Title: South Carolina v. Sterling

State: south-carolina

Issuer: South Carolina Supreme Court

Document:

THE STATE OF SOUTH CAROLINA
In The Supreme Court
The State, Respondent,
v.
John M.
          Sterling, Jr., Appellant.
Appeal from Lexington County
Edward B. Cottingham, Circuit Court Judge
Opinion No.  27096
  Heard October 4, 2011  Filed February 29,
2012  
AFFIRMED
William
          W. Wilkins, Kirsten E. Small  and Andrew Mathias, all of Nexsen Pruet, of Greenville,
          for Appellant.
Attorney
          General Alan Wilson, Chief Deputy Attorney General John W. McIntosh  and Assistant
          Attorney General William M. Blitch, Jr., all of Columbia, for Respondent.
JUSTICE
  PLEICONES:  Appellant was charged with three criminal offenses:
  securities fraud in violation of S.C. Code Ann. § 35-1-501(3) (Supp. 2010);[1] making false or misleading statements to the State Securities Commission in
  violation of S.C. Code Ann. § 35-1-505 (Supp. 2010); and criminal conspiracy in
  violation of S.C. Code Ann. § 16-17-410 (2003).  He was convicted of securities
  fraud, acquitted of making a false or misleading statement and conspiracy, and
  received a five-year sentence.  He now appeals, alleging the trial judge abused
  his discretion in permitting testimony from investors, that he erred in denying
  appellant's directed verdict motion, and that he committed reversible error in
  charging the jury.  We ­­­­­­­­­­­­­­­­­­affirm.
FACTS
Appellant and several other
  businessmen invested in a company in the 1970s that leased railroad box cars. 
  That company eventually declared bankruptcy, but emerged with one asset: a
  deferred tax asset (DTA).  This DTA, which could be carried forward on a
  company's books to offset future profits, fluctuated in value depending on
  whether the company anticipated making a profit.  This post-bankruptcy company
  was known as NRUC.  In 1991, NRUC acquired a Pickens-based company, Carolina
  Investors, Inc. (CI).  
CI had been founded in 1963,
  originally for the purpose of making loans to individuals purchasing cemetery
  plots.   CI, which was funded by notes and subordinated debentures sold
  exclusively to South Carolina investors, eventually began making small
  household loans and, by 1970, was involved in non-conforming subprime
  mortgages.  Non-conforming and subprime mortgages are made to persons who
  cannot qualify for regular (conforming) mortgages: non-conforming mortgages
  carry a higher interest rate reflecting the greater risk of default.
CI had a policy of allowing
  investors to redeem their debentures at any time prior to maturity upon fifteen
  minutes' notice, albeit at a reduced interest rate.  CI's investments were not
  federally insured, but because it made loans to persons who could not meet the
  credit standards required by conforming mortgage lenders, it paid higher than
  average interest rates on the notes and debentures.
NRUC was subsequently renamed
  Emergent and later HomeGold Financial (HGFin).[2] 
  HGFin, the parent company, acquired a number of other financial subsidiaries,
  one of which, HomeGold, Inc. (HGInc), became a subprime lender.  Thereafter,
  while CI continued to raise monies through the sale of notes and debentures,
  those funds were loaned to HGFin and its other subsidiaries, and used primarily
  to expand business operations and pay business expenses of those entities.
During the period 1995-97,
  the HGFin companies were very profitable.  In 1996, HGFin went public,
  divesting itself of several subsidiaries and becoming a pure financial services
  entity.  In late 1997, HGInc, the subprime lender subsidiary, lost its leader,
  who took much of his team with him.  That loss, coupled with a worldwide credit
  crisis in 1998, caused HGInc to suffer enormous losses.  In an effort to
  recover economic viability, HGFin sold most of its other financial service
  subsidiaries, keeping only HGInc and CI.  From 1998 until HGFin declared
  bankruptcy in 2003, HGFin and HGInc[3] never had an operating profit.
The retail mortgage lending
  business relies on "warehouse lines" from large lenders in order to
  operate.  Essentially, the warehouse lines provide the working capital for the
  lending business, and the stability of those lines, which is dependent upon the
  large bank's confidence in the lender, is critical to the mortgage lender's
  business.
In its efforts to keep HGInc
  operational, with the hope it could repay to CI all the monies loaned by CI to
  HGInc (the intercompany debt), HGFin shrank both the number of subsidiaries and
  the operational aspects of HGInc.  Eventually, HGFin began to look for a merger
  partner for HGInc in order to save the business.  After several merger
  prospects fell through, HGFin settled upon a Lexington, South Carolina,
  subprime lender called HomeSense, which was owned by Ronald Sheppard. 
  Appellant, who at the time of the 2000 merger between HomeSense and HGInc was
  CEO of both HGFin and HGInc, chairman of the board of both HGFin and HGInc, and
  on CI's board, was the leading proponent of the HomeSense merger.
The HomeSense-HGInc merger
  was not a success.  First, due diligence completed after the merger
  demonstrated that HomeSense had significantly overstated its net worth.  HGInc
  and Sheppard subsequently canceled a mutual indemnity agreement in exchange for
  Sheppard's remaining a guarantor on certain HomeSense debts.  Second, Sheppard
  proved to be an abrasive leader whose leadership style and aggressive
  accounting maneuvers caused a number of HGInc and HGFin officers and executives
  to leave.  Sheppard also placed personal expenses on the company books using
  HGInc to subsidize his extravagant lifestyle.  
After the merger, appellant
  ceased to be an employee, but remained as chair of both the HGFin and HGInc
  boards, and remained on CI's board.  He continued to be supplied with an
  office, an administrative assistant, and a salary.  Over the next three years,
  the financial decisions made on behalf of HGInc resulted in numerous
  resignations by CFOs and others.  In addition, the HGInc-HomeSense merger
  permitted HGInc's largest warehouse lender (CIT) to end the relationship. [4] 
  As a result of the loss of CIT's warehouse line, HGFin and HGInc's continued
  financial woes, and their reliance on CI investor money to stay in business, it
  became increasingly difficult for HGInc to obtain sufficient warehouse lines to
  fund its loans even as it began to increase its share of the subprime mortgage
  market.  HGFin and HGInc continued to struggle and began moving debts and
  assets among the companies in order to hide its financial difficulties.
Appellant's defense was
  predicated in large part on the fact that the financial maneuvers that took
  place were approved by outside auditors, and that the Wyche Law Firm vetted and
  approved all of the companies' governmental filings and prospectuses.  As
  stated above, the jury acquitted appellant of making false or misleading
  statements to the State Securities Division.  Reliance upon the outside
  auditors' approval, however, is misleading.  For example, the outside auditors
  agreed to an increase in the value of the DTA from $12 million to $22 million,
  as urged by appellant, in HGInc's unaudited third quarter 2000 10-Q.  The
  auditor testified, however, that had he been told that this change in valuation
  was being made because HGInc needed to show a positive net equity in that
  quarter in order for it to renew its state mortgage licenses, that information
  would have "raised a red flag" and alerted him to the precarious
  nature of HGFin's finances.  
