Title: P. v. Salas
Citation: N/A
Docket Number: S126773
State: California
Issuer: California Supreme Court
Date: February 6, 2006

1 
Filed 2/6/06 
 
 
 
IN THE SUPREME COURT OF CALIFORNIA 
 
 
 
THE PEOPLE, 
) 
 
 
) 
 
Plaintiff and Respondent, 
) 
 
 
) 
S126773 
 
v. 
) 
 
 
) 
Ct.App. 2/2 B159750 
JAVIER O. SALAS et al., 
) 
 
 
) 
Los Angeles County 
 
Defendants and Appellants. 
) 
Super. Ct. No. BA204220 
___________________________________ ) 
 
Corporations Code section 25110 prohibits the sale of unregistered 
securities.1  Violation of this prohibition is a crime, punishable by incarceration 
for up to three years and a fine up to $1 million.  (§ 25540, subd. (a).)  But not all 
securities must be registered.  There are many grounds of exemption from the 
registration requirement, and sale of an unregistered but exempt security is not a 
crime. 
Here, defendants Javier O. Salas and Stephen Patrick, charged with selling 
unregistered securities, claimed they believed in good faith that the securities they 
sold were exempt from registration.  The trial court instructed the jury that this 
good faith belief was irrelevant to their criminal culpability, and defendants were 
convicted.  The Court of Appeal, however, held that guilty knowledge—meaning 
either knowledge of the security’s nonexempt status or criminal negligence in 
                                              
1  
All statutory citations are to the Corporations Code unless otherwise 
indicated. 
 
2 
failing to determine its status—is an element of the crime of selling an 
unregistered security.2  It concluded that the trial court erred in failing to so 
instruct the jury, and that the error was harmless as to defendant Salas but 
prejudicial as to defendant Patrick.   
Like the Court of Appeal, we hold that a seller who believes reasonably and 
in good faith that a security is exempt is not guilty of the crime of unlawful sale of 
an unregistered security.  As in other similar cases, the severity of the penalties 
attached to this crime persuade us that the Legislature did not mean to impose 
criminal liability on defendants who lacked guilty knowledge of facts essential to 
make the conduct criminal. 
Unlike the Court of Appeal, however, we hold that in this context guilty 
knowledge is not an element of the crime.  Rather, a defendant’s reasonable good 
faith belief that a security is exempt from registration is an affirmative defense on 
which the defense bears the initial burden of proof.  This is consistent with the 
Legislature’s treatment of the status of the securities as exempt or nonexempt.  In 
a prosecution for unlawful sale of an unregistered security, the prosecutor is not 
required to prove, as an element of the offense, that the security was not exempt 
                                              
2   
The mental aspect of a violation of section 25110 could refer to whether a 
defendant knew the thing sold was a security, whether he knew it was 
unregistered, or whether he knew it was not exempt from registration.  Only the 
third aspect is at issue here.  Thus, we use the term “guilty knowledge,” with 
reference to section 25110, to refer to a defendant’s knowledge of facts showing 
that the security is not exempt, or his criminal negligence in failing to know of 
such facts. 
 
Criminal negligence refers to “ ‘a higher degree of negligence than is 
required to establish negligent default on a mere civil issue.  The negligence must 
be aggravated, culpable, gross, or reckless.’ ”  (People v. Penny (1955) 44 Cal.2d 
861, 879; see People v. Valdez (2002) 27 Cal.4th 778, 783; People v. Peabody 
(1975) 46 Cal.App.3d 43, 47; CALJIC No. 3.36.) 
 
3 
from registration.  Rather, exemption from registration is an affirmative defense 
on which the defense bears the initial burden of proof.  (§ 25163.)  It is reasonable 
to infer that the Legislature intended for the defendant’s knowledge of the 
security’s exemption status to be treated in the same manner, as an affirmative 
defense rather than an element of the crime. 
Because good faith belief in a security’s exempt status is an affirmative 
defense, the trial court must instruct the jury about it only when the defense has 
presented evidence sufficient to raise a reasonable doubt that the defendant knew, 
or was criminally negligent in failing to know, that the security was not exempt.  
Here, defendant Salas presented such evidence, and therefore the trial court erred 
in not instructing the jury on the affirmative defense of good faith as to Salas.  But 
because there was also overwhelming evidence of his guilty knowledge, we 
conclude that the error was nonprejudicial.  As to defendant Patrick, it is unclear 
whether he presented sufficient evidence of good faith to entitle him to a jury 
instruction on the affirmative defense.  Because the Court of Appeal failed to 
consider whether Patrick’s showing was sufficient to entitle him to an instruction 
on the affirmative defense, and because the parties did not address that issue here, 
we remand the matter to it for further proceedings. 
I.  FACTS AND PROCEEDINGS 
In 1990, defendant Salas formed American Joint Ownership Interests, Inc. 
(AJOI) to acquire properties for development.  He was its president, secretary, 
treasurer, and sole stockholder.  Acting on behalf of AJOI, Salas created a number 
of partnerships to purchase the properties.  Defendant Rick Berry (who did not 
appeal his conviction), and defendant Patrick assisted Salas in procuring investors 
for partnership interests.   
Salas, Berry, and Patrick telephoned numerous persons to urge them to 
invest in partnership interests in 201 Boylston Street Associates, an entity formed 
 
