Valid reasons exist to require such written documentation of the Department of Corporation's approval.   First, there are evidentiary reasons.   A written document provides a more dependable official record of what facts the department knew before making the ruling, exactly how much of the operation the department approved, and if the department actually approved any operation at all.

Second, there are public policy reasons.   The purpose of the Corporate Securities Act is to protect the public from clever and well-disguised schemes to raise risk capital.  (Silver Hills Country Club v. Sobieski (1961) 55 Cal.2d 811, 814, 13 Cal.Rptr. 186, 361 P.2d 906.)   In order to provide substantial and meaningful protection to the public from ingenious securities schemes the courts must construe statutory exemptions and defenses narrowly.   In the present case, we do not know how much the Department of Corporations knew about the ties between DGS and Seneca or Lodestar, or even whether the Department examined the single invoice operations of DGS at all.

 Although the trial court did not reach the issue of whether section 25700 requires written approval of a business practice in order to constitute a defense to prosecution under the Corporations Code, it excluded the evidence because the alleged oral opinion was not “clear enough and affirmatively phrased in strong enough language” to meet the requirements of section 25700.   We affirm the result of the court's ruling, although it was based on an incorrect reason.¹¹  (9 Witkin, Cal.Procedure (3d ed. 1985) Appeal, § 259, p. 266.)

At trial, Stewart also asserted a mistake of fact defense based on his honest belief that the Department of Corporations advised his attorneys the DGS single invoice business did not need a permit to operate.

 A mistake of fact defense is available only when a defendant acts “under an honest and reasonable belief in the existence of certain facts and circumstances which, if true, would make such act or omission lawful.”   (CALJIC No. 4.35;  see also People v. Vineberg (1981) 125 Cal.App.3d 127, 135, fn. 5, 177 Cal.Rptr. 819.)   Stewart never presented any evidence which suggested he believed his attorneys had received a written, interpretive opinion or order from the Department of Corporations which explicitly approved his single invoice operation.   Thus, even if the facts Stewart believed were actually true, they would not constitute a defense to the violations charged.

IV.

Relying on People v. Skelton (1980) 109 Cal.App.3d 691, 109 Cal.Rptr. 636, Stewart contends the court erroneously refused to instruct the jury that it must find Stewart had specific intent to violate sections 25401 and 25541 in order to convict him of those crimes.

The relevant passage in Skelton states, “Finally, that same sufficiency of the evidence supporting the grand theft charges in turn sustains the convictions under Corporations Code sections 25401 and 25541.   As [defendant] concedes, specific intent to defraud, to steal under Corporations Code parallels that requirement under Penal Code section 487, subd. 1.”   (Id., at p. 723, 109 Cal.Rptr. 636.)

This passage is dicta;  the court never really examined the issue of whether sections 25401 and 25541 required the jury to find specific intent.   The opinion did not discuss the legislative history of the sections or any treatise analyses, or state any reason for such holding.   In fact, the court merely states the defendant conceded the issue.   Thus, the passage in Skelton that Stewart relies on does not bind us.

Section 25401 sets out the substance of the offense charged, that is, it prohibits the sale of or offer to sell securities by means of material misrepresentation or omission.¹²  Section 25540 provides the criminal liability for violating section 25401 and states in pertinent part:  “Any person who willfully violates any provision of this law ․ shall upon conviction be fined not more than ten thousand dollars ($10,000) or imprisoned in the state prison ․”  (Emphasis added.)

The court in People v. Clem (1974) 39 Cal.App.3d 539, 542, 114 Cal.Rptr. 359, held the word “willfully” in section 25540 requires only a showing that defendant had “a purpose or willingness to commit the act, ․  It does not require any intent to violate law, ․”  Similarly in People v. Gonda (1982) 138 Cal.App.3d 774, 779, 188 Cal.Rptr. 295, the court held the use of the word “willfully” in section 31410 indicated the Legislature did not intend to require proof of criminal intent.

 We adopt the reasoning of those courts and hold that “willfully” as used in the context of section 25540 requires only that defendant deliberately engaged in the acts which constitute the crime, without any specific intent to defraud or to violate the Corporations Code.