Similarly, while the auditor
  was aware that CIT, HGInc's largest warehouse lender, was withdrawing its line
  of credit following the HomeSense merger, the auditor was never told that this
  secured lender had told appellant and others that it was ending the
  relationship because it "didn't want to be standing in front of a little
  old lady in Pickens County during a bankruptcy proceeding."  Again, this
  information would have raised a red flag for the auditors, indicating that a
  secured creditor was fearful of HGInc's financial worth.  Moreover, there was
  evidence that the auditors were not informed of certain regulatory inquiries,
  in violation of their management letter.  
Over time, the only thing
  keeping HGInc in the retail mortgage business was the influx of cash from CI
  investors.  In 1999, the intercompany debt, owed by HGInc to CI, was about $67
  million; in 2000, $100 million; by the end of 2001, $144 million; and at year
  end 2002, more than $243 million.  
By 2001, the outside auditors
  expressed grave concerns over HGInc's ability to repay the intercompany debt to
  CI and its ability to remain a going concern, and they criticized a number of
  its accounting decisions.  HGFin and HGInc continued to rely on overly
  optimistic projections to suggest that the companies could recover viability. 
  In October 2001, the auditors required HGFin to obtain an independent valuation
  of HGInc to determine whether the intercompany debt between HGInc and CI should
  be reported as "impaired."  An impairment is an opinion by the
  auditors that the borrower cannot fully repay its debt.
On March 14, 2002, the
  auditors told HGFin that they would place a "going concern" paragraph
  in HGFin's 2001 audited financial statements.  A "going concern"
  paragraph is an expression of doubt whether the business will still exist in a
  year.  Moreover, the accountants rejected a valuation of HGInc for debt
  impairment purposes done by CBIZ, which had valued HGInc's net worth at
  approximately $170 million.  HGFin then ordered a loan impairment valuation
  from Deloitte and Touche, which valued HGInc at between $130-$140 million. 
  This valuation was accepted by the auditors, but because the 2001 year-end debt
  owed to CI stood at approximately $144 million, the auditors were required to
  report that the intercompany loan was impaired.  As a result, HGFin's 2001
  audited financial statement included both a "going concern" statement
  and a "loan impairment" opinion for the outside auditors. This
  impairment opinion stated that the auditors had determined that HGInc could not
  repay $6.7 million of the $144 million 2001 year-end debt owed to CI. 
In April 2002, the CI
  prospectus acknowledged the "going concern" opinion of HGFin's
  outside auditors and the loan impairment, but also referred to the CBIZ and
  Deloitte valuations.  Inclusion of these valuations violated the terms of the contracts
  between HGFin and the two companies, which provided the valuations were not for
  public use and were to be used solely for financial reporting purposes in
  calculating loan impairment.  Although there was evidence that the inclusion of
  these valuations was improper and misleading to the extent they suggested a
  reliable market price for HGInc, these references in the CI prospectus were
  approved by the Wyche firm, which did the securities work for HGFin and its
  subsidiaries.[5] 
  Wyche attorneys testified they approved the reference to the CBIZ valuation,
  even though it had been rejected by the outside auditor, and to the inclusion
  of both CBIZ and Deloitte valuations in the prospectus as indicative of HGInc's
  value, even in light of the explicit limitations on their use, on the theory it
  was management's view of a material fact.
Throughout 2002, HGFin
  struggled.  Following a run on CI deposits in August 2002, the HGFin board,
  from which appellant had resigned as chairman in June 2002 but remained as a
  member, met with a bankruptcy attorney.  This meeting included a discussion
  whether CI should be placed in a conservatorship or receivership.  Appellant
  was also on CI's board.  As for CI, only appellant and Sheppard, who were both
  on CI's board, were aware of this meeting at which the future of CI was
  discussed.
In mid-2002, HGFin had begun a
  search for a buyer for HGInc, the retail mortgage operation.  HGInc's warehouse
  lines were being reduced or withdrawn as a result of the going concern opinion
  and the loan impairment opinion in the company's 2001 financial statement. 
  HGFin officers misled CI's board into believing that legitimate outside buyers
  were interested in purchasing HGInc's mortgage business, when in fact no viable
  deal could be found.  Recall that appellant was on both the HGFin board and
  CI's board.  In November 2002, the HGFin board agreed to allow Sheppard to form
  a corporation (EMMCO) to buy the HGInc subprime mortgage business, and began
  talking about a possible receivership for CI.  Sheppard resigned from the HGFin
  board at this juncture.  The CI board members who were not also on HGFin's
  board were unaware for several weeks of this November 2002 plan to sell HGInc
  to the new Sheppard business venture.
Although the CI board was
  told that HGFin and HGInc were no longer taking money from CI in August 2002, in
  fact HGFin continued to use these funds to keep HGInc in business.  In January
  2003, appellant asked two CI board members, Earle Morris and Larry Owen, to
  meet him  at a restaurant.  Appellant told Morris and Owen that HGFin was
  looking into bankruptcy, but minimized the possibility.  In February 2003,
  Larry Owen, president of CI and one of the CI board members who was at the
  restaurant meeting, learned from the state securities division that, in fact,
  HGFin was still using CI investors' money to fund HGInc's obligations. 
In March 2003, matters came
  to a head.  During the week of March 17, 2003, HGFin was monitoring CI's money
  situation closely, requiring CI to frequently report deposits made, and
  transferring money only as needed for CI to pay investor redemptions.  In a
  March 20 call to the CI board, Karen Miller, then CFO for HGFin, told the CI
  board that HGInc should have money available very soon that would ease CI's
  cash flow issues.  Appellant, who had remained on the CI board, resigned that
  night.  At 9 am on March 21, Miller called and informed CI that it would have only
  $84,000 for the day, and scheduled another CI board call for 2 pm.  At that 2
  pm call, the CI board was informed that HGFin was filing bankruptcy, and that
  CI needed to find an attorney to represent it.  Both CI and HGFin ceased
  operations on that Friday, and both subsequently declared bankruptcy.
ISSUES
1)  Did the trial court err in permitting five CI
    investors to testify?
2)  Did the trial court err in denying appellant's
    directed verdict motion?
3)  Did
    the trial court err in charging the jury?
ANALYSIS
1.     Investor Testimony
Appellant contends the lower
  court erred in permitting five CI investors to testify.  This issue is not
  preserved for appellate review.
