Opinion ID: 1915619
Heading Depth: 1
Heading Rank: 5

Heading: Did Pace Commit an Unlawful Practice Prohibited by the Consumer Fraud Law in His Sale of COCOTS?

Text: The trial court held that Pace violated Iowa Code section 714.16, which provides in relevant part: The act, use or employment by a person of an unfair practice, deception, fraud, false pretense, false promise, or misrepresentation, or the concealment, suppression, or omission of a material fact with intent that others rely upon the concealment, suppression, or omission, in connection with the lease, sale, or advertisement of any merchandise ..., whether or not a person has in fact been misled, deceived, or damaged, is an unlawful practice. Id. § 714.16(2)( a ). This statute is not a codification of common law fraud principles. See State ex rel. Miller v. Hydro Mag, Ltd., 436 N.W.2d 617, 622 (Iowa 1989). It permits relief upon a lesser showing that the defendant made a misrepresentation or omitted a material fact with the intent that others rely upon the... omission. Iowa Code § 714.16(2)( a ). In the present case, the trial court found that Pace made the following false, deceptive and misleading representations to consumers in selling COCOTS: (1) an investment in COCOTS was guaranteed and was as safe or safer than bank certificates of deposit, annuity products, and insurance products; (2) the COCOTS program he offered was properly registered for sale in Iowa; (3) the investors would receive a 14% annual return on their COCOT investment and ... they would receive a return of ... 114% on their money; (4) the investors would own an asset in the form of a payphone; and (5) the payphone companies were financially strong. In addition, the court found that Pace failed to share facts [that] would have been material [to investors] in making a decision to invest money in COCOTS. The material, undisclosed facts included: (1) the investment was high risk; (2) the high returns promised by the management companies could not realistically be expected; (3) the program was a Ponzi scheme; (4) the offers were not registered as a security or a business opportunity; (5) Pace was not registered as a securities agent in Iowa; and (6) Pace received significant commissions for each sale and he was required to return his commission should an investor liquidate his or her investment. [3] See generally Goettsch, 561 N.W.2d at 378 (defining a Ponzi scheme). Pace challenges the trial court's finding of consumer fraud on three bases. He denies making the statements attributed to him by the trial court and contends that even if he did make these representations, they were not shown to be false. He also claims that he acted innocently because he simply passed along the information he received from the marketing companies and had no idea this information was false. Addressing the last argument first, we point out that it is not necessary for the State to prove that the violator acted with an intent to deceive, as is required for common law fraud. See Miller v. William Chevrolet/GEO, Inc., 326 Ill. App.3d 642, 260 Ill.Dec. 735, 762 N.E.2d 1, 12 (2001) (interpreting identical statutory language and stating, Nor need the defendant have intended to deceive the [investor].); Gennari v. Weichert Co. Realtors, 148 N.J. 582, 691 A.2d 350, 365 (1997) (interpreting nearly identical statutory language and stating, [a]n intent to deceive is not a prerequisite to the imposition of liability). As we noted above, the only intent required by the statute is that the defendant act with the intent that others rely  upon his omissions. Iowa Code § 714.16(2)( a ) (emphasis added). In addition, there is no requirement under the statute that a violator have knowledge of the falsity of his or her representations. See Gennari, 691 A.2d at 365 (One who makes an affirmative misrepresentation is liable even in the absence of knowledge of the falsity of the misrepresentation, negligence, or the intent to deceive.). Similarly, the Iowa statute does not require knowledge with respect to the omission or concealment of a material fact. See Miller, 260 Ill.Dec. 735, 762 N.E.2d at 12 (holding innocent misrepresentations or material omissions are actionable under consumer fraud law that included the concealment, suppression or omission of any material fact within definition of unlawful practice); cf. Gennari, 691 A.2d at 365 (holding [f]or liability to attach to an omission or failure to disclose, ... the plaintiff must show that the defendant acted with knowledge under statutory definition of unlawful practice that included  knowing concealment, suppression, or omission of any material fact (emphasis added)). Thus, the defendant's contention that he was misled by the payphone companies just like his clients is immaterial. Our consumer fraud statute places the consequences of being uninformed on the agent, not the investor. As for Pace's argument that he did not make the allegedly false statements, we point out the district court resolved the discrepancy between his testimony and that of the State's witnesses on this issue against Pace. Despite our de novo review, we rely on the trial court's assessment of the credibility of the witnesses in evaluating the strength of the State's proof. Rahmani, 472 N.W.2d at 256. Furthermore, our appraisal of the record convinces us that Pace made the representations, as found by the trial court, that these representations were false, and that Pace failed to share material information with potential investors. We will not unnecessarily extend our opinion by detailing the evidence we have found to be clear, convincing, and satisfactory proof of the defendant's violation of section 714.16, as such a discussion would have little precedential value, and the parties already have the benefit of the trial court's thorough review of the pertinent evidence in its decision. Therefore, we turn to the defendant's constitutional claims.