Title: Carlson v. State

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
DENNIS CARLSON, 
 
 
§  
 
 
 
 
 
 
§   No. 448, 2005 
 
Defendant Below,  
 
§  
 
Appellant,  
 
 
§   Court Below – Superior Court 
 
 
 
 
 
 
§   of the State of Delaware, 
 
v. 
 
 
 
 
§   in and for New Castle County 
 
 
 
 
 
 
§   Cr. I.D. 0112018247 
STATE OF DELAWARE, 
 
§  
 
 
 
 
 
 
§  
 
Plaintiff Below, 
 
 
§  
 
Appellee. 
 
 
 
§  
 
 
 
 
 
   Submitted:  May 24, 2006 
 
 
 
 
      Decided:  June 29, 2006 
 
Before HOLLAND, JACOBS and RIDGELY, Justices. 
 
 
Upon appeal from the Superior Court.  AFFIRMED. 
 
Nicole M. Walker, Esquire, Office of the Public Defender, 
Wilmington, Delaware, for appellant. 
 
 
Elizabeth R. McFarlan, Esquire, Department of Justice, Wilmington, 
Delaware, for appellee. 
 
 
 
 
 
 
 
HOLLAND, Justice: 
 
2
 
The defendant-appellant, Dennis Carlson, was indicted on thirty-one 
counts of the Sale of Unregistered Securities1 and one count of Sale by an 
Unregistered Agent.2  Counts 7, 24 and 25 were dismissed upon motion by 
Carlson’s defense counsel.  Following a jury trial in the Superior Court, 
Carlson was found guilty on all remaining counts.  Defense counsel’s post-
trial motion to withdraw was granted.   
Carlson proceeded pro se at sentencing.  He was sentenced to seven 
years at Level 5 followed by probation and ordered to pay restitution.  After 
Carlson filed an appeal, this Court remanded the matter to the Superior 
Court to determine whether he was indigent and entitled to representation by 
the Public Defender.  After Carlson was found to be indigent, he was 
represented by the Public Defender at a resentencing on September 2, 2005.  
Carlson was sentenced to five and one-half years at Level 5 followed by 
probation and ordered to pay restitution. 
 
Carlson has raised two issues in this appeal.  First, he contends that 
the trial judge violated his right to a fair trial when he permitted the State to 
introduce an expert’s legal opinion on the meaning of the term “security,” as 
defined in the Delaware Code.   Second, Carlson alleges that the Delaware 
Securities Act’s definition of the term “security” is unconstitutionally vague 
                                          
 
1 Del. Code Ann. tit. 6, § 7304. 
2 Del. Code Ann. tit. 6, § 7313. 
 
3
and did not give him, “a man of ordinary intelligence, a fair warning of the 
financial instruments he was not permitted to sell without registering as a 
securities agent with the State.”   
We have concluded that both of Carlson’s claims are without merit.  
Therefore, the judgments of the Superior Court must be affirmed. 
Facts 
Carlson is licensed to sell insurance in Delaware.  Carlson has never, 
however, registered to sell securities with the Delaware Securities 
Commissioner.3  Carlson testified that he read trade magazines in an effort to 
educate himself about the insurance business.   
 
Several years ago, Carlson contacted a purported insurance salesman, 
Russ Jones, and learned about the sale of promissory notes.  After Carlson 
began to sell the promissory notes, the Delaware Attorney General’s office 
informed Carlson that the promissory notes he was selling were securities.  
The Securities Division of the Delaware Department of Justice filed an 
administrative complaint before the Securities Commissioner of Delaware.  
The complaint was resolved through a civil cease and desist order whereby 
Carlson agreed, inter alia, not to offer or sell “notes, bonds, or other 
securities in the State of Delaware until such time as the securities are 
                                          
 
3 See generally Del. Code Ann. tit. 6, § 7301. 
 
4
registered with the Securities Commissioner and until such time as [Carlson] 
is licenses to effect transactions and securities pursuant to the provisions of 6 
Delaware Code Chapter 73.”   
 