4 
to acquire the property at that address.  In almost all instances, they had no 
acquaintance with the person called.  They knew little or nothing of the investor’s 
economic circumstances, but may have taken some of the names from a list of 
persons furnished by a promoter of another real estate venture.  In 1995, however, 
defendant Berry resigned as sales manager and sent investors a letter advising 
them of improprieties and fraudulent activities in connection with AJOI 
investments.  AJOI went into receivership in 1997.  Salas, Berry, and Patrick were 
charged with selling unregistered securities in violation of section 25110 and 
selling securities by misrepresentation or omission of a material fact in violation of 
section 25401. 
At the onset of trial, the parties stipulated that the AJOI partnership 
interests were securities under section 25110 that had not been registered with the 
Department of Corporations.  Defendants claimed, however, that the securities 
were exempt from registration under section 25102, which provides that 
registration is not required if the sales “are not made to more than 35 persons” (id., 
subd. (f)(1)) and all purchasers either had a preexisting business relationship with 
the issuer or “could be reasonably assumed to have the capacity to protect their 
own interests in connection with the transaction” (id., subd. (f)(2)).3 
                                              
3  
Section 25102, subdivision (f), exempts from registration: 
 
“Any offer or sale of any security in a transaction (other than an offer or 
sale to a pension or profit-sharing trust of the issuer) that meets each of the 
following criteria: 
 
“(1) Sales of the security are not made to more than 35 persons, including 
persons not in this state. 
 
“(2) All purchasers either have a preexisting personal or business 
relationship with the offeror or any of its partners, officers, directors or controlling 
persons, or managers . . . , or by reason of their business or financial experience or 
the business or financial experience of their professional advisers who are 
unaffiliated with and who are not compensated by the issuer . . . could be 
 
(Footnote continued on next page) 
 
5 
At trial, Department of Corporations Examiner Michelle Tse testified that 
the bank records of 201 Boylston Street Associates showed that 48 people had 
invested in that partnership.  Defendant Salas testified that he was aware that he 
had to limit the number of investors to 35 in order to avoid the registration 
requirement, and claimed that he did so.  Tse’s figures, he said, were incorrect, 
and included people who had invested in other partnerships or rescinded their 
investments and received refunds. 
Salas also claimed that he or other corporate officers had preexisting 
relationships with all investors, because John Torosian and others supplied lists of 
persons who were interested in investing in real estate ventures, and AJOI used 
those lists in contacting potential investors.  Torosian, however, was not an officer 
or otherwise associated with AJOI. 
Although Patrick had the title of vice-president, he and Salas both testified 
that Patrick was a salesman with no managerial authority.  When asked if he knew 
the investments were securities, Patrick replied:  “I had no idea it was a security.  I 
thought these were totally exempt.”  (Italics added.)  There is no other evidence 
whether Patrick believed in good faith that the securities were exempt from 
registration.  
The trial court instructed the jury that a security is exempt from registration 
if sold to no more than 35 persons, all of whom either have a preexisting personal 
or business relationship with the offeror or “are sophisticated investors by virtue 
of their business and financial experience or the business and financial experience 
                                                                                                                                      
 
 
(Footnote continued from previous page) 
 
reasonably assumed to have the capacity to protect their own interests in 
connection with the transaction.” 
 
6 
of their financial advisors.”  It further instructed that “evidence that a defendant 
. . . acted in good faith is not a defense.”  It did not instruct that to commit the 
crime of selling an unregistered security, a defendant must know, or be criminally 
negligent in not knowing, that the security should have been registered. 
The jury found all defendants guilty of selling an unregistered security in 
violation of section 25110.  Defendant Berry was also convicted of selling 
securities by means of misrepresentation or omission of a material fact in violation 
of section 25401.  The jury did not reach a verdict as to whether Salas or Patrick 
violated section 25401 by selling securities by misrepresentation or omission. 
The trial court sentenced defendant Salas to a prison term of three years, to 
be served in the Department of Corrections’ Los Angeles restitution center.4  It 
sentenced defendant Patrick to 16 months in state prison, suspending execution of 
sentence and placing him on probation on condition that he serve one year in 
county jail.  Defendants Salas and Patrick appealed.   
On appeal, defendants argued that the trial court erred in not instructing the 
jury that they could be found guilty of violating section 25110 only if they knew 
that the security should have been registered or were negligent in failing to know 
it.  The Court of Appeal agreed, reasoning that section 25110 describes a general 
intent crime in which scienter (knowledge or criminal negligence) is an element of 
the crime.  It held the trial court’s failure to instruct on scienter was harmless as to 
defendant Salas, who managed the investment scheme and should have verified 
that the number of investors did not exceed 35, as required by statute.  As to 
                                              
4   
A restitution center is a penal institution in which prisoners are permitted to 
leave the facility during working hours so they can earn money to pay restitution.  
(Pen. Code, § 6220 et seq.)  The Department of Corrections is now known as the 
Department of Corrections and Rehabilitation.  (See Pen. Code, § 5000 et seq.) 
 
