228 Cal. App. 4th 142
Cal. Ct. App.2014Background
- Defendants Sweeney and Ryan were convicted of 65 counts of white-collar crimes and four special allegations; restitution was ordered in the amount of $8,266,026.
- The 65 counts encompassed 20 victims with three counts each (unqualified securities, fraudulent security offers, grand theft) plus counts alleging a fraudulent securities scheme and an endless chain scheme.
- EZ2Win and Big Co-op operated as related MLM ventures; victims paid for memberships and were encouraged to recruit others, with emphasis on recruitment over retail product sales.
- Investors were not told Big Co-op was unregistered, had losses, and faced a DRO; DOJ seized records and thousands of Big Co-op stock certificates.
- The trial court sentenced on multiple counts per victim set with section 654 stays; on appeal, the court affirmed, with remand to adjust fines/fees and correct minute orders/abstracts.
- The court remanded for reconsideration of the restitution amount and related fines, and corrected errors in the abstracts of judgment; it affirmed the convictions on counts 67–71 and count 68 sufficiency.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether EZ2Win meets the endless chain scheme under §327 | Sweeney/Ryan argue no endless chain existed | Sweeney/Ryan argue the structure was legitimate MLM | Sufficiency upheld; EZ2Win fits endless chain under §327. |
| Whether EZ2Win memberships are securities | EZ2Win memberships designated as securities | Not investors in a common venture relying on others' efforts | EZ2Win memberships found to be securities under the statute. |
| Section 654 sentencing conformity | Stay on duplicative counts improper | Oral pronouncement consistent with §654 | No error; stays properly implemented per existing precedent. |
| Direct victim restitution and Apprendi concerns | Restitution not subject to Apprendi; no jury findings required | Restitution requires jury-backed findings | Restitution affirmed; remand for factual factors; corrections ordered. |
| Fines/fees and inability to pay issues | Inability to pay supports certain adjustments | Remand appropriate to consider statutory factors | Remand to reconsider restitution fine amount and correct 1202.5/1202.4 issues. |
Key Cases Cited
- Bounds v. Figurettes, Inc., 135 Cal.App.3d 1 (Cal.App.3d 1982) (endless chain marketing schemes are deceptive)
- Figurettes, 135 Cal.App.3d 1 (Cal.App.3d 1982) (marketing plans focusing on recruitment illegal)
- Bestline Prods., Inc., 61 Cal.App.3d 879 (Cal.App.3d 1976) (pyramid schemes deceptive when recruitment-based rewards)
- Frederick, People v., 142 Cal.App.4th 400 (Cal.App.4th 2006) (investment contracts within securities law; substantial evidence standard)
- Smith, People v., 215 Cal.App.3d 230 (Cal.App.3d 1989) (investment contracts and securities definition)
- Webster v. Omnitrition Int'l, 79 F.3d 776 (9th Cir. 1996) (endless chain/pyramid schemes treated as securities)
- Duff, People v., 50 Cal.4th 787 (Cal.4th 2010) (section 654 sentencing procedures; stay vs concurrent)
- Pangan, People v., 213 Cal.App.4th 574 (Cal.App.4th 2013) (Apprendi considerations for restitution context)