Carlson testified that Jones introduced him to two other men, whom 
Carlson understood to be fellow insurance salesmen.  The three men 
informed Carlson about off-shore certificates of deposit (“CDs”) 
investments with the First International Bank of Grenada (“FIBG”) and 
preferred-stock investments with Wellington Bank and Trust Limited of 
Saint Georges, Grenada (“Wellington”).  None of those off-shore investment 
instruments was registered as securities with either Delaware or the Federal 
government.   
According to Carlson, the three men claimed that they had visited the 
banks in Grenada and found them to be reputable.  The men also told 
Carlson of high returns on their own investments.  Carlson stated that he 
relied heavily on the representations that these men made to him.  Carlson 
testified that he “had absolutely no expertise in the area of off-shore 
investments and was ignorant of international law.”  Carlson also testified 
that he studied a book entitled “Offshore Money Book,” visited FIBG’s 
website, made phone calls, attended seminars, read the banks’ publications 
and contacted the International Deposit Insurance Company (“IDIC”). 
 
5
 
Carlson conducted his insurance business under the name A Plus 
Financial.  He placed an investment advertisement in a Delaware 
publication, Better Years.  The advertisement did not mention either FIBG or 
Wellington.  As a licensed insurance salesman, Carlson was authorized to 
sell certain forms of annuities and viaticals.4  When he spoke to individuals 
about various investments, including the annuities and viaticals, Carlson 
often mentioned the Grenada CDs and Wellington preferred stock.   
In November 2000, as part of a routine investigation, Investment-
Advisor Examiner Robert Gouge discovered an advertisement in the 
investment section of the Yellow Pages for A Plus Financial Services on 
Concord Pike in New Castle County.  Gouge visited the business to see what 
kind of services A Plus was marketing.  Carlson indicated that he was 
offering insurance products, not investment products.  Carlson explained that 
the Yellow Pages advertisement was a mistake and that he was not supposed 
to be listed in that particular category because he was only offering 
insurance products.  Carlson also informed Gouge that he did not do any 
advertising as his business was all by word of mouth. 
                                          
 
4 “A viatical settlement contract [ . . . ] includes a contract for a loan or other financial 
transaction secured primarily by an individual or group life insurance policy, other than a 
loan by a life insurance company pursuant to the terms of the life insurance contract, or a 
loan secured by the cash value of a policy.”  Del. Code Ann. tit. 18, § 7502. 
 
6
 
In February 2001, Gouge met with Lillian Vanderwende, a seventy-
year-old widow, who had lodged a complaint against Carlson.  
Vanderwende had responded to an advertisement in Better Years, a 
magazine for seniors, in May 1999.  The advertisement offered an 
investment that was 100% insured with no market risk, and quoted The Wall 
Street Journal and Newsweek in reference to the investment.  There was no 
business name or agent’s name listed in the advertisement – only an 800 
number to call.  When Vanderwende called the 800 number, Carlson 
answered the phone.   
Carlson went to Vanderwende’s home in Houston, Delaware, to 
discuss investment opportunities.  One of the opportunities Carlson 
presented to Vanderwende involved an investment in Wellington Bank and 
Trust.  At a second meeting, Carlson filled out the application for 
Vanderwende to sign.  Vanderwende wrote a check to Wellington for 
$35,000, from her retirement savings, and gave that check to Carlson.  
Vanderwende understood that she was to receive $1,022 per month for ten 
years on her $35,000 investment, a 35% annual percentage rate.  
Vanderwende received eight payments before the payments stopped 
completely.  Vanderwende never recovered her initial investment or any 
 
7
additional interest, nor did she receive any insurance payment as a result of 
her loss. 
 
