good morning and may it please the court my name is melissa salinas i'm with the university of michigan law school and the supervising attorney in this case and i have the honor of introducing now if you can taleb will present the argument thank you thank you behalf of mr clay shelton and if i may reserve three minutes for a bottle or thank your honor today i will be addressing two issues st the requisite in connection with element for securities fraud specifically federal government should not be allowed to carve blanche turned state civil liability and or criminal liability into federal criminal culpability that is not circumstantial of the yes your honor all circumstantial evidence would have been beneficial for the st issue i am talking about today the in connection with element for securities fraud regarding counsel have been twenty five and twenty six however the record presents no individual dated evidence regarding the two bennett junk bonds pay him sell isn't that pretty good evidence of criminal fraud well your honor i do want to be clear up front with the in connection with element under troy's the recent most case from the supreme court on that element you need a material connection between the material misrepresentation and an individual's decision to sell or purchase a security so even if that document  did promise to put contributions into an escrow account right away what i would dispute how would you dispute that the specific language in that specific simmering says that money can be a script that's for you very no if the client's read that even if they did read it it would be ambiguous as to whether you read the quick summary or or not and wouldn't under contract law that would be you would look the ambiguity against the person who wrote it well i understand that in this instance this is a hard standard to pass muster under i get that but here the record doesn't contain any evidence of that nexus between that misrepresentation and the decision to purchase or sell security without that evidence that element which is required remains  proven an atrocious expounding on what that really means the supreme court in that decision said that if that evidence is to prove that element it needs to denote that there's a significant difference between number misrepresentation and the decision to purchase or sell security and that doesn't need to be reliance and i can see that reliance is not an element under securities fraud however you do need to show some sort of receipt of knowledge when evidence of show that there is any effect on the recipient and without that evidence that element remains unproven backwards as i understand it he was told or read that he would get his money back of there was in the one hundred and fifty thousand dollars r you think anybody would have given him money if he'd told them that when i get it i'm going to pay myself a salary and i'm going to buy junk bonds yes your honor primarily because he did tell them the private placement memorandum specifically said that he had the discretion to utilize the funds however way he saw fit to further the purpose of the agreement and he did i don't want to get too far into the  yachts or anything else excessive like that is to keep the lights running and be companies furthering the purchase of the monterey pipeline which he never ceased to do that evidence for that is actually found in the indictment itself count seven which was dismissed charge that mr sultan with money laundering because he wired funds to an investment group in canada and that investment group was a possible financer for the pipeline disconnect there didn't he basically a question from investors for a number of years and sort of give them a run around in order to further the real void and mislead people to cover up the real motives objectives in action well i'll take your question is an opportunity to switch to intent to defraud  only because i think that question goes to the heart of that matter and the private placement memorandum at st says that anything said orally isn't a binding term under this agreement and if mr shelton provided any deceptive advice which i don't think he did practice that what he was doing after the formation of the agreement might have evidence to negligent business license to mislead the or deceive no your honor not only since to deceive or mislead but it does set out the discretion that he had in managing the partnership to i'm talking about in response to a direct question then best to ask a question and he responds to that question with false information or misleading or deceptive information that's not covered by the language and that its closure if it well known not specifically your honor but as to what mr shelton did after the fact the formation of the partnership it might not have been the most sound business practices i get that however does it change what could in possibly should be at most state civil liability to federal criminal liability is he in forming the partnership the law says that he needs to start the partnership with intent to fraud just because down the road he might of provided some misleading responses to questions about the success of the partnership could evidence is misunderstanding sound business practices s more than that in terms of his potential criminal culpability in that he never he never actually set up an escrow account separate escrow account he had them funds available to him for other purposes be the fact that he didn't actually ever set up the escrow account it's a problem for your client in this case would you agree because the investors were told we could go back and forth as to what they were documentation in question here doesn't say that nascar account will be set up immediately it says that it will be set up at his discretion when there is sufficient funding to start the partnership so that wasn't achieved well that's  that the funds would have been retained until there was some funds the constitute the amount he needed to get the bank financing