Stewart also argues section 25541 requires the jury to find specific intent in order to convict.¹³  Although the language of section 25541 almost exactly duplicates the language of section 25540, Stewart offers a distinction in an effort to strengthen his argument that a finding of specific intent is required.   He points out section 25541 prohibits fraud which is traditionally a specific intent crime.   Furthermore, the source of section 25541 is Rule 10b–5 of the Federal Securities Exchange Act of 1934 which requires proof of scienter for conviction.¹⁴  (See 1A Marsh & Volk, supra, Commentary, App. A–1, pp. 618.4–618.5;  see also Ernst & Ernst v. Hochfelder (1975) 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668.)

The United States Supreme Court in Ernst relied on the strong language of Rule 10b–5 as indicating the intent of Congress to require scienter in order to convict.  (Ernst & Ernst v. Hochfelder, supra, 425 U.S. at pp. 197–201, 96 S.Ct. at pp. 1383–85.)   Rule 10b–5 prohibits the use of “any manipulative or deceptive device or contrivance” in connection with the sale of a security.   The use of such words, the court held “strongly suggest that § 10(b) was intended to proscribe knowing and intentional misconduct.”  (Id., at p. 197, 96 S.Ct. at p. 1383.)

The California Securities Act drafters chose broader language to restrict securities transactions:  “any device, scheme, or artifice to defraud ․ any act, practice, or course of business which operates ․ as a fraud or deceit ․”   The United States Supreme Court analyzed language similar to this in S.E.C. v. Capital Gains Bureau (1963) 375 U.S. 180, 84 S.Ct. 275, 11 L.Ed.2d 237.   There the court interpreted the provisions of the Investment Advisers Act of 1940¹⁵ which outlawed any practice that “operates as a fraud or deceit upon any client.”  (Id., at p. 181, 84 S.Ct. at p. 277.)   The court held because this language is so broad, specific intent, such as that required in a common law fraud action, is not required.  (Id., at pp. 186–195, 84 S.Ct. at p. 280–85.)

 The same rationale applies with respect to section 25541.   The drafters must have been aware of the various linguistic forms of prohibition and chose the broader proscription.   This implies the drafters intended to proscribe a wider base of activities than common law fraud would prohibit, thus undermining the inference they intended to require specific intent to convict a defendant under section 25541.

Two other factors support this conclusion.   First, the drafters chose the same “willful” standard as was used in sections 25540 and 31410.   They must have intended some degree of consistency in choosing the exact same word.   Second, the Clem court's analysis of the common legal meaning of the term “willfully” as it is defined in the Penal Code also applies to the term's appearance in section 25541.

In sum, neither section 25540 nor section 25541 requires any proof of specific intent to defraud in order to convict defendant of a securities violation.

V.**

VI.

Stewart argues the trial court should have instructed the jury according to CALJIC No. 17.01 which requires the jury to agree unanimously on the act or acts committed by defendant before it can convict him.

 A criminal defendant has a right to a unanimous verdict.   (Cal. Const., art. I, § 16;  People v. Wheeler (1978) 22 Cal.3d 258, 265, 148 Cal.Rptr. 890, 583 P.2d 748.)   CALJIC No. 17.01 must be given to the jury when any one of several different acts in evidence is sufficient to constitute the offense charged.¹⁶  Where more than one act is offered as constituting one offense, there is no assurance that the jury verdict is truly unanimous;  some jurors may believe one act was committed, while others may believe a different act was committed.

 There are two exceptions to the requirement that CALJIC No. 17.01 be given.   First, the instruction is not necessary where there is one offense being prosecuted under different theories.  (People v. Milan (1973) 9 Cal.3d 185, 107 Cal.Rptr. 68, 507 P.2d 956 [first degree murder prosecuted under different theories of malice aforethought, felony-murder and premeditation];  People v. Failla (1966) 64 Cal.2d 560, 51 Cal.Rptr. 103, 414 P.2d 39 [burglary prosecuted under different theories of which felony defendant intended to commit upon entry, oral copulation or felonious assault];  People v. Nor Woods (1951) 37 Cal.2d 584, 233 P.2d 897 [grand theft prosecuted under different theories of commission, larceny by trick and obtaining by false pretenses].)

Second, the instruction is not appropriate where the charged offense is a continuing course of conduct over a period of time, rather than a particular act on a specified date.  (People v. Lewis (1978) 77 Cal.App.3d 455, 143 Cal.Rptr. 587 [pimping];  People v. Ewing (1977) 72 Cal.App.3d 714, 140 Cal.Rptr. 299 [child abuse].)

A.

