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Media Alerts - United States v. Brian William McKye - 10th Circuit
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September 10, 2013
  United States v. Brian William McKye - 10th Circuit
Case Name: United States v. Brian William McKye

Headline: Tenth Circuit reverses convictions following the trial court's denial of defendant's proposed jury instruction

Area(s) of Law:
Criminal law, Securities law

Issue(s) Presented:
Whether the determination of whether a note is a security for a conviction under 15 U.S.C. ยง 78j(b) is a question for the jury.

Brief Summary:
Defendant, who was charged with eight counts of securities fraud, tendered a jury instruction allowing the jury to decide whether the investment notes at issue were securities under the federal securities laws.

The court refused to give Defendant's instruction, and instead instructed the jury that the term "security" included a "note." The jury convicted Defendant on seven of the eight securities fraud charges. The Court of Appeals reversed Defendant's convictions and remanded the case.

Extended Summary:
An indictment on February 3, 2011, alleged that Brian William McKye ("Defendant") and Joe Don Johnson ("Johnson") engaged in fraud through the sale and purchase of securities. The indictment further alleged that Defendant and Johnson conspired to launder money derived from the alleged securities fraud.

Defendant operated Heritage Estate Services, LLC ("Heritage"), an entity that arranged revocable trusts for clients. Heritage charged an additional cost for the trust preparation. If this cost could not be paid in full by the client, it could be financed with a promissory note in favor of Heritage, agreeing to pay the balance over a thirty-six-month period. These notes, or trust loans, were eventually sold to another entity operated and owned by Defendant, Global West.

The government presented evidence showing that Heritage also marketed to its clients certain investment notes issued by the other entity, Global West. Defendant personally, and through his employees, informed investors that their investments in Global West were backed by real estate notes and mortgages. In reality, the investments were backed by the trust loans, but no trust loan had a value of more than $4000, so the same loan was listed on multiple investment contracts.

A government witness, IRS Special Agent Robert Summers ("Summers") testified that Defendant essentially operated a Ponzi scheme in which principal from newer investors paid the interest to older investors. At trial, Defendant testified and likened the system to placing second and third mortgages on the same piece of property.

Defendant proposed a jury instruction requiring the jury to determine whether the investment notes were securities for purposes of the charged crimes of securities fraud. In turn, the Government countered that matter was a question of law beyond the scope of the jury. The district court agreed with the Government and instructed the jury that the notes are presumed to be securities and that the Defendant did not present evidence to overcome that presumption. The jury convicted Defendant of seven of the eight counts of securities fraud and conspiracy.

On appeal, the Defendant argued that the district court tendered an erroneous jury instruction regarding an element of the charged crime, which the Government had the burden to prove beyond a reasonable doubt. Defendant further argued that the jury instruction at issue erroneously stated the law because the Supreme Court of the United States established that not all notes are securities in Reves v. Ernst & Young, 494 U.S. 56 (1990).

In response to Defendant's argument, the Court relied on the analysis in Reves and Gaudin v. United States, 515 U.S. 506 (1995). The Court in Reves used the four-part "family resemblance" test to determine whether a note is a security. The family resemblance test requires findings related to motivation, distribution, expectation, and risk. The Gaudin Court held that mixed questions of fact and law that pertain to an element of the charged crime are for the jury.

Relying on these holdings, the Court determined that the question of whether a note is a security requires a jury to determine certain predicate facts and then apply those facts to the correct legal standard. The question was also an element of the charged crime of securities fraud, as outlined by another jury instruction.

Thus, the district court erred when it instructed the jury that notes were securities. Because this error was not harmless, Defendant's conviction was reversed and the matter remanded.

To read the full opinion, please visit:

Panel: Judges Briscoe, Brorby, Murphy

Date of Issued Opinion: August 20, 2013

Docket Number: 12-6108

Decided: Reversed and remanded

Howard A. Pincus, Assistant Federal Public Defender (Raymond P. Moore, Federal Public Defender, with him on the brief), Denver Colorado, for Defendant - Appellant.

Susan Dickerson Cox, Assistant United States Attorney (Sanford C. Coats, United States Attorney, and Suzanne Mitchell, Assistant United States Attorney, with her on the brief), Oklahoma City, Oklahoma, for Plaintiff - Appellee.

Author: Murphy

Case Alert Author:
Rikki-Lee G. Ulibarri, UNM School of Law, Class of 2014

Case Alert Circuit Supervisor:
Barbara Bergman, UNM School of Law

    Posted By: Dawinder Sidhu @ 09/10/2013 06:30 PM     10th Circuit  

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