from the canadian bank that was supposed to come up with use for non related purposes so and he knew that the investors were counting on it and the money going into this escrow account the other thing was he really didn't have a bank that said they would give him x amount of dollars if he got a one million and a half he contacted the bank but never into any kind of specific kinds of loans or our you would get a loan or anything like that isn't true well you are and he was in the process of facilitating all that and things felt but he but what he was getting the money from the from the sheep so to speak he never had that done had it it wasn't certified upfront it wasn't certified in there was nobody you point to that testified from a bank that yeah we were going to give them fifty million if you raised to one a one million and i had the iris agent in question and the one that testified for the government here testifying that he tonto acted an individual with the bank that said that they were closing but you never had the banker come in and say yeah i do this that he never had a scrap of paper that said he would do this so the whole thing starts through with his obligations here because he was unable to attain the financing and at most that's nonperformance on the contract to do so is that federal criminal law that he's or raising the money arrange for a loan and so forth well him and his sales manager course because they're running the partnership and they failed to do that and i totally accept that it's just that isn't enough under frost and under  morning morning honors made please a court new bar on behalf of the united states addressing the two issues that the poli brought up the in connection with the argument that they made and also the intent to defraud argument that they made investors and he said if you give me fifty thousand dollars you will purchase a unit in a partnership and i will put the money from that unit into an escrow account and there it will stay interest payment on your unit on your investment or you will be able to get a buyback up to the amount you invested in prior investments with me that you have made and that was a lie because as this panel has pointed out several times he never put any of that money into an escrow account he used all of that money to keep his business is going to pay make specifically what mr sheldon told them i will put this money in escrow account and there it will stay and it did not stay there and that is certainly sufficient evidence to support his t private placement memorandum is mentioned many times by the opponent and that is a red herring because the only thing that this court needs to determine is whether the evidence at trial was sufficient that any rational trier of fact could find the elements beyond a reasonable doubt and this jury did what the jury found was he had the intent to defraud and there was plenty of competent and substantial evidence for them to find that they had the testimony of the investors they had the actual transactions of the investors making payments on their units and in the transactions of mr show not putting that money into an escrow account putting it into whatever he wanted to do with it that further to his own personal and business interests so that is all that this court needs to determine is is that sufficient evidence for a jury to reject the theory of defense that this private placement memorandum actually allowed mr sheldon to do whatever he wanted to do with the money when in fact he told them through the quick summary and personally and through his salesman era grogan that i will do something else with it  that may have been a good theory of the case on another jury that yes i told these investors one thing i gave them a quick summary that says the exact same thing but if they had read the private placement memorandum they should have known as intelligent investors that i didn't to do that the jury could have bought that theory of defense a trial and they didn't and mr shelton was convicted is there sufficient evidence for them to convict him and the answer is that there is through the quick summary through the testimony investors and through the actual use of the money he received as part of escrow two thousand and eleven so on the st issue of was their intent to differ auden was there sufficient evidence for a jury to find reliance is not required to be proven by the government in a securities fraud case specifically the in connection with argument relates to the units bought by the totals and mr denninger who unfortunately were not able to testify at trial because they were deceased or suffering from alzheimer's disease so they were not actual witnesses at trial but the in connection with argument we do not have to prove that the and they were materiality of course is that is this quick summary that says i will put this money in an escrow account and is his misrepresentations to the investor saying i will not use this money i will put it into an escrow account until i raise one million five hundred thousand dollars would a intelligent investor consider that information significant when contemplating an investment decision that's in the mind of the investor is it material for a reasonable investor to think that and from mr shelton's perspective we must ask ourselves whether it's pretty real whether the law i was made with the purpose of getting the victims to part with their property did he tell them i will only put your money into an escrow account in order to get them to give their money to him in the purge in the purchase of units and the answer to both is yes that's materiality the in connection with argument and they rely primarily on the troy scase reliance on the choice case is misplaced that case does not involve a criminal prosecution that involves a civil class action lawsuit and whether state class action lawsuits can be brought underneath the federal securities laws troy's and the halliburton case cited by  appellant that has different they have