Stewart argues the prosecution introduced evidence of multiple misstatements or omissions which might have served as the basis of his convictions under section 25401.   He claims the jury must unanimously agree on a particular misrepresentation or omission and whether it was material in order to convict him.   The Attorney General counters that none of the misrepresentations or omissions were disputed at trial and “materiality” need not be agreed upon because it is analogous to a “theory” of the crime rather than an act.

The prosecution offered into evidence at least four different alleged misrepresentations or omissions:  nondisclosure of the 1981 desist and refrain order, nondisclosure of the civil injunction against DGS' misrepresentation of the securities sold as “accounts receivable,” and misrepresentation of the quality of the companies from which the invoices came.   Any one of these acts or omissions could have served as the basis of Stewart's conviction.

 In a criminal prosecution, the state is required to prove every element of the crime beyond a reasonable doubt.  (People v. Figueroa, supra, 41 Cal.3d at pp. 725–726, 224 Cal.Rptr. 719, 715 P.2d 680.)   Merely by pleading not guilty to the offense charged Stewart disputed the acts which the prosecution offered as the basis for convicting him under section 25401.   As a matter of law Stewart did not concede any one of the alleged misrepresentations, thus we cannot be sure which misrepresentations the jury relied upon to convict him.   Without the assurance that all 12 jurors agreed the prosecution met its burden of proof with respect to at least one of the offered misrepresentations, the judgment must be reversed.

Furthermore, Stewart was also entitled to a unanimous jury on the issue of materiality.   Since the defendant is entitled to a unanimous verdict and the prosecution bears the burden of proving each element of the crime beyond a reasonable doubt, it follows that the defendant is entitled to a unanimous jury on each element of the offense on which the verdict is based.   Since materiality is an element of the crime of violating section 25401 (see Marsh & Volk, supra, ch. 14, § 14.03, p. 14–17), the court should have instructed the jury that it must agree on the materiality of any misrepresentation or omission which served as the basis for Stewart's conviction.

The prosecution's argument that materiality is analogous to the “theory of the crime” exception to unanimity is meritless.   The “theory” of the crime as it applies to violation of section 25401 only offers, for example, reasons why a given misrepresentation is material (e.g., economic factors, social factors).   Thus, while the jury must be unanimous in its conclusion that a misrepresentation is material, it need not agree on the reasons why the misrepresentation is material.

B.

Stewart argues the prosecution offered into evidence several different schemes which might have served as the basis of his conviction under section 25541.   Except for the word “act,” all the terms defining this offense, by their nature, describe a course of conduct.   But the course of conduct exception does not apply where more than one scheme is offered to constitute an offense.  (See United States v. Mastelotto (9th Cir.1983) 717 F.2d 1238.)

In the present case, the prosecution only set forth one complex scheme:  the factoring business of DGS was used to funnel money to Seneca for the development of a gold mine.   The information charges that the violation of section 25541 includes all the interconnected previous counts of violating sections 25401 and 25110.   The closing argument of the prosecution characterized all the misrepresentations as part of one ingenious scheme to bring money into DGS by drawing up fraudulent accounts receivable.

Section 25541 lends itself to the course of conduct exception.   Unless there are two or more separate and distinct schemes, with independent goals, defendant is not entitled to have the jury instructed on CALJIC No. 17.01.

 The appellant bears the burden of showing error on appeal.  (In re Marriage of Davis (1977) 68 Cal.App.3d 294, 301, 137 Cal.Rptr. 265.)   Stewart has not met his burden of showing the prosecution presented more than one scheme to the jury as a basis for convicting him of violating section 25541.

C.

 Stewart argues the prosecution offered into evidence multiple acts sufficient to constitute a sale or an offer to sell violation of section 25110.¹⁷

The jury convicted Stewart of 23 counts of selling unqualified securities, so this court need not consider the evidence the prosecution offered to show Stewart also offered to sell securities to each victim.

In 20 of the 23 counts the information charged only one sale as the basis of the section 25110 violation, specifying both date and buyer.   In the other three counts (Counts 9, 15 and 27), the information charged two sales as the basis of the violation, identifying one buyer and two separate dates.

Evidence of the 20 “one-sale” violations suggested each individual investor entered into a contract with Driscoll or Leonesio, on or about a specific date, to make an initial investment in DGS.   Later that initial investment was rolled-over into new invoices, but the prosecution never alleged those were separate sales.   Thus, these convictions were based on only one act and did not present a proper situation for CALJIC No. 17.01 to be read to the jury.