7 
defendant Patrick, however, the Court of Appeal held the error to be prejudicial 
because Patrick was a salesman who had no management authority and did not 
know how many investors were involved.   
The Court of Appeal’s holding that a violation of section 25110 requires 
scienter conflicts with an earlier decision of the same district in People v. Corey 
(1995) 35 Cal.App.4th 717 (Corey).  We granted the Attorney General’s petition 
for review to resolve the conflict. 
II.  GUILTY KNOWLEDGE UNDER SECTION 25110 
Section 25110 states simply:  “It is unlawful for any person to offer or sell 
in this state any security in an issuer transaction . . . unless such sale has been 
qualified [i.e., registered] . . . or unless such security or transaction is exempted or 
not subject to qualification . . . .”  Section 25540, subdivision (a) provides:  “[A]ny 
person who willfully violates any provision of this division [including section 
25110] . . . shall upon conviction be fined not more than one million dollars 
($1,000,000), or imprisoned in the state prison, or in a county jail . . . or be 
punished by both that fine and imprisonment.”5  (Italics added.)  
In the Court of Appeal, the Attorney General argued that section 25110 
describes a strict liability offense.  In this court, however, all parties agree that a 
violation of section 25110 is a general intent crime.  The classification of section 
25110 as a general intent crime, however, does not answer the question whether, 
as the Court of Appeal held, a violation of section 25110 requires that a defendant 
                                              
5   
Section 25540, subdivision (a), also provides that “no person may be 
imprisoned for the violation of any rule or order if he or she proves that he or she 
had no knowledge of the rule or order.”  That provision, however, is inapplicable 
here because defendants were convicted of violating a statute, not a rule or order. 
 
8 
either know that a security is not exempt from registration or be criminally 
negligent in not knowing.   
Depending upon the crime, a requirement of guilty knowledge may mean 
that defendants are innocent unless they know the facts making their conduct 
criminal.  (See, e.g., People v. Garcia (2001) 25 Cal.4th 744, 752.)  In other cases, 
it is sufficient that the defendants either know those facts or were criminally 
negligent in failing to know them.  (See Pen. Code, § 20 [“In every crime or public 
offense there must exist a union, or joint operation of act and intent, or criminal 
negligence”]; People v. Valdez, supra, 27 Cal.4th 778; People v. Linwood (2003) 
105 Cal.App.4th 59, 71-72.)  Defendants here do not argue that a violation of 
section 25110 requires that the seller actually knew that the security he sold should 
have been registered; however, they contend that criminal liability requires that a 
seller of securities either knew the security was not exempt from registration or 
was criminally negligent in failing to know.  The Attorney General, on the other 
hand, argues that a seller is guilty if he “willfully” — that is, intentionally — sells 
an unregistered security, without regard to whether the seller knew or should have 
known that the security should have been registered. 
We addressed a similar issue in 1995 in People v. Simon (1995) 9 Cal.4th 
493 (Simon).  The defendant there was convicted of violating section 25401, 
which prohibits the purchase or sale of securities “by means of any written or oral 
communication which includes an untrue statement of a material fact or omits to 
state a material fact necessary in order to make the statements made . . . not 
misleading.”  Simon held that “knowledge of the falsity or misleading nature of a 
statement or of the materiality of an omission, or criminal negligence in failing to 
investigate and discover them, are elements of the criminal offense described in 
section 25401.”  (Simon, supra, 9 Cal.4th at p. 522.) 
 
9 
Simon set out several reasons for that conclusion.  First, it reasoned that 
because section 25540, which states the penalty for a violation of section 25401, 
requires a “willful” violation, section 25401 is a general intent crime, not one of 
strict liability.  (Simon, supra, 9 Cal.4th at p. 507.)  Simon noted that general intent 
crimes ordinarily require mens rea or guilty knowledge.  (Id. at p. 519; see Pen. 
Code, § 20 [“In every crime or public offense there must exist a union, or joint 
operation of act and intent, or criminal negligence”].)  After observing that 
criminal liability may be imposed despite a lack of guilty knowledge “where the 
purpose is to protect public health and safety and the penalties are relatively light” 
(Simon, supra, 9 Cal.4th at p. 521, citing People v. Vogel (1956) 46 Cal.2d 798, 
801, fn. 2), Simon pointed out that section 25401 does “not involve conduct which 
threatens the public health or safety” (9 Cal.4th at p. 521), and that the punishment 
for a violation of that statute is not a light one (ibid).6 
Next, Simon asserted that section 25401 was based on section 12(2) of the 
federal Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), which contains 
an express requirement of guilty knowledge, and that section 25540 was modeled 
after section 32(a) of that act, which some, but not all, federal courts have 
construed as requiring guilty knowledge.  (Simon, supra, 9 Cal.4th at pp. 509-
512.)  Simon noted also that section 10(b)(5) of the federal Securities Exchange 
Act of 1934, which prohibits a “manipulative or deceptive device” in connection 
with a sale, was construed by the United States Supreme Court as requiring guilty 
knowledge.  (Simon, supra, 9 Cal.4th at p. 512, citing Ernst & Ernst v. Hochfelder 
                                              