different elements where reliance by plaintiffs is addressed in those cases but the circuit courts have said that securities fraud do not require reliance by the testify that they relied on this a trial it doesn't matter and even though they didn't testify at trial there's still circumstantial evidence that they probably would have testified that way had they been a trial you can infer based upon the testimony of the other investors and based upon family members of the totals and mr denninger that they probably got the same quick summary agreement that all the other investors did and the same material misrepresentations were made by mr shel grogan to the totals and mr denninger so that in itself would be efficient evidence of reliance not that we really needed to prove that the important thing with in connection with is did m material misrepresentation touch on the fraud did it a company to fraud and of course that the reason that he made those material misrepresentations and he said that he would only put their money in an escrow account was to get the victims to part with their money it related to the fraud it wasn't and irrelevant a law that he told these investors he told these investors to take so that they would take a particular course of action and purchase units in escrow two thousand and eleven so those are the two  issues brought up a moment ago by the appellant and those are the reasons that the court should reject those arguments and find that there was more than sufficient evidence to find mr shelton guilty and that's really all that we are looking  an investment they argue that it was a loan it was not alone it was definitely investment and the reason we know that is the how we form and test which of course has three elements was it investment what is the security what is in and smith well it's an investment of a common venture where there are reasonable expectation of profits in there depending upon the managerial efforts of mr shelton and all four of those elements are met it was certainly an investment it wasn't alone this was asking them to give him money in a partnership that's what it was so it was an investment was it a common venture yes it was all of the investors gave mr shelton money for these units for the exact same purpose and that is so that he could through his own managerial efforts raise one million five hundred thousand dollars so that then he could get a follow on loan for fifteen million dollars and buy a pipeline all of these investors had the common venture in giving mr shelton this money of course they expected profits in order to do it and mr shelton did promise them profits he said your money if i'm able to raise this one million five hundred thousand dollars it will stay in escrow account and once i get the one million five  dollars i will give you twenty five percent on top of your investment and then finally all this was done or supposed to have been done under the under the terms of the quick summary in the partnership through the honor yes the quick summary there really wasn't too much if any room for interpretation that that money was going to be placed in an escrow account and all of the investors said that that was their understanding or else they would have given him money at all so it is actually an investment that mr shelton made it was a security and in order for this court to find that it wasn't a security and therefore all of the security counts have to be dismissed the only way that we can get there is if the record is completely devoid of any evidence whatever that it was actually security because of the planer standard on which you have to examine that issue and not only is the record not devoid of evidence that these are securities that he was selling there's plenty of evidence there that these were in fact securities under the how we form and test and then specifically into the risk capital test that we use in security ok but in terms of the legal definition of what constitutes a security what do you disagree with what the definition would to provide in the place of the government i agree with that i disagree with how the government implies that definition for the three elements cited in the brief all indicate that this code to eleven was not a security the st one course is it an investment and all now it's a loan the form of the agreement does not involve the stereotypical hallmarks of an investment instead a static won't that generates if anything set interest there's no appreciation of capital there's no expectation of the we're no you are you're does not constitute security constitutes alone moving forward under the nd element was there horizontal commonality also now under chairman and the night we have to look at the economic reality here reality says that these funds were applied discordantly and they're never commonly pulled the lack of common pooling under union planters is indicative of the lack of a security and then the last element is there and reasonable a patient or expectation of profits also now under the supreme court foreman and also union planners there's no expectation of profit there's no anticipation of capital gain there's nothing to say that this was more than putting money as a loan into a fund and at most getting back their interest or the testimony that this was a lo well there is actually there were two investors that said that this was a loan and they're adamant about that oscar hence can i believe one was invested most of the money into this but doesn't that become a jury think your honor i accept that this is a hard standard and i know i'm out of time but if i may quickly respond it's a hard standard to prove but it's proven here under both the facts and the law both issues cited today then tend to defraud  states v frost and united states v leave from the circuit both militate towards the conclusion that there is no requisite intent to defraud for the in connection with element troy's from the supreme court and rule in v green affirmed by choice from the th circuit