Thompson v. People, 2020 CO 72

Background

Thompson was sole manager of Timber Canyon, a real-estate developer whose Timber Ridge lots were encumbered by an $11.9M Flagstar loan, foreclosure, and bankruptcy/forbearance.
Thompson solicited $400,000 (then an additional $2,000,000) from Thomas and Debra Witt, promising a short-term, low-risk "investment"; he delivered a $2.4M promissory note and guaranty naming purported residential collateral.
Thompson did not disclose Timber Canyon’s bankruptcy, the foreclosure sale (property sold for $6.75M), or that his stated collateral was heavily leveraged; he used investors’ funds for personal expenses and repaid only $70,000.
The Witts sued civilly and referred the matter to prosecutors; Thompson was charged with two counts of securities fraud (§ 11-51-501(1)(b) & (1)(c)) and one count of theft (§ 18-4-401(1)(b)).
At trial the jury was instructed that a "security" includes "any note," Thompson did not object, and he was convicted; the trial court imposed concurrent sentences for securities counts and a consecutive sentence for theft.
The Colorado Court of Appeals affirmed; the Colorado Supreme Court granted certiorari and (1) adopted the Reves family resemblance test for notes under the Colorado Securities Act (CSA), (2) held the note was a security, (3) ruled any jury-instruction error was not plain, and (4) affirmed consecutive sentencing.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Colorado should apply the Reves family resemblance test to determine if a note is a "security" under the CSA	People: Reves should be adopted; CSA parallels federal law and Reves provides the proper framework	Thompson: Colorado precedent suggested using Howey/Milne and not necessarily Reves	Court: Adopted Reves; overruled Milne and applied the family resemblance test
Whether the promissory note given to the Witts was a "security"	People: Note functioned as an investment (profit motive, speculative real-estate financing, advertised as "investment")	Thompson: Characterized loan as a short-term "bridge" loan, heavily negotiated, and allegedly secured by collateral	Court: Note was a security under Reves (first three Reves factors supported security; collateral did not eliminate risk)
Whether trial court plainly erred by instructing jury that a "security" includes "any note"	People: Instruction tracked statutory language; law unsettled at trial so no plain error	Thompson: Instruction was incorrect and error was plain (urged plain-error review at time of appeal)	Court: Any instructional error was not plain because Thompson never contested at trial that the instrument was a security and evidence of guilt was overwhelming
Whether consecutive sentences for securities fraud and theft were barred because convictions were supported by identical evidence	People: Different acts/evidence supported each conviction (misrepresentations/omissions for securities counts; retention/use of funds for theft)	Thompson: Overlap in deceptive statements meant evidence was identical and sentences must run concurrently	Court: Distinct acts at different times supported each conviction; consecutive sentences permitted

Key Cases Cited

Reves v. Ernst & Young, 494 U.S. 56 (1990) (adopted the "family resemblance" test to decide when a note is a security)
S.E.C. v. W.J. Howey Co., 328 U.S. 293 (1946) (defined "investment contract" test used in securities analysis)
C.M. Joiner Leasing Corp. v. United States, 320 U.S. 344 (1943) (discussed common trading/speculation relevant to Reves factors)
People v. Milne, 690 P.2d 829 (Colo. 1984) (prior Colorado decision suggesting Howey principles; overruled by this opinion)
Lowery v. Ford Hill Investment Co., 556 P.2d 1201 (Colo. 1976) (Colorado precedent treating federal securities doctrine as persuasive)
Bass v. Janney Montgomery Scott, Inc., 210 F.3d 577 (6th Cir. 2000) (contrasting decision where heavily negotiated, well-collateralized bridge loans were held not to be securities)