6  
The offenses at issue in Simon, supra, 9 Cal.4th 493, were committed 
between 1980 and 1985.  At that time, the maximum punishment for a violation of 
section 25401 was a fine of $10,000 and a prison term of two, three, or five years.  
(Simon, at p. 507.)  The maximum fine is now $10 million.  (§ 25540, subd. (b).) 
 
10 
(1976) 425 U.S. 185.)  And Simon observed that former California Corporations 
Commissioner Robert Volk and Professor Harold Marsh, described by Simon as 
having “major responsibility” for drafting the state Corporate Securities Law of 
1968, had asserted:  “[S]ection 25540 was intended to impose criminal liability 
only for an intentional misstatement.”  (Simon, supra, 9 Cal.4th at p. 513, 
discussing 1 Marsh & Volk, Practice Under the Cal. Securities Laws (rev. ed. 
1994) § 1413[1], p. 14-79.) 
Simon further observed that section 25501, which provides a civil remedy 
against a defendant who violates section 25401, states that there is no liability if 
“the defendant exercised reasonable care and did not know (or if he had exercised 
reasonable care would not have known) of the untruth or omission.”  Simon 
concluded that it would be incongruous, and possibly unconstitutional, to impose 
criminal punishment – presumably a more serious sanction than civil liability – 
without guilty knowledge when civil liability required guilty knowledge.  (Simon, 
supra, 9 Cal.4th at pp. 516-518, 522.) 
Finally, Simon invoked the rule of lenity:  “ ‘The defendant is entitled to the 
benefit of every reasonable doubt, whether it arise out of a question of fact, or as 
to the true interpretation of words or the construction of language used in a 
statute.’ ”  (Simon, supra, 9 Cal.4th at pp. 517-518, quoting In re Tartar (1959) 52 
Cal.2d 250, 257.)   
The Court of Appeal in Corey, supra, 35 Cal.App.4th 717, asserted that 
some of the reasons we put forward in Simon, supra, 9 Cal.4th 493, to support a 
requirement for guilty knowledge in section 25401 (fraudulent sale of securities) 
do not apply to the sale of unregistered securities in violation of section 25110.  
The Attorney General advances the same arguments here. 
First, the Attorney General points out that in Simon, supra, 9 Cal.4th at 
pages 516-518, this court relied on the express requirement of guilty knowledge in 
 
11 
section 25501, which permits a civil cause of action against a seller who makes 
misleading statements in the sale of a security, as one ground for requiring guilty 
knowledge for criminal liability.  In an attempt to distinguish Simon, the Court of 
Appeal in Corey noted that the Corporate Securities Law of 1968 does not 
expressly require guilty knowledge in a civil action against a seller of unregistered 
securities.  (Corey, supra, 35 Cal.App.4th at pp. 728-729.)   
Second, Corey, supra, 35 Cal.App.4th at page 729, observed that in Simon 
we stated that Marsh and Volk, who were involved in drafting the Corporate 
Securities Law of 1968 (see ante, at p. 10), said that only intentional 
misstatements in the sale of securities incur criminal liability.  (See Simon, supra, 
9 Cal.4th at pp. 513-514.)  In contrast, Corey notes, Marsh and Volk assert that the 
sale of an unregistered security “ ‘is considered a strict liability offense.’ ”  
(Corey, supra, 35 Cal.App.4th at p. 729; quoting 1 Marsh & Volk, Practice Under 
the Cal. Securities Laws, supra, § 14.13[1], p. 14-101.) 
The Court of Appeal in Corey asserted a third ground for distinguishing 
Simon, supra, 9 Cal.4th 493, but that ground is not valid.  It asserted that the 
magnitude of potential criminal penalties for selling an unregistered security in 
violation of section 25110, which Corey described as carrying a fine of $1 million 
and a one-year prison term, was much less than the maximum five years’ 
imprisonment for making misleading statements in the sale of a security.  (Corey, 
supra, 35 Cal.App.4th at p. 729.)  But Corey was wrong in its description of the 
maximum penalty for sale of an unregistered security; it is three years’ 
imprisonment, not one year.  (See Pen. Code, § 18.)  Moreover, even a one-year 
felony penalty, let alone a $1 million fine, would argue strongly for a guilty 
knowledge requirement.  (See People v. Coria (1999) 21 Cal.4th 868, 877.)   
 