Some investors who responded to the advertisements in Better Years 
or were otherwise referred to Carlson, invested in certificates of deposit 
from the First International Bank of Grenada (“FIBG”).  Others invested in 
preferred stock of Franklin Capital Holdings or another Wellington company 
through Carlson.  All the investors were told that their investments were 
secure because they were insured through the IDIC, allegedly an 
organization similar to the FDIC, which insures deposits in American banks.   
Carlson assisted in filling out the applications and accepted the checks 
from the investors.  Carlson was listed as an “investment counselor” on the 
beneficiary designation form from FIBG.  Carlson also had the investors 
write and send non-solicitation letters, copying wording he provided.  
Eleven individuals testified at trial that they had invested in an offshore 
instrument through Carlson and lost an aggregate of approximately 
$400,000. 
Expert Testimony – No Plain Error 
For the first time on appeal, Carlson contends that Royce Griffin 
should not have been allowed to testify for the State as an expert witness 
concerning what constitutes a security under Delaware law.  Because no 
 
8
objection was made at trial, that contention must be reviewed for plain error.  
Under the plain error standard of appellate review, the alleged error must be 
so clearly prejudicial to substantial rights as to jeopardize the fairness and 
integrity of the trial process.5 
 
The State called two expert witnesses to testify at trial, William Kerr 
and Royce Griffin.  The purpose of their testimony was to assist the jury in 
understanding why the off-shore certificates of deposit and preferred stock 
investments offered by Carlson were deemed to be securities under 
Delaware law.  Carlson’s attorney initially objected to the admission of 
Kerr’s testimony.  After consulting with Carlson, however, that objection 
was withdrawn.   
No objection, however, was made to the State’s calling of Royce 
Griffin to testify as an expert witness.  The record reflects Carlson’s attorney 
stated that:  “The first witness [Griffin], I have no problem with, assuming 
that he knows Delaware law and he can determine whether or not, under 
Delaware law, these two instruments, the certificate of deposit and the 
preferred stock, are - .”   
 
Carlson’s defense at trial was that he did not know the offshore 
investments were securities.  At the request of Carlson’s attorney, the trial 
                                          
 
5 Wainwright v. State, 504 A.2d 1096, 1100 (Del. 1986).   
 
9
judge instructed the jury on Carlson’s Mistake-of-Fact defense.  Carlson’s 
attorney argued to the jury that Carlson’s mistaken belief that the offshore 
instruments were not securities was understandable because – after all – the 
State found it necessary to call an expert witness with significant credentials 
to explain the definition of the term security.  That defense is repeated on 
appeal in Carlson’s opening brief: 
 
Carlson was convicted, in part, on the legal opinion of 
Royce Griffin, an attorney hired by the State.  The knowledge 
of this Harvard-educated legal scholar was hardly matched by 
the naivety of the financially-unsophisticated Carlson.  The 
attorney-scholar gave the jury his legal interpretation of the 
subtleties in the world of securities law.  Unfortunately for 
Carlson, he did not have the benefit of this attorney-scholar’s 
legal opinion prior to making referrals to the FIBG and 
Wellington banks. 
 
The plain error standard of appellate review generally involves an act 
or omission at trial.  In this case, the record does not reflect inaction.  To the 
contrary, it demonstrates an affirmative decision by Carlson’s attorney not to 
object at trial to the testimony of the State’s expert witness, Royce Griffin.  
That decision appears to have been strategic and consistent with Carlson’s 
defense that he mistakenly thought the offshore investment instruments were 
not securities under Delaware law because the statute was so complicated 
that only an attorney could understand it.  We hold there was no plain error 
 
10
by the trial judge’s decision not to deny Carlson, sua sponte, the effective 
assistance of his trial counsel’s defense strategy. 
Securities’ Statute Provides Fair Notice 
 
Carlson contends that the statutory definition of “security” is 
unconstitutionally vague as applied to him.  As a result, Carlson claims that 
he was not given fair notice that it was illegal to sell FIBG certificates of 
deposit and Wellington stock without registering to sell securities.  “[T]he 
void for vagueness doctrine requires that a penal statute define the criminal 
offense with sufficient definiteness that ordinary people can understand what 
conduct is prohibited and in a manner that does not encourage arbitrary and 
discriminatory enforcement.”6  To prevail on his claim of unconstitutional 
vagueness, Carlson must show that the statute is vague as applied to his own 
conduct.7 
 