The record contains a partial
  transcript from a hearing before Judge Johnson on September 7, 2007.  In the
  course of this transcript, Judge Johnson is apparently reviewing pretrial
  motions, and states that he has before him a motion to exclude some "kind
  of invested [sic] testimony."  Judge Johnson then says that "a
  determination of whether or not the testimony being tendered by a particular
  investor is relevant and I don't know that I can make that all without hearing
  what the testimony is" and declines to rule on the motion at that
  juncture.  
The record also includes
  "Defendant's Confidential Trial Brief for Judge Cottingham Only." 
  This brief was presented to Judge Cottingham before the trial commenced on
  February 9, 2009.[6] 
  This document contains this section:
Investor Testimony
The
  State will likely attempt to introduce testimony from individuals who lost
  substantial sums of money invested in the notes and debentures of CII. 
  However, it appears that none of these investor witnesses will testify that
  they ever spoke to or corresponded with Jack Sterling about their investments. 
  In previous related trials, witnesses testified to false and misleading
  statements made to them by Larry Owen and Earle Morris.  The investors also
  provided heart-wrenching testimony about the impact of their losses.  The
  defendant's objection to such testimony is stated in our Motion to Exclude
  Irrelevant and Unduly Prejudicial Investor Testimony filed on August 24, 2007.
In
  summary, under Rule 403 of the South Carolina Rules of Evidence, the State
  should not be permitted to introduce emotionally charged and highly prejudicial
  testimony of investors who had no dealings with Sterling.  Unless the State
  proves something more than a merely speculative connection between Sterling and
  the false statements of others, the testimony is not probative of Sterling's
  guilt.  Since the defense is prepared to stipulate to the amount of investor
  losses flowing from the bankruptcy of CII and HomeGold, any probative value of
  testimony from an investor who had no dealings with Sterling is vastly
  outweighed by its unduly prejudicial impact, which would seriously jeopardize
  Sterling's right to a fair trial.
There is no mention of this
  document nor any objection to any investor testimony in the record.  Shortly
  before this case was to be heard on appeal, appellant's appellate attorneys
  filed a motion to supplement the record with the affidavit of his trial attorneys,
  which this Court granted without prejudice to our right to find no objection to
  the investors' testimony was preserved for appeal.  The gist of this affidavit
  is that
(1)  the confidential trial brief was filed January
    26, 2009; and 
(2)  at trial, when the State proposed to call
    investor witnesses, trial counsel "strenuously objected to the admission
    of their testimony during one such in-chambers meeting. . . ."  
This affidavit does not: (1) clarify
  when the objection was renewed at trial, and since the CI investors did not
  testify sequentially, it is impossible to determine whether one or more
  testified without objection; (2) specify what arguments were raised in this in
    camera motion; or (3) reflect the basis for the trial court's ruling.  
a)  Relevance
Appellant argues that the
  testimony of the CI investors was irrelevant to the question whether he had the
  intent to defraud them, as they had never met or spoken with him.  However, the
  State was required to prove that at least one investor lost money, and if
  appellant was convicted, his sentence would be determined by the amount of
  money lost.  See S.C. Code Ann. § 35-1-508(a) (Supp. 2010).  The CI
  investors' testimony was not "wholly irrelevant."  
b)   Impact evidence
Appellant argued in his
  pretrial brief that the anticipated testimony of the investors about the impact
  of those losses on their lives, coupled with the testimony of the amount of the
  losses, was more prejudicial than probative and should therefore be excluded
  under Rule 403, SCRE.  We agree that it appears evidence of the impact is
  irrelevant to appellant's criminal charges, but in this situation it is
  critical to know exactly what appellant's Rule 403 argument was and exactly why
  the trial judge exercised his discretion and permitted this testimony.  While
  it appears that the CI investors' testimony should have been limited to the
  amount of their pecuniary losses, there is no evidence appellant sought to
  limit their testimony in this manner.  Rather, from the record, it appears that
  he sought to exclude these witnesses from testifying at all.  On this record,
  we are unable to find any error in the trial judge's decision to deny
  appellant's request to disallow the CI investors' testimony.  E.g., State
    v. Freiburger, 366 S.C. 125, 620 S.E.2d 737 (2005) (appellant's burden to
  present a sufficient record for appellate review).
2.  Directed Verdict
At the close of the State's
  case, appellant made the following directed verdict motion:
Attorney:    At
    this time, your Honor, we'd move for a directed  verdict
    on all three counts, but particularly on the  count
    of filing the letter to the [state] Securities Commission,
    because it was clear from the course, in  the
    light most favorable to the State, that from all  their
    witnesses all we've heard is that that letter was run
    by the Wyche firm, there was testimony the letter may
    have been authorized by the Wyche firm, no  doubt
    advice of counsel and reliance, valid reliance on
    advice of counsel with fully informed counsel.
The
    Court:  You're asking for a directed verdict as to what count?
Attorney:    Count
    two, your honor.
The
    Court:  Count two, be glad to hear from you.
The
    State:   Thank you, your honor.  I think Keith Giddens[7] said it was misleading and I think
    that's all we need to go to
    the jury.
The
    Court:  Yes.  The fact that there is some evidence from which  the
    jury will consider as I rule on the motion for  directed
    verdict, not the weight of it.  I conclude that based
    on the totality of the facts that there is sufficient
    evidence to go forward on all counts, one,  two
    and three.
Attorney:    Your
    Honor, would you revisit that?  We'll make the  appropriate
    motions at the end of the full case.
The
    Court:  No question about it, you're entitled to have it  revisited
    in full.
Attorney:    Thank
    you, your Honor.
  The
    Court:  And I can handle it better at that time after hearing the
    defense anyway.
Attorney:    Yes,
    sir.
 At the end of the
  testimony, the following exchange occurred:
The
    Court:  All right, sir.  Any motions from the State at this  time?
The
    State:   None from the State, your Honor.
The
    Court:  Any from the defendant?
Attorney:    Your
    Honor, we'd renew our motions we made earlier at
    the end of the State's case for a directed verdict.
The
    Court:  I accept those motions, and for the reasons previously stated,
    concluded that the issues to which you refer are
    questions of fact for the jury.  As you well know, if
    there's some testimony on these various counts, that  I'm
    obligated to send it to the jury.  The jury's concerned
    with the weight of it.  And there is  sufficient
    evidence in the case to go forward.  Your  motions
    are respectfully denied.
Attorney:    Thank
    you, your Honor.
Second
    Attorney:   Your Honor, may I add one more motion to  [Attorney's]
    motion?
The
    Court:  Yes, sir.