In short, two of the five reasons we gave in Simon, supra, 9 Cal.4th 493, for 
requiring guilty knowledge for a violation of section 25501 (sale by 
 
12 
misrepresentation or omission) are unique to that section and cannot be invoked to 
require guilty knowledge for the sale of an unregistered security in violation of 
section 25110.  But the core reason for Simon’s conclusion to require guilty 
knowledge is the principle that mens rea generally attaches to criminal offenses 
except for those that involve public health or safety and impose relatively light 
penalties.  That principle applies here because defendants were charged with 
crimes that do not relate to public health and safety and impose relatively severe 
punishment.  (See Staples v. United States (1994) 511 U.S. 600, 618-619; In re 
Jorge M. (2000) 23 Cal.4th 866, 872; People v. Vogel, supra, 46 Cal.2d at p. 801.)  
We therefore reject the Attorney General’s contention that our decision in Simon 
should be distinguished from this case; the same principles should apply whether a 
defendant is charged with selling an unregistered security, as occurred here, or 
with making misleading statements or omissions in selling a security, as in Simon. 
The Attorney General also challenges Simon’s analysis of the legislative 
history of the statutes it construed.  He claims Simon was mistaken when it said 
that section 25540, which prescribes the punishment for violations of the 
Corporate Securities Law of 1968, was modeled on section 32a of the federal 
Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.).  The wording of 
section 25540, he asserts, more closely resembles section 409, subdivision (a), of 
the American Law Institute’s proposed Uniform Securities Act, and the 
commentary to that section states that, by requiring a “willful” violation, the 
statute requires only that the person act intentionally, in the sense that he was 
aware of what he was doing.   
The Attorney General also points out that former section 26104, the 
predecessor to current section 25110, prohibited “knowingly” selling an 
unauthorized security.  (Stats. 1917, ch. 532, § 14.)  The Legislature’s omission of 
the term “knowingly” in section 25540, he argues, suggests that it did not intend to 
 
13 
require actual knowledge for a violation.  Simon, supra, 9 Cal.4th 493, itself noted 
that the word “knowingly” does not appear in section 25540, but said that the 
absence of that word was not in itself sufficient to compel a conclusion that a 
criminal statute does not require guilty knowledge even though that statute 
imposes severe penalties.  (Simon, at pp. 521-522.)  In Simon, we specifically 
disapproved People v. Johnson (1989) 213 Cal.App.3d 1369, in which the Court 
of Appeal had incorrectly asserted that “[t]he omission of ‘knowingly’ from a 
penal statute indicates that guilty knowledge (scienter) is not an element of the 
offense.”  (Simon, supra, 9 Cal.4th at p. 522, fn. 18.)  
The Attorney General’s arguments finding fault with this court’s discussion 
of the legislative history of the Corporate Securities Law of 1968 in Simon, supra, 
9 Cal.4th 493, do not offer grounds for distinguishing that case here; instead, they 
suggest that Simon’s analysis was wrong and that we should overrule that case.  
We are not persuaded.  In Simon, we invited the Legislature to clarify which 
criminal violations of section 25540, enacted as part of the Corporate Securities 
Law of 1968 – which includes both sales by misrepresentation or omission (the 
issue in Simon) and sales of an unregistered security (the issue here) – “are strict 
liability offenses and what mental states are elements of those which require 
scienter.”  (Simon, supra, 9 Cal.4th at p. 510, fn. 13.)  But although the Legislature 
has frequently amended the Corporate Securities Law of 1968 in the 10 years 
since we decided Simon, it has not abrogated Simon or clarified the mens rea of 
crimes punishable under section 25540.  We infer legislative acquiescence in 
Simon’s conclusion that a conviction for unlawful sale of securities that entails a 
relatively severe punishment requires guilty knowledge.  (See Colmenares v. 
Braemer Country Club (2003) 29 Cal.4th 1019, 1030; Fukuda v. City of Angels 
(1999) 20 Cal.4th 805, 819; People v. Bouzas (1991) 53 Cal.3d 467, 475.)  
 
14 
Moreover, during this 10-year period we have frequently relied on Simon to 
require guilty knowledge for violation of a number of criminal statutes even 
though the statutes did not expressly require that the defendant act “knowingly.”   
For instance, in People v. Hagen (1998) 19 Cal.4th 652, we construed the 
term “willfully” in Revenue and Taxation Code former section 19405, subdivision 
(a)(1), which made it a felony to “willfully make and subscribe a [tax] return . . . 
that he or she does not believe to be true and correct as to every material matter.”  
(Rev. & Tax. Code, former § 19405, as amended by Stats. 1993, ch. 826, § 6, 
pp. 4462-4463, repealed by Stats. 1994, ch. 1243, § 58.)  We held that a violation 
of this statute required more than “volitional action”; it required “ ‘bad faith or evil 
intent.’ ”  (People v. Hagen, supra, at pp. 663, 665.)   
In People v. Coria, supra, 21 Cal.4th 868, we held that a conviction for 
manufacturing methamphetamine (Health & Saf. Code, § 11379.6, subd. (a)) 
required proof that the defendant knew the substance being manufactured was 
methamphetamine.  (People v. Coria, supra, 21 Cal.4th at p. 874.)  Our decision 
relied on our holding in Simon, supra, 9 Cal.4th at page 519, that mens rea is the 
rule rather than the exception, particularly for crimes with severe penalties.  
(People v. Coria, supra, 21 Cal.4th at pp. 876-878.) 
People v. Rubalcava (2000) 23 Cal.4th 322, said that because the crime of 
carrying a concealed dirk or dagger (Pen. Code, § 12020, subd. (a)) “criminalizes 
‘ “traditionally lawful conduct,” ’ we construe the statute to contain a ‘knowledge’ 
element.  [Citation.]  Thus, to commit the offense, a defendant must still have the 
requisite guilty mind:  that is, the defendant must knowingly and intentionally 
carry concealed upon his or her person an instrument ‘that is capable of ready use 
as a stabbing weapon.’  [Citation.]  A defendant who does not know that he is 
carrying the weapon or that the concealed instrument may be used as a stabbing 
 
