Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—Tex. App.: Texas investment advisor paid personal expenses with client funds, (Apr 29, 2016)

By Jay Fishman, J.D.

The Texas Court of Appeals affirmed a Texas investment adviser’s conviction for theft and securities fraud, finding that his nine arguments on appeal did not justify reversal. The jury assessed the appellant $10,000 for each offense and ordered a prison term of 10 years for the theft and 20 years for the securities fraud. The trial court ordered that both prison terms run concurrently and that the appellant pay restitution to the victims (Mays v. State, April 28, 2016, Garza, D.).

Theft and securities fraud. In the early 2000s, the appellant persuaded his clients to transfer their investments to certain advisory firms. In 2009, he signed a promissory note for an $11,385 commercial loan secured by a blanket lien on all of his firm’s assets, including furniture, office equipment and accounts receivable. In 2011, a Texas county court entered a judgment of $20,289 against the appellant for an unpaid residential lease. Later that year, he divorced his wife and was ordered to pay monthly child support of $1,100. The IRS then issued a tax lien of $42,924 against him and his ex-wife, after which he stopped associating with the other advisory firms. In 2012, the appellant was sued by American Express for credit card debt totaling $34,119.

Between March 2011 and October 2012, the appellant solicited several clients to invest funds in his investment firm, for which the clients received an agreement specifying the terms. But evidence at trial found that the appellant did not invest most of funds, instead using them to pay personal expenses, debts and other obligations, including payments to earlier investors. The appellant was charged with theft from four people, and with securities fraud for failing to disclose that he was using his clients’ invested funds to pay personal expenses.

Appellant’s contentions rejected. The appellate court disregarded the appellant’s contentions. The court found that the appellant did not raise double jeopardy at trial and that double jeopardy was not apparent on the face of the record. It also found that the appellant failed to preserve any issue for review and that the jury was properly instructed to disregard that testimony that he failed to appear in an administrative proceeding, which is presumed to cure the jury’s having heard the testimony.

The appellate court found that the appellant, by failing to provide an accurate citation to the record, waived the contention that the trial court erred in admitting extraneous-offense evidence and that he appellant failed to preserve his argument about expert witness testimony by not providing a clear and concise argument with citations to the record.

In addition, the appellate court disagreed that the trial court erred in denying the appellant’s motion for instructed verdict regarding one of the victims on grounds that there was insufficient proof of venue and that a jury charge regarding witness bias was an abuse of discretion.

The appellant had argued that his constitutional right against incarceration for debt was violated; however, the appellate court found that the appellant provided no argument for why his theft and securities fraud convictions constituted “mere debts.”

Finally, the appellate court declared that the record showed that only a tiny fraction of the monies the appellant took from investors was actually invested, thereby showing the requisite criminal intent to commit securities fraud and theft with the majority of his clients’ funds.

The cases are Nos. 13-14-00653-CR and 13-14-00654-CR.

Attorneys: Angela Cole (Angela Cole, Attorney at Law) for The State of Texas. John M. Lamerson (Lamerson Law Firm) for William C. Mays.

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