The State submits multiple examples of evidence in the record that 
establish why Carlson failed to demonstrate that the statute was vague as to 
his own conduct.  First, Carlson was a licensed insurance agent who knew 
that he was not permitted to sell securities.  Second, he had voluntarily 
signed a cease and desist order agreeing not to sell unregistered securities.  
                                          
 
6 Grace v. State, 658 A.2d 1011, 1015 (Del. 1995) (quoting Kolender v. Lawson, 461 
U.S. 352, 357 (1983)) (internal quotations omitted). 
7 See In re Hanks, 553 A.2d 1171, 1176 (Del. 1989) (quoting Aiello v. City of 
Wilmington, 623 F.2d 845, 850 (3d Cir. 1980)).   
 
11
Third, Carlson testified that he believed the Grenadian certificates of deposit 
were exempt from registration because domestic certificates of deposit were 
exempted.  Finally, Carlson’s behavior exhibited knowledge that he should 
not have been selling the offshore products for the following reasons:  
Although Carlson denied advertising that he was selling investments, he 
placed blind advertisements without his name or the name of his business in 
the advertisements.  Carlson’s name and business were not mentioned in the 
recording that potential customers reached when they called the number 
listed in the advertisement.  Carlson asked investors to copy a non-
solicitation letter he had drafted and to send that letter to Wellington.  
Carlson had two sets of business cards, one set including reference to high-
yield investments and the other without any reference to investments.   
The definition of “security” in section 7302(a)(17) provides notice of 
the types of investment instruments to which the Delaware Securities Act 
applies.  “Security” means: 
any note; stock; treasury stock; 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, including pyramid promotion which 
includes any plan or operation for the sale or distribution of 
property, services, or any other thing of value wherein a person 
for a consideration is offered an opportunity to obtain a benefit 
which is based in whole or in part on the inducement, by 
himself or herself or by others, of additional persons to 
 
12
purchase the same or a similar opportunity; voting-trust 
certificate; certificate of deposit for a security; certificate of 
interest of participation in an oil, gas or mining title or lease or 
in payments out of production under such a title or lease; 
options on commodities; 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 aforegoing.  “Security” does not include 
any insurance or endowment policy or annuity contract under 
which an insurance company promises to pay money either in a 
lump sum or periodically for life or for some other specified 
period.8   
 
Section 7304 provides that all securities must be registered unless exempted 
under the Act.  Section 7309 lists the exemptions.  There is no reason to 
believe that an “ordinary person” cannot ascertain and understand the 
meaning of the term “stock.”  The meaning of “certificate of deposit” is 
equally comprehensible by an ordinary person.  Certificates of deposit are 
specifically referenced in section 7309 as being exempt only when issued or 
guaranteed by the United States or a local government in the United States.9   
We hold that the Delaware definition of securities in the Delaware 
Securities Act is not vague.  Other jurisdiction with similar statutory 
definitions of security have found no vagueness problems.10  The Delaware 
                                          
 
8 Del. Code Ann. tit. 6, § 7302(a)(17). 
9 See Del. Code Ann. tit. 6, § 7309(a)(1). 
10 See e.g., State v. Ramos, 860 P.2d 765, 769-70 (N.M. Ct. App. 1993) (finding no 
vagueness problem in definition of “security” and noting that “[o]ur conclusion is further 
buttressed by decisions of courts in other jurisdictions that have upheld similar state 
securities legislation against constitutional challenges based on allegations of vagueness”  
 
13
statute provided Carlson with fair notice that the offshore investment 
opportunities he was offering were securities under Delaware law and that 
the sale of those unregistered securities was illegal.   
Conclusion 
 
The judgments of the Superior Court are affirmed. 
 
                                                                                                                             
 
(collecting cases)).  See also United States v. Tehan, 365 F.2d 191, 198 (6th Cir. 1966); 
Armstrong v. State, 811 P.2d 593, 598 (Okla. Crim. App. 1991).  Szpunar v. State, 783 
N.E.2d 1213, 1220 (Ind. Ct. App. 2003).