Second
    Attorney:  As to count two, we want to specifically ask  the
    Court to dismiss count two regarding false statements
    to the[state] Securities Commission on the grounds
    that the indictment failed to allege the  essential
    element of willfulness, and the grand jury did
    not pass on that essential element, and therefore  it's
    not a criminal offense and the count should be dismissed.
The
    Court:  I anticipated your motion, and as I looked at count  two
    count one, and count one specifically designates the
    word "willful."  And count one is a part of count two. 
    Would you like to be heard on that?
The
    State:   Yes.  We did incorporate the previous paragraph in the
    count.
The
    Court:  That is incorporated in there and the word "willful" is  contained
    therein.  Again, thank you for calling that to
    my attention, but that motion for the reasons stated also
    is respectfully denied.
A directed verdict is
  properly denied where there is any evidence, direct or circumstantial, which
  reasonably tends to prove the defendant's guilt.  State v. Brandt, 393
  S.C. 526, 713 S.E.2d 591 (2011).  When reviewing a denial of a directed
  verdict, "an appellate court views the evidence and all reasonable
  inferences in the light most favorable to the State."  Id. (citation omitted).  A general directed verdict motion, however, does not
  preserve any issue for appeal.  State v. Bailey, 298 S.C. 1, 377 S.E.2d 581 (1989).  
At trial, the only count for
  which appellant identified deficiencies in the State's case was count 2, one of
  the two charges of which appellant was acquitted.  There is no proper directed
  verdict issue concerning count 1 preserved for our review.  State v. Bailey, supra.  In any case, had a proper motion been made, it should have been
  denied.  Appellant's indictment specifies numerous ways in which he is alleged
  to have violated § 35-1-501(3).  In order to withstand appellant's directed verdict
  motion on count 1, the State need only have presented some evidence to support
  any one of these allegations.
Paragraph 32(i) of the
  indictment alleges that after appellant learned that the outside auditors were
  going to place a going concern statement and loan impairment in HGFin's audited
  2001 financial statement, which would then be included in CI's 2002 prospectus,
  he
. . .
  met with officers, directors and employees of [CI], several of which were
  investors in [CI] securities, in an effort to downplay negative information
  concerning the company and put a positive spin on [HG]'s speculative efforts to
  return to profitability.  [Appellant] knew the misleading information shared
  with the officers, directors and employees of [CI] would be disseminated to
  potential or current investors in [CI] securities.
As explained below, the State
  presented evidence that appellant, "directly or indirectly . . . engage[d]
  in an act . . . that operate[d] . . . as a fraud or deceit upon another
  person" in violation of § 35-1-501(3) in connection with this meeting.
Larry Owen, the president and
  long-term board member of CI, testified that he felt enormous pressure to
  "embellish" once he learned the 2002 CI prospectus would contain both
  going concern and impaired loan statements.  Appellant asked Owen to set up a
  meeting with the CI board members and CI's staff in early April 2002. 
  Appellant decided that the CI employees ("investment counselors") who
  dealt with CI's customers would need a summary to help them understand how to
  explain the prospectus.[8] 
  Owen and appellant discussed the information to be included in this document,
  which Owen typed up and his wife handed out at the meeting.  
Appellant, Owen, and an HG
  officer spoke at this meeting.  The investment counselors were told to play up
  the positives in the prospectus, including the valuations done by CBIZ and
  Deloitte of HGInc's financial worth.  Recall that these valuations were
  specifically restricted to private use to determine loan impairment only.  As
  Owen explained, the point of the memorandum and meeting were to simplify and
  minimize the negative financial information in the prospectus because:
[Y]ou
    know, most of our counselors had money there and their families had money there
    and their friends had money there and I knew if just the slightest conveyance
    of something negative like that was spilled, then it could cause a run.
Appellant helped prepare the
  memorandum by discussing most of its contents, and he was present at and
  participated in the meeting.  There was evidence that the purpose of the April
  2002 meeting and the memorandum was to divert the attention of investors
  (including the investment counselors present) from the grim news in the
  prospectus by directing it to the optimistic projections and valuations after having
  pointed out the impairment and going concern paragraphs.  Indeed, an investment
  counselor testified that she left the meeting "feeling that the going
  concern language was not something that was that dire," at least in part
  because it had been emphasized that if HGInc were sold for the appraised values
  placed upon it by CBIZ or Deloitte, CI investors would be paid in full.  This
  investment counselor left her $80,000 in CI, and lost it all when the business
  closed. 
The State presented
  sufficient evidence to withstand any directed verdict motion on count 1, as the
  jury could have found from this evidence that appellant knew the misleading
  information he shared at the April 2002 meeting would be disseminated to
  "investors" as charged in ¶32(i).
Appellant did not properly
  preserve any directed verdict motion as to count 1.  State v. Bailey, supra. 
  Moreover, as there is evidence that he "engaged in an act that operated as
  a fraud or deceit upon another person" in violation of § 35-1-501(3), had
  the issue been raised, the trial judge would have been correct in denying a
  directed verdict on count 1.
3.  Jury Charge
South Carolina law makes it
  unlawful for an individual to either directly or indirectly "engage in an
  act, practice or course of business that operates or would operate as a fraud
  or deceit upon another person in connection with the offer, sale, or purchase
  of a security."  §35-1-501(3).  An individual who willfully violates this
  statute is punished in accordance with the provisions of § 35-1-508; see § 35-1-501 cmt. 6, "The culpability required to be pled or proved under section
  501 is addressed in the relevant enforcement context . . . e.g. section 508 . .
  . where "willfulness" must be proven . . . ."  Conduct is
  willful within the meaning of § 35-1-508 if the person acts intentionally, that
  is, he is aware of what he is doing.  Willfulness does not require that the
  person act with an evil motive or with the intent or knowledge that the law, in
  this case § 35-1-501(3), is being violated.  § 35-1-508 cmt. 2.
Thus, in order to violate the
  statute there must be evidence that the defendant's conduct was willful or
  intentional (§ 35-1-508) and that he did something that would or did operate as
  a fraud or deceit on another person (§ 35-1-501).  Knowledge or intent that his
  conduct violated the securities law is not required (cmt. 2, supra) but
  the State must present evidence that the defendant made statements or committed
  acts that he knew presented a danger of misleading an investor.  State v.
    Morris, 376 S.C. 189, 656 S.E.2d 359 (2008).  In Morris, this Court
  approved a jury charge on mens rea under these code sections that
  informed the jury it could find the defendant guilty if it found he knowingly
  committed misconduct, or if his actions "presented a danger of misleading
  buyers or sellers that is either known to [defendant] or is so obvious that
  [defendant] must have been aware [that it was misleading]."  We found no
  error in charging the jury that it could find the defendant guilty if his
  misleading acts were either intentional or severely reckless, that is, he knew
  his conduct could mislead investors.  Id.