Stewart's argument that various documents offered into evidence could have constituted separate individual sales is meritless.   The trial court correctly held as a matter of law that the entirety of the investment contract constituted the security.   All of the different documents that were presented to the jury in the investor files constituted evidence of the initial investment contract and consequent roll-overs.   The jurors did not need to agree unanimously on which documents convinced them a sale had taken place.

By contrast, Counts 9, 15 and 27 allege two separate sales on different dates in violation of section 25110.   Each of those sales, if true, would have been sufficient to convict Stewart of violating section 25110.   Because this court cannot be certain the jurors unanimously agreed that one or both of the alleged sales took place, the judgment must be reversed with respect to these counts.

D.

In sum, the judgment should be reversed as to the 21 counts of section 25401 violations because there were multiple misrepresentations and omissions on which the jury could have convicted Stewart.   It should also be reversed as to Counts 9, 15 and 27 of the section 25110 violations because there was more than one sale on which the jury could have based its verdict.   The judgment should be affirmed, however, as to the one violation of section 25541 because there was only one scheme alleged, and as to the 20 counts of section 25110 violations because there was only one sale per investor/date charged.

VII.–VIII.**

IX.

The judgment is reversed as to Stewart's convictions of violating section 25401 and his convictions of violating section 25110 in Counts 9, 15 and 27 on the ground that he was not assured of a unanimous verdict.

The judgment is affirmed as to all other convictions.

FOOTNOTES

1.   Unless otherwise indicated, all further statutory references are to the Corporations Code.

2.   The court granted Stewart's motion for judgment of acquittal under Penal Code section 1118.1 as to two counts.

3.   Section 25019 states in pertinent part:  “ ‘Security’ means any note;  stock;  treasury stock;  membership in an incorporated or unincorporated association;  bond;  debenture;  evidence of indebtedness;  certificate of interest or participation in any profit-sharing agreement;  collateral trust certificate;  preorganization certificate or subscription;  transferable share;  investment contract;  voting trust certificate;  certificate of deposit for a ‘security’;  certificate of interest or participation in an oil, gas or mining title or lease or in payments out of production under such a title or lease;  ․ any beneficial interest or other security issued in connection with a funded employees' pension, profit sharing, stock bonus, or similar benefit plan;  or, in general, any interest or instrument commonly known as a security;  or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.   All of the foregoing are securities whether or not evidenced by a written document.”  (Emphasis added.)

4.   Two justices concurred in the result of the Figueroa decision, but disagreed with the majority's broad holding.  “On that state of the record it is wholly unnecessary to decide whether, as the majority holds, an instruction that the notes were securities would be erroneous no matter how convincing the evidence was on this issue ․   I would eschew such judicial rule-making until the need arises.”  (People v. Figueroa, supra, 41 Cal.3d at pp. 741–742, 224 Cal.Rptr. 719, 715 P.2d 680.)

5.   The trial court in Johnson erroneously instructed the jury that the defendant was conclusively presumed to have intended the “natural and necessary consequences of his act.”  (Connecticut v. Johnson, supra, 460 U.S. at p. 78, 103 S.Ct. at p. 973.)   The plurality equated this instruction with a directed verdict on the intent element of the offenses, thus concluded such error could never be treated as harmless error.   (Id., at pp. 84–88, 103 S.Ct. at pp. 976–78.)   The dissent reasoned that “[b]ecause the presumption does not remove the issue of intent from the jury's consideration, it does not preclude a reviewing court from determining whether the error was ‘harmless beyond a reasonable doubt’ ” under Chapman v. California (1967) 386 U.S. 18, 87 S.Ct. 824, 17 L.Ed.2d 705.  (Id., at p. 97, 103 S.Ct. at p. 983.)   Justice Stevens, the swing vote, did not address the issue of prejudice because he believed the court lacked jurisdiction based on his conclusion there was no federal question raised.   This issue remains unresolved at the federal level.   (Francis v. Franklin (1985) 471 U.S. 307, 105 S.Ct. 1965, 1977, 85 L.Ed.2d 344.)

6.   Presenting the ultimate paradox, the Garcia court has developed two mutually exclusive rules, expecting lower courts to follow them both.   The court in Garcia imposed a reversible error per se rule, at the same time as it announced two applications of the harmless error rule.   While we acknowledge an unsolvable inconsistency in such holding, we attempt to resolve the contradiction by applying the more specific harmless error rules of Sedeno and Cantrell-Thornton.