15 
weapon is therefore not guilty of violating section 12020.”  (People v. Rubalcava, 
supra, 23 Cal.4th at pp. 331-332.) 
In re Jorge M., supra, 23 Cal.4th 866, held that in a prosecution for 
possession of an assault weapon in violation of Penal Code section 12280, 
subdivision (b), “the People bear the burden of proving the defendant knew or 
reasonably should have known the firearm possessed the characteristics bringing it 
within the [Assault Weapons Control Act].”  (In re Jorge M., supra, 23 Cal.4th at 
p. 887.)   
People v. Garcia, supra, 25 Cal.4th 744, held that because the crime of 
willful failure to register as a sex offender under Penal Code section 290 involved 
a failure to act, a defendant could not be found guilty unless the defendant actually 
knew of his duty to register.  (Garcia, at p. 752.)  People v. Barker (2004) 34 
Cal.4th 345 confirmed that a violation of Penal Code section 290 required guilty 
knowledge, but held that the defendant, aware of his duty to register, could not 
defend on the ground that he forgot the critical date of registration. 
In view of the repeated judicial affirmation of Simon, supra, 9 Cal.4th 493, 
in this line of precedent, we reject the Attorney General’s suggestion that we 
overrule Simon, and instead, following the reasoning in that decision, hold that a 
defendant is not guilty of the crime of selling an unregistered security in violation 
of section 25110 if there is a reasonable doubt whether the defendant knew the 
security was not exempt from regulation or was criminally negligent in failing to 
know that the security was not exempt.7 
                                              
7  
Language contrary to this opinion in People v. Corey, supra, 35 
Cal.App.4th 717, is disapproved. 
 
16 
III.  LACK OF GUILTY KNOWLEDGE AS AN AFFIRMATIVE DEFENSE 
According to the Attorney General, including a guilty knowledge 
requirement in section 25110’s prohibition on the sale of unregistered securities 
will seriously hamper enforcement of that provision.  He points out that there are 
many grounds for exempting a security from registration.  (See §§ 25102 [listing 
17 grounds for exemption], 25103 [listing five grounds], 25104 [eight grounds], 
25105 [authorizing commissioner by rule to establish additional grounds for 
exemption].)  The Attorney General contends that it would be virtually impossible 
for the prosecution to prove as part of its case-in-chief that a defendant did not 
believe the security exempt under any of these grounds. 
The Legislature anticipated the problems caused by the multiplicity of 
exemptions.  Section 25163 provides:  “In any proceeding under this law, the 
burden of proving an exemption or an exception from a definition is upon the 
person claiming it.”  As this court noted in Simon, however, “Because an 
exemption defense is not collateral to the defendant’s guilt of a charge of selling 
unqualified securities, . . . a defendant’s burden is only to raise a reasonable doubt 
that the defendant sold nonexempt securities.”  (Simon, supra, 9 Cal.4th 493, 501; 
see People v. Mower (2002) 28 Cal.4th 457, 483.)  The Legislature having 
determined that a defendant who asserts a security is actually exempt raises an 
affirmative defense and has the burden of presenting evidence raising a reasonable 
doubt, it is reasonable that a defendant asserting a good faith belief that a security 
is exempt should bear the same burden. 
Under the so-called rule of convenience and necessity, “ ‘the burden of 
proving an exonerating fact may be imposed on a defendant if its existence is 
“peculiarly” within his personal knowledge and proof of its nonexistence by the 
prosecution would be relatively difficult or inconvenient.’ ”  (People v. Mower, 
supra, 28 Cal.4th at p. 477, quoting In re Andre R. (1984) 158 Cal.App.3d 336, 
 
17 
342.)  Applying this principle, we held in Mower that the defendant had the 
burden of producing evidence to show that marijuana was grown for personal 
medicinal purposes (see Health & Saf. Code, § 11362.5, subd. (d)), because that 
defense involved facts peculiarly within the defendant’s personal knowledge.  
(People v. Mower, supra, 28 Cal.4th at p. 477.)   
This analysis applies here.  A defendant’s knowledge or lack of knowledge 
of the exempt status of the securities is a fact peculiarly within the defendant’s 
personal knowledge.  What steps, if any, the defendant took to determine whether 
the security is exempt often will also be a fact peculiarly within the defendant’s 
knowledge.  There is no unfairness or hardship in requiring the defendant to 
assume the burden of presenting evidence of the facts on which he or she relies.  
 