Appellant's jury
  was charged:
[A]
    material element of the securities fraud prosecution is the demonstration of
    the existence with  [sic]what is called scienter.  Scienter is a mental state
    embracing intent to deceive, manipulate or defraud.  Mere negligence will not
    suffer [sic] for conviction.  Allegations of scienter must be based on a
    substantial factual basis in order to create [sic] strong inference that the
    defendant acted with the required state of mind as required [sic].  I would
    further charge you that scienter may be established by a showing of knowing
    misconduct or severe recklessness.  Proof of such recklessness would require a
    showing that the defendant's conduct was an extreme departure of [sic] ordinary
    care which would present a danger of misleading buyers or sellers that is known
    to the defendant or is so obvious that the defendant must have been aware of
    it.
Following the charge,
  appellant objected to the severe recklessness language as it related to count
  one on the ground the charge (1) is inconsistent with the statutory definition
  of intent and conflicts with federal authority; and (2) effectively lowers the
  burden of proof, violating both a defendant's right to a fair trial and due process. 
  The objection was overruled on the basis that the charge was taken directly
  from the case of State v. Morris, supra, which this Court had
  recently affirmed.  Appellant lodged no further objection to the charge, nor
  did he object to the trial court's remedies when the jury subsequently sought
  clarification of the charge.
We first address the issues
  raised at trial.  Neither § 35-1-501 nor § 35-1-508 includes the word 'intent,'
  and we therefore do not understand the contention that the Morris charge
  is inconsistent with a statutory definition.  We are within our authority to
  determine the level of intent required for a violation of the securities
  statute because the legislature did not specify any mens rea.  Morris, supra; State v. Jeffries, 316 S.C. 13, 446 S.E.2d 427 (1994).  Moreover,
  in Morris, we held that because the General Assembly did not specify the
  requisite mens rea for a violation of the securities law, we should not
  weaken the legislators' decision to criminalize the making of these types of
  false or misleading statements by imposing a high standard of intent.  Id. at 201-202, 656 S.E.d at 366. 
In Morris, we
  construed the statute making it unlawful to engage in conduct that operates as
  a fraud or deceit upon another person (§ 35-1-501) with the statute (§
  35-1-508) that criminalizes an unlawful violation of § 35-1-501.  In so doing,
  we were guided by the official comments to § 35-1-508, which informed us that
  willful means only that the person's conduct was intentional, not that his
  state of mind was evil or that he intended to violate § 35-1-501.[9] 
  'Recklessness' is one level of criminal intent, as are 'knowledge and
  negligence.'  State v. Jeffries, supra.[10]  
Under Jeffries,
  intentional connotes a higher sense of awareness than mere recklessness.  In Morris,
  we approved a charge that equated knowingly with severe recklessness.  While
  severe recklessness is not a common criminal mens rea standard, under
  the charge approved in Morris, severe recklessness means simply that one
  cannot escape liability by "shutting one's eyes to what would otherwise be
  obvious."  This is a longstanding tenet of criminal law.  See State
    v. Thompkins, 263 S.C. 472, 211 S.E.2d 549 (1975).  Appellant's charge did
  not violate any statutory definition of intent.  Further, we find no
  constitutional infirmity in the charge approved in Morris and given
  here.  In addition, we note that appellant has not sought to argue against the Morris/Jeffries/Thompkins precedents.  Finally, appellant's reliance on federal authority is misplaced,
  as we are interpreting only our state securities statutes.  The trial judge
  committed no error in overruling appellant's only objections to the jury
  charge.
On appeal, appellant seeks to
  raise additional challenges to the jury charge.  It is axiomatic that a party
  may not change his grounds of objection on appeal.  E.g., State v.
    Meyers, 262 S.C. 222, 203 S.E.2d 678 (1974).  We therefore address these
  arguments only briefly.
First, appellant contends he
  is arguing about the absence of a "willfully with bad purpose"
  charge.  Under our securities act, "proof of evil motive or intent to
  violate that law" is not required.  See cmt. 2 to § 35-1-508; State
    v. Morris, supra.
Appellant also complains that
  the jury charge given in connection with count 1 was confusing, and refers to
  the jury's repeated requests for clarifying instructions.  At trial, however,
  appellant never raised the issue of the jury's apparent confusion, nor did he
  seek to have the trial judge alter his response to the jury's inquiries or
  object to the accuracy or sufficiency of these responses.  Had he done so, he
  would have given the trial court the opportunity to alter the charge in some
  way.  Having failed to raise any objection at trial, appellant cannot now do so
  on appeal.  E.g., State v. Hale, 284 S.C. 348, 326 S.E.2d 418
  (Ct. App. 1985).
Appellant now argues that the
  ruling in Morris upholding the jury charge on severe recklessness is dicta
  because the Court also held that the evidence showed Morris intentionally misled
  investors, and therefore Morris was not prejudiced by the charge even if it
  were improper.  Appellant's argument admits too much:  as was the case in Morris,
  there is abundant evidence that appellant intentionally engaged in acts,
  procedures, and a course of business that operated as a fraud or deceit upon
  others.  Accordingly, even if we were to now alter or abandon the charge,
  appellant could not show any prejudice warranting relief.
CONCLUSION
Appellant's conviction and
  sentence are
AFFIRMED.
TOAL, C.J., BEATTY, J.,
  and Acting Justice James E. Moore, concur. HEARN, J., concurring in part and
  dissenting in part in a separate opinion.
JUSTICE HEARN: Respectfully, I concur in part and dissent in part.  I
  agree with the majority that Sterling's challenges to the circuit court's
  denial of his motion for a directed verdict and the admissibility of investor
  impact testimony are not preserved for review.[11] 
  However, I agree with the argument Sterling made at trial and in his brief that
  the court's charge lowered the mens rea for a conviction of securities
  fraud.  
The charge given to
  Sterling's jury was culled from our decision in State v. Morris, 376
  S.C. 189, 656 S.E.2d 359 (2008).  The language in the instant case to which
  Sterling objects reads as follows:
I charge
  you that a material element of the securities fraud prosecution is the
  demonstration of the existence of what is called scienter.[12]
Scienter
  is a mental state embracing intent to deceive, manipulate or defraud.  Mere
  negligence will not suffer [sic] for conviction.  Allegations of scienter must
  be based on a substantial factual basis in order to create a strong inference
  that the defendant acted with the required state of mind as required [sic].
I would
  further charge you that scienter may be established by a showing of knowing
  misconduct or severe recklessness.  Proof of such recklessness would require a
  showing that the defendant's conduct was an extreme departure of ordinary care
  which would present a danger of misleading buyers or sellers that is known to
  the defendant or is so obvious that the defendant must have been aware of it.