7.   In fact, the evidence produced by the prosecution was so strong the jury took less than one day to convict Stewart of the 45 counts of securities violations on which it deliberated.   Given the complexity of this case, and of securities law in general, the jury apparently disbelieved the entire defense theory.

8.   Stewart also argues that exclusion of his attorneys' testimony was erroneous because it served to explain a prior bad act as was his right according to People v. Zerillo (1950) 36 Cal.2d 222, 230, 223 P.2d 223.   Stewart never offered the testimony for this purpose, however, and cannot now claim error on this basis.  (Evid.Code, § 354, subd. (a).)

9.   DGS ran two types of invoice operations.   It sold individual invoices to individual investors (the “single invoice” operation).   These transactions are at issue in the present case.   DGS also sold percentage interests in individual invoices to multiple investors (the “pooling operation”).   These transactions were the subject of the 1981 desist and refrain order.

10.   USA section 412, subdivision (e), states in pertinent part:  “No provision of this act imposing any liability applies to any act done or omitted in good faith in conformity with any rule, form, or order of the [Administrator] ․”

11.   Even if the court and Stewart were referring to an implied opinion operating as an equitable estoppel against the government, the offer of proof still did not meet the standards of admissibility.   Negligence or silence in the face of a duty to speak provides a basis of equitable estoppel.  (Lix v. Edwards (1978) 82 Cal.App.3d 573, 580, 147 Cal.Rptr. 294.)   But Stewart did not offer any proof that the government had a duty to speak in this situation.   Furthermore, this state has had a long-standing policy disfavoring the operation of estoppel against a governmental agency.  (7 Witkin, Summary of Cal. Law (8th ed. 1974) Equity, § 137, p. 5356.)   Although estoppel may be applied against the government when right and justice require it, the doctrine is inapplicable if it would result in the nullification of a strong rule of policy adopted for the benefit of the public.  (Strong v. County of Santa Cruz (1975) 15 Cal.3d 720, 725, 125 Cal.Rptr. 896, 543 P.2d 264.)

12.   Section 25401 states:  “It is unlawful for any person to offer or sell a security in this state or buy or offer to buy a security in this state by means of any written or oral communication which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.”

13.   Section 25541 states in pertinent part:  “Any person who willfully employs, directly or indirectly, any device, scheme, or artifice to defraud in connection with the offer, purchase, or sale of any security or willfully engages, directly or indirectly, in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the offer, purchase, or sale of any security upon conviction be fined not more then ten thousand dollars ($10,000) or imprisoned ․”

14.   Rule 10b–5 was promulgated by the Securities and Exchange Commission pursuant to the power conferred by section 10 of the 1934 act and contains the same language of manipulation and contrivance as appears in section 10.  (Ernst & Ernst v. Hochfelder, supra, 425 U.S. at pp. 195–196, 96 S.Ct. at pp. 1382.)   In Ernst the Supreme Court treated the two rules interchangeably for the purposes of deciding the necessary element of intent.

15.   The Investment Advisers Act was the last in the series of post-depression acts designed to monitor the practices of the securities industry, following the Securities Act of 1933 and the Securities Exchange Act of 1934.  (S.E.C. v. Capital Gains Bureau, supra, 375 U.S. at p. 186, 84 S.Ct. at p. 280.)

FOOTNOTE.   See footnote *, ante.

16.   CALJIC No. 17.01 states:  “The defendant is charged with the offense of _.  He may be found guilty if the proof shows beyond a reasonable doubt that he committed any one or more of such acts, but in order to find the defendant guilty, all the jurors must agree that he committed the same act or acts.   It is not necessary that the particular act or acts committed so agreed upon be stated in the verdict.”Stewart did not request that the court read CALJIC No. 17.01.   But if the facts of a case demand the giving of CALJIC No. 17.01, it must be given sua sponte.  (People v. Moore (1983) 143 Cal.App.3d 1059, 1064, 192 Cal.Rptr. 374;  People v. Hefner (1981) 127 Cal.App.3d 88, 96–97, 179 Cal.Rptr. 336.)

17.   Section 25110 states in pertinent part:  “It is unlawful for any person to offer or sell in this state any security in an issuer transaction ․ unless such sale has been qualified under Section 25111, 25112 or 25113 ․”

KING, Associate Justice.

LOW, P.J., concurs. HANING, J., concurs in the result.