Thus, we depart from the analysis in Simon, supra, 9 Cal.4th 493, in one 
respect.  Simon held that knowledge of the falsity of a statement or the materiality 
of an omission (or criminal negligence) was an element of the crime of fraudulent 
sale of a security (§ 25401), and, consequently, that the trial court must so instruct.  
(See Simon, supra, 9 Cal.4th at p. 522.)  We hold that lack of knowledge that a 
security is not exempt (or criminal negligence) is an affirmative defense, on which 
the trial court must instruct only if the defendant presents enough evidence to raise 
a reasonable doubt.  Consequently, the prosecution will not have to prove that a 
defendant lacked a good faith belief in every one of the numerous grounds for 
exemption; it need only address the evidence the defense presented to raise a 
reasonable doubt as to the defendant’s good faith.  
IV.  DEFENDANTS’ RIGHT TO AN INSTRUCTION ON GUILTY KNOWLEDGE 
 
It is well settled that a defendant has a right to have the trial court, on its 
own initiative, give a jury instruction on any affirmative defense for which the 
record contains substantial evidence (People v. Michaels (2002) 28 Cal.4th 486, 
529) – evidence sufficient for a reasonable jury to find in favor of the defendant 
 
18 
(Matthews v. United States (1988) 485 U.S. 58, 63) – unless the defense is 
inconsistent with the defendant’s theory of the case (People v. Breverman (1988) 
19 Cal.4th 142, 157).  In determining whether the evidence is sufficient to warrant 
a jury instruction, the trial court does not determine the credibility of the defense 
evidence, but only whether “there was evidence which, if believed by the jury, 
was sufficient to raise a reasonable doubt.”  (People v. Jones (2003) 112 
Cal.App.4th 341, 351; see People v. Ramirez (1990) 50 Cal.3d 1158, 1180; People 
v. Jeter (1964) 60 Cal.2d 671, 674; People v. Simmons (1989) 213 Cal.App.3d 
573, 579, and cases there cited.)  Thus, whether the trial court erred in not 
instructing that a defendant is not guilty of the crime of selling an unregistered 
security (§ 25110) unless the defendant knew the security was not exempt, or was 
criminally negligent, turns on whether the defendant offered substantial evidence 
that, if believed, by the jury, would raise a reasonable doubt as to the defendant’s 
knowledge or criminal negligence. 
A.  Salas 
Defendant Salas claimed that AJOI complied with the exemption 
requirements of section 25102, subdivision (f).  He testified that AJOI had no 
more than 35 investors, and insisted that the contrary prosecution testimony was in 
error.  He maintained that all investors had preexisting relationships with AJOI, 
and all could reasonably be assumed to have the capacity to protect their own 
interests. 
Although Salas presented this evidence to support his claim that the 
securities were actually exempt from registration, that evidence, if believed by the 
jury, would also show that Salas believed in good faith that the securities were 
 
19 
exempt.  We conclude that Salas presented sufficient evidence to be entitled to a 
jury instruction on the affirmative defense of absence of guilty knowledge.8 
 
We next examine whether the instructional error was prejudicial as to Salas.  
He testified that he attempted to comply with the exemption requirements.  In light 
of the prosecution’s evidence, however, no reasonable jury would believe Salas’s 
testimony.  AJOI was essentially a one-man operation, and Salas was the man.  As 
the president and secretary of the corporation, he had a duty to know the 
registration requirements and to know whether the security sales complied with 
those requirements.  As the Court of Appeal concluded:  “Given his self-
proclaimed awareness of the exemption requirements, his total control over AJOI, 
his admitted personal supervision of records related to investors, and his 
involvement in conversations with investors, the evidence that Salas was 
criminally negligent in not knowing that there were more than 35 investors was 
overwhelming.”   
 
Moreover, in selling the securities, Salas made virtually no effort to 
determine whether the buyers had a preexisting relationship with AJOI officers or 
were capable of protecting their own interests.  At trial he offered evidence that 
the investors were selected from a list of persons who had invested in other real 
                                              
8  
The trial court also committed two other instructional errors.  First, it 
instructed that good faith is not a defense to the charge of selling an unregistered 
security, an instruction that is inconsistent with our analysis that absence of guilty 
knowledge is a defense.  Second, it instructed that the exemption in section 25102, 
subdivision (f), applies only if the investors had “the business and financial 
experience” to make them “sophisticated investors.”  The statutory language refers 
to persons who, themselves or through financial advisors, have “the business and 
financial experience . . . to have the capacity to protect their own interests.”  
(§ 25102, subd. (f)(2).)  The term “sophisticated investor” may connote a higher 
level of experience and expertise than would be required for an investor to protect 
his own interests.   
 