When broken down, this charge
  permitted the jury to convict Sterling based on any one of three different
  levels of intent: (1) knowing misconduct; (2) conscious disregard of a known
  risk; or (3) disregarding a risk that Sterling should have known about, but did
  not.  My objection to the charge is two-fold.  First, I believe the charge
  approved by the Court in Morris sanctioning a conscious disregard
  standard was erroneous and thus the circuit court here did not correctly charge
  the jury on the law of securities fraud in South Carolina.  Second, assuming
  the correctness of Morris charge, the circuit court's charge in this
  case permitted a conviction upon a "should have known" standard,
  which is an even lower mens rea than that sanctioned by Morris. 
  I would therefore reverse and remand for a new trial.
I.
In Morris, this Court
  held that knowing and intentional conduct is not required for a conviction of
  securities fraud.  This holding was grounded in its belief that Section
  35-1-508(a) of the South Carolina Code (Supp. 2010)[13] did not specify a necessary level of intent. 376 S.C. at 201, 656 S.E.2d 
  at 366.  Thus, the Court was "extremely reluctant to draw such [a]
  distinction[]" itself. Id.  However, this central premise to Morris is erroneous because section 35-1-508 does, in fact, specify a mens rea requirement: it expressly states that a person must act willfully. See S.C.
  Code Ann. § 35-1-508(a) (Supp. 2010) ("A person that wil[l]fully violates
  this chapter . . . .").  
As the comments to section
  35-1-508 provide, willfulness requires "proof that a person acted
  intentionally in the sense that the person was aware of what he or she was
  doing.  Proof of evil motive or intent to violate the law or knowledge that the
  law was being violated is not required." Id. cmt.2.  Willfulness in
  this context thus goes
no
    further than to denote that the actor had a purpose or willingness to commit a
    particular act or omission, in which case there is no requirement that the
    actor specifically intended to violate the law or injure another.  In that
    event, the term "willful" requires only that the prohibited act occur
    intentionally, and merely implies that a person knows what he or she is doing,
    intends to do what he or she is doing, and is a free agent.  Under this view,
    the essence of willfulness is that the actor be aware of what he or she is
    doing, which is to say that his or her actions are intentional, in contrast to
    that which is thoughtless or accidental.
21 Am. Jur. 2d Criminal
  Law § 130 (2011).  When read with section 35-1-501(3), section 35-1-508(a)
  consequently criminalizes actions taken by a person who knowingly and
  intentionally engages in an act, practice, or course of business that operates
  as a fraud upon another person.
Morris, however, held that a conviction for securities fraud
  will stand when the defendant either intentionally misled investors or he
  "knew there was a danger that his conduct would mislead investors."
  376 S.C. at 201, 656 S.E.2d  at 365.  The Court therefore approved of a
  recklessness-based conscious disregard standard: the defendant knew there was a
  risk his statements could mislead investors, but he proceeded anyway. 21 Am.
  Jur. 2d Criminal Law § 127 ("Recklessness involves a subjective
  realization of a risk of a particular result and a conscious decision to ignore
  it, but it does not involve intentional conduct, because one who acts
  recklessly does not have a conscious objective to cause a particular
  result."); see also State v. Rowell, 326 S.C. 313, 315, 487 S.E.2d 185, 186 (1997) (noting that recklessness "connotes a conscious failure to
  exercise due care or ordinary care or a conscious indifference to the rights
  and safety of others or a reckless disregard thereof").  Thus, intentional
  conduct is not required to convict under this standard.  Instead, the actor
  must merely be aware his actions could mislead and yet still engages in
  them.
Based on my reading of the
  statute, I believe this charge does not state the appropriate mens rea under section 35-1-508(a).  Contrary to the Court's holding in Morris and the majority's position in this case, intentional and knowing conduct is
  required for criminal securities fraud.  A person must therefore act knowing
  his conduct will operate as a fraud upon another, not simply consciously
  disregard the risk that his conduct may do so.  While Morris may have a
  persuasive policy rationale in that a person should be prohibited from acting
  when he knows of the danger, it is not found in the language of the statute.  
As to the majority's
  contention that my analysis conflates the concepts of the mental state required
  for one's conduct and mens rea, I do not dispute this as I see no
  meaningful difference between the two.  Indeed, the majority's reference to State
    v. Reid, 383 S.C. 285, 679 S.E.2d 194 (Ct. App. 2009), validates my
  position.  It is hornbook law that most crimes require both an actus reus and a mens rea. See id. at 293 n.2, 679 S.E.2d  at 198 n.2. 
  Section 35-1-501(3) provides the actus reus for this type of securities
  fraud, viz. engaging in conduct that operates as a fraud upon another in
  connection with the sale of securities.  Section 35-1-508(a), in turn, supplies
  the mens rea by stating a person must do so willfully.  The majority,
  however, holds that a person must willfully defraud another when selling
  securities (the majority's actus reus), but he may be convicted for
  doing so recklessly (the majority's mens rea).  Putting aside the
  conflicting levels of intent under this view, it is only by combining the mens
    rea and actus reus requirements found in sections 35-1-501 and
  35-1-508 into one actus reus can the majority find room for
  recklessness in the resulting vacuum.  Willfulness in the criminal context,
  however, is not a type of conduct but instead is unmistakably one of the
  graduated levels of mental intent.  These two statutes therefore provide both
  the requisite actus reus and mens rea, and I do not believe we as
  a Court have the opportunity to predicate a conviction for securities fraud
  upon anything else.
It may be that our
  disagreement emanates from the confusion occasioned by the statute as to the
  nature of securities fraud.  Comment 2 to section 35-1-508 states that
  "[p]roof of evil motive or intent to violate the law or knowledge that the
  law was being violated is not required" in a prosecution for violations of
  section 35-1-501.  Section 35-1-501(3), however, prohibits "engag[ing] in
  an act, practice, or course of business that operates or would operate as a
  fraud or deceit upon another person" when done "in connection with
  the offer, sale, or purchase of a security."  Thus, the very conduct
  proscribed by section 35-1-501(3) is fraud, an act which is evil in and of
  itself. See Huff v. Anderson, 90 S.E.2d 329, 331 (Ga. 1955) ("It
  appears from the authorities to be the rule without exception, that the offense
  of obtaining money from another by fraud or false pretenses, or larceny after
  trust, are crimes malum in se, involving moral turpitude."). 
  Proving that a person's conduct in contravention of section 35-1-501(3)
  was intentional, willful, and knowing (which the majority acknowledges is
  required) therefore necessitates the proof of an evil motivean intent to
  deceive.  Although section 35-1-508 suggests scienter is not required, the
  language in section 35-1-501 necessitates fraud.  Because section 35-1-501(3)
  is the more specific statute, I believe it controls and intent to defraud is
  necessary.
Accordingly, I believe Morris was wrongly decided and would reverse Sterling's conviction because the charge
  given was taken directly from it.  I also believe Sterling was prejudiced by
  the court's incorrect charge.  In my opinion, there is not "abundant
  evidence" that Sterling intentionally defrauded investors.  Rather, there
  is a significant amount of evidence showing Sterling simply was blind to the
  risks he may have taken.  Indeed, one juror sent a note to the court asking if
  Sterling could be convicted based only on severe recklessness, thereby arguably
  expressing his view that the State had not shown a course of intentional
  conduct.  
II.
Even if Morris did
  correctly hold that criminal recklessness is sufficient under section
  35-1-508(a),[14] I believe the Court may have inadvertently sanctioned the use of a criminal
  negligence mens rea standard.  The charge given in this case followed
  verbatim a portion of Morris wherein the Court quoted and tacitly approved
  of a charge which stated that a jury could convict upon finding the defendant
  took steps "which present[] a danger of misleading buyers or sellers that
  is either known to [the defendant] or is so obvious that [he] must have
  been aware of it."[15] 376 S.C. at 201, 656 S.E.2d  at 365. (emphasis added).  This charge
  accordingly includes both a "known" and a "should have
  known" standard.  
Crucial to the concept of
  recklessness is the notion that the actor must subjectively be aware of the
  risk, and one is not criminally reckless for acting despite a risk he should
  have known. 21 Am. Jur. 2d Criminal Law § 127.  In other words,
  liability for recklessness "cannot be predicated solely on an objective
  consideration of what a defendant 'should have known.'" Id.  A
  hallmark of criminal negligence, on the other hand, is disregarding a risk one should
  have known about. State v. Taylor, 323 S.C. 162, 166, 473 S.E.2d 817,
  818 (Ct. App. 1996); 21 Am. Jur. 2d Criminal Law § 126 ("A person
  acts with criminal negligence when he or she should have been aware of a
  substantial and unjustifiable risk he or she has created.").  Thus, a
  defendant's subjective knowledge of the risk is irrelevant for criminal
  negligence. 21 Am. Jur. 2d Criminal Law § 126.  Hence, the charge
  approved of in Morris includes both recklessness and the lower mens
    rea of negligence.
However, I do not believe the Morris Court actually intended to approve of criminal negligence as a
  permissible mens rea for securities fraud.  Instead, I read Morris as only criminalizing acting with actual knowledge that one's conduct may
  mislead investors.  Apart from this language, the Court never mentioned the
  negligence standard again.  Notably, after quoting this "should have
  known" standard the Court wrote, "Stated differently, the court
  charged that in order to support a conviction, the jury needed to find that
  [Morris] intentionally misled investors, or that [Morris] knew that there was a
  danger that his conduct would mislead investors." Morris, 376 at
  201, 656 S.E.2d  at 365.  Clearly, the Court believed the charge it was reviewing
  only concerned recklessness.  It accordingly appears the Court unintentionally
  lowered the standard by implicitly sanctioning the "should have
  known" language when attempting to hold recklessness will sustain a
  conviction for securities fraud.[16] See State v. Jefferies, 316 S.C. 13, 18, 446 S.E.2d 427, 430 (1994)
  (noting criminal negligence is a lower level of intent than criminal
  recklessless).
Furthermore, the Court's
  ultimate holding was a policy decision rooted in the notion that one should not
  be able to escape criminal liability for statements made with actual knowledge
  that they will mislead investors. Id. at 202, 656 S.E.2d  at 366.  However,
  this policy was limited by the Court to just acting with actual knowledge of
  the risk and did not embrace a situation where one should have known of the
  risk.  I therefore read the Court's decision as only permitting a charge on
  recklessness, and the Court was neither asked to nor attempted to expand the
  net cast by section 35-1-508(a) to include negligence.  Thus, the Court's
  references to the "should have known" standard are dicta. See Ex
    parte Goodyear Tire & Rubber Co., 248 S.C. 412, 418, 150 S.E.2d 525,
  527 (1966) ("'[G]eneral expressions, in every opinion, are to be taken in
  connection with the case in which those expressions are used.  If they go
  beyond the case, they may be respected, but ought not to control the judgment
  in a subsequent suit . . . .'" (quoting Cohens v. Virginia, 19 U.S.
  (6 Wheat.) 264, 398 (1821)).  I can also find nothing in section 35-1-508
  itself which permits a conviction of securities fraud to stand on mere criminal
  negligence.  
The majority today opines
  that the "should have known" language from Morris is not
  rooted in criminal negligence but instead is a species of knowing misconduct. 
  After parsing the language of the charge, the majority's contention is that it
  sanctioned a willful blindness standard, not an accidental blindness one. 
  While I may disagree with the majority's ultimate reading of the charge and
  whether it in fact states a willful blindness standard, there is an inherent
  danger in giving such a charge because it may permit the jury to slip down the
  slope into negligence.  As the Fifth Circuit stated, "Because the
  instruction permits a jury to convict a defendant without a finding that the
  defendant was actually aware of the existence of illegal conduct, the
  deliberate ignorance instruction poses the risk that a jury might convict the
  defendant on a lesser negligence standard." United States v.
    Lara-Velasquez, 919 F.2d 946, 951 (5th Cir. 1990).
The source of this risk is the potential for confusion about the
    degree of "deliberateness" required to convert ordinary, innocent
    ignorance into guilty knowledge. The concern is that once a jury learns that it
    can convict a defendant despite evidence of a lack of knowledge, it will be
    misled into thinking that it can
    convict based on negligent or reckless ignorance rather than intentional
    ignorance. In other words, the jury may erroneously apply a lesser mens rea requirement: a "should have known" standard of knowledge.

  United States v. Skilling, 554 F.3d 529, 548-49 (5th Cir. 2009), aff'd in
    part, vacated in part, and remanded, 130 S. Ct. 2896 (2010).   While
  this charge may be warranted under certain facts, I do not find them present in
  this case.[17] 
  Accordingly, the circuit court's charge here did not state the correct law in
  South Carolina and permitted the jury to convict Sterling based on criminal
  negligence.
Even if recklessness is
  enough for a conviction, I still find sufficient evidence in the record that
  Sterling was not aware of the risks he took to warrant a finding of prejudice. 
  I would therefore reverse Sterling's conviction and remand for a new trial.
III.
In sum, I would overrule Morris and hold that intentional and knowing conduct is required for a conviction of
  securities fraud.  Because the charge given to Sterling's jury permitted
  a conviction on something less than willfulness, I would reverse and remand for
  a new trial.  However, even assuming Morris correctly held that
  recklessness is sufficient for criminal securities fraud, the charge here
  incorporated criminal negligence, which is even lower than recklessness in the
  hierarchy of criminal intent.  Although the negligence language used by the
  circuit court in this case came directly from Morris, I do not believe
  the Morris Court intended to adopt this standard.  Accordingly, I would
  still reverse Sterling's conviction and remand.