20 
estate projects, but that evidence did not establish any preexisting relationship 
between the investors and AJOI officers, nor did it show that the Salas could 
reasonably assume the investors had the capacity to protect their own interests.  
Only one or two of the investors who testified had a preexisting relationship with 
an AJOI officer; most did not.  Some investors may have had the capacity to 
protect themselves – Salas points out that one had a degree in business 
administration and two others had investment advisors – but Salas made no such 
showing as to other investors.  Section 25102, subdivision (f), requires that all 
purchasers either have a preexisting relationship with the seller or the capacity to 
protect themselves.  It is clear beyond a reasonable doubt that Salas knew, or was 
criminally negligent in not knowing, that many AJOI investors did not meet the 
requirements of section 25102, subdivision (f), for exempting a security from 
registration. 
 
We have not yet determined what test of prejudice applies to the failure to 
instruct on an affirmative defense.  (See Simon, supra, 9 Cal.4th at p. 507, fn. 11.)  
But even assuming the more rigorous Chapman test applies (see Chapman v. 
California (1967) 386 U.S. 18, 24 [state must prove error harmless beyond a 
reasonable doubt]), we conclude that the trial court’s failure to instruct on guilty 
knowledge was harmless as to Salas.9 
 
B.  Patrick 
Defendant Patrick was a salesman without managerial authority.  He 
testified that he thought the securities were exempt, but he did not explain why he 
thought so.  He did not refer to any specific exemption nor point to any facts that 
might support a claimed exemption.  Under these circumstances, it is not clear 
                                              
9  
This reasoning and conclusion also apply to the other instructional errors 
noted in footnote 8, ante. 
 
21 
whether Patrick presented sufficient evidence to entitle him to a jury instruction on 
the affirmative defense of lack of guilty knowledge.  We decline to decide, 
however, whether this record would have entitled Patrick to an instruction on his 
affirmative defense because that issue was not briefed or decided in the Court of 
Appeal, and has not been briefed or argued here.  Therefore, as to Patrick, we 
remand the matter to the Court of Appeal to determine whether the trial court erred 
in failing to instruct on the absence of guilty knowledge as an affirmative defense, 
and whether that error, alone or in combination with other instructional errors (see 
fn. 8, ante) was prejudicial. 
V.  DISPOSITION 
The judgment of the Court of Appeal is affirmed as to defendant Salas, but 
reversed as to defendant Patrick.  The case is remanded to the Court of Appeal for 
further proceedings consistent with this opinion. 
 
 
 
 
 
 
 
 
KENNARD, J. 
WE CONCUR: 
 
GEORGE, C. J. 
BAXTER, J. 
WERDEGAR, J. 
CHIN, J. 
MORENO, J. 
BUTZ, J.* 
                                              
*  
Associate Justice of the Court of Appeal, Third Appellate District, assigned 
by the Chief Justice pursuant to article VI, section 6 of the California Constitution. 
 
22 
See next page for addresses and telephone numbers for counsel who argued in Supreme Court. 
 
Name of Opinion People v. Salas 
__________________________________________________________________________________ 
 
Unpublished Opinion 
Original Appeal 
Original Proceeding 
Review Granted XXX 119 Cal.App.4th 805 
Rehearing Granted 
 
__________________________________________________________________________________ 
 
Opinion No. S126773 
Date Filed: February 6, 2006 
__________________________________________________________________________________ 
 
Court: Superior 
County: Los Angeles 
Judge: William F. Fahey 
 
__________________________________________________________________________________ 
 
Attorneys for Appellant: 
 
Douglas G. Benedon, under appointment by the Supreme Court; Benedon & Serlin and Gerald Serlin for 
Defendant and Appellant Javier O. Salas. 
 
Neil Rosenbaum, under appointment by the Supreme Court, for Defendant and Appellant Stephen C. 
Patrick. 
 
 
 
__________________________________________________________________________________ 
 
Attorneys for Respondent: 
 
Bill Lockyer, Attorney General, Robert R. Anderson, Chief Assistant Attorney General, Pamela C. 
Hamanaka, Assistant Attorney General, Susan Sullivan Pithey, Thien Huong Tran, Victoria B. Wilson, 
Donald E. De Nicola and Lance E. Winters, Deputy Attorneys General, for Plaintiff and Respondent. 
 
Steve Cooley, District Attorney (Los Angeles), Curt Livesay, Chief Deputy District Attorney, Peter 
Bozanich, Assistant District Attorney, William Woods and Richard A. Lowenstein, Deputy District 
Attorneys, as Amicus Curiae on behalf of Plaintiff and Respondent. 
 
 
 
 
23 
 
 
 
 
Counsel who argued in Supreme Court (not intended for publication with opinion): 
 
Gerald Serlin 
Benedon & Serlin 
21700 Oxnard Street, Suite 1290 
Woodland Hills, CA  91367 
(818) 340-1950 
 
Neil Rosenbaum 
247 Hartford Street 
San Francisco, CA  94114 
(415) 626-4111 
 
Lance E. Winters 
Deputy Attorney General 
300 South Spring Street 
Los Angeles, CA  90013 
(213) 576-1347