[1] Appellant was actually indicted under the predecessor statute, S.C. Code Ann. §
  35-1-1210(3) (1987), which was repealed and replaced by § 35-1-501(3) effective
  January 1, 2006.
[2] We will refer to the parent company as HGFin for the remainder of the opinion.
[3] HGInc was sold to EMMCO before HGFin and CI's 2003 bankruptcies.
[4] The contract between HGInc and CIT allowed the lender to end the relationship
  upon a change in HGInc's corporate structure.
[5] Recall that appellant was acquitted of making false or misleading statements to
  the State Securities Commission.
[6] Judge Johnson passed away before the trial.
[7] Giddens began work at CI when it was purchased in 1991, was president of
  Emergent and HGFin, then HGFin's COO by the time of the merger with HomeSense. 
  He left after the merger.
[8] Former HG Board member Porter Rose, once Chief Investment Officer for Liberty
  Life and current partner in a private equity firm, testified that it is
  unlawful for a company to explain its prospectus to investors.  
[9] The dissent conflates the conduct standard (willfulness) with the mens rea
  standard.  See e.g., State v. Reid, 383 S.C. 285, 679 S.E.2d 194
  (Ct. App. 2009) fn. 2 ("generally a crime includes both an actus reus
  component and a mens rea component'').  Here, the jury was charged that
  Sterling could only be convicted if he were found to have acted "knowingly,
  intentionally, and willfully."  The jury was also charged that if
  Sterling's conduct was done by mistake or accident, or any reason other than
  willfully, he could not be convicted.  What is at issue here is not whether
  Sterling acted intentionally, but whether his mental state met the mens rea standard we created in Morris, that is, did he know, or was it so
  obvious that he must have known, that the information he disseminated presented
  a danger of misleading buyers or sellers.  The dissent conflates the conduct/mens
    rea standards and concludes that "A person must therefore act knowing
  his conduct will operate as a fraud upon another, not simply consciously
  disregard the risk that his conduct may do so."  This blending of conduct
  and mens rea is directly refuted by cmt. 2, "Proof of evil motive
  or intent to violate the law or knowledge that the law was being violated is
  not required" for a criminal conviction under § 35-1-508(a); see also cmt. 6 § 35-1-501.
[10] The dissent also expresses concern that the Morris charge allows a
  conviction upon a showing of mere criminal negligence, despite a specific
  charge that mere negligence is not a sufficient basis.  The Morris charge permits a conviction not upon an accidental creation of an unknown risk,
  but only upon intentional acts that the defendant knew or must have known would
  cause harm.  That standard most closely resembles our definition of knowingly:
  "One who shuts his eyes to avoid knowing what would otherwise be
  obvious" is said to act knowingly, not recklessly.  State v. Thompkins,
  263 S.C. 472, 211 S.E.2d 549 (1975).  In State v. Taylor, 323 S.C. 162,
  473 S.E.2d 817 (Ct. App. 1996), the court relied upon the Model Penal Code's
  definition of criminal negligence, that one acts with criminal negligence when
  he "inadvertently creates a substantial and unjustifiable risk of which he
  ought to be aware."  Id. at 166, 473 S.E.2d  at 818.  Here, the jury
  was charged that accidental or mistaken disclosure of information, i.e.
  inadvertent, which creates a risk, is not a violation of the statute.  Morris does not permit a conviction based upon mere criminal negligence.
[11] Nevertheless, I am troubled by the prejudicial nature of the investors'
  testimony regarding the impact their losses had on their lives and families.
[12] Although no party has objected to the circuit court's inclusion of scienter as
  an element of securities fraud, the Morris Court held the "statutory
  scheme expressly forecloses" this requirement. 376 S.C. at 202 n.5, 656 S.E.2d  at 366 n.5.  As discussed below, however, I do believe a prosecution for
  securities fraud necessitates a showing of intent to defraud.
[13] Section 35-1-508(a) is the vehicle for criminal prosecution for violations of
  Section 35-1-501 of the South Carolina Code (Supp. 2010).  Sterling was
  indicted for violating section 35-1-501(3), which provides that "[i]t is
  unlawful for a person, in connection with the offer, sale or purchase of a
  security, directly or indirectly, . . . to engage in an act, practice, or
  course of business that operates or would operate as a fraud or deceit upon
  another person."
[14] Some authorities do suggest that this sort of criminal recklessness can satisfy
  the willfulness/intent element for securities fraud. See United States v.
    Cassese, 428 F.3d 92, 98 (2d Cir. 2005); United States v. Tarallo,
  380 F.3d 1174, 1189 (9th Cir. 2004); Sec. & Exchange Comm'n v. Steadman,
  967 F.2d 636, 641-42 (D.C. Cir. 1992); see also State v. Jarrell, 350
  S.C. 90, 98, 564 S.E.2d 362, 367 (Ct. App. 2002) ("Extreme indifference is in the nature of 'a culpable mental state . . .
  and therefore is akin to intent.'  In this state, indifference in the context
  of criminal statutes has been compared to the conscious act of disregarding a
  risk which a person's conduct has created, or a failure to exercise ordinary or
  due care." (citations omitted)). But see United States v.
    O'Hagan, 139 F.3d 641, 647 (8th Cir. 1998) ("[T]he statute provides
  that a negligent or reckless violation of the securities law cannot result in
  criminal liability; instead, the defendant must act willfully.").  Morris,
  however, viewed these levels of intent as wholly separate.  If this
  interpretation were to be adopted with respect to section 35-1-508(a), then Morris may have correctly held that recklessness is sufficient even if it did so for a
  different reason.
[15] The author of today's majority did approve substantively of this charge in Morris,
  but he would not "endorse the instruction as a model charge." 376
  S.C. at 211 n.12, 656 S.E.2d  at 370 n.12 (Pleicones, J., concurring). 
[16] I believe the circuit court committed the same inadvertent error here.  In
  charging the jury, the circuit court stated that "[m]ere negligence will
  not suffer [sic] for conviction."  However, the court repeated the same
  "should have known" language quoted in Morris.
[17] In order to be warranted, the evidence adduced at trial must raise two
  inferences: "(1) the defendant was subjectively aware of a high
  probability of the existence of the illegal conduct; and (2) the defendant
  purposely contrived to avoid learning of the illegal conduct." Lara-Velasquez,
  919 F.2d  at 951.  While the evidence may permit the first inference, which
  would be in accord with reckless misconduct, I can find nothing in the record
  which demonstrates Sterling purposefully sought to avoid knowing what was going
  on.