United States v. Mark Ellison
704 F. App'x 616
9th Cir.2017Background
- Four former DBSI Group executives (Douglas, Mark Ellison, David Swenson, Jeremy Swenson) were tried jointly and convicted of securities fraud; Douglas was also convicted of wire fraud.
- The convictions related to misleading Private Placement Memoranda (PPMs) and related conduct in 15 investment offerings, including misuse of investor "Accountable Reserves," misleading financial statements, and transactions involving affiliated entities and Master Leaseco.
- Defendants challenged jury instructions (scheme to defraud, materiality, investor negligence, willfulness), evidentiary rulings, courtroom closures, discovery orders, and other trial rulings.
- The Ninth Circuit reviewed sufficiency of the evidence, various procedural and evidentiary claims, sentencing (loss calculation and reasonableness for Douglas), and restitution for Ellison, David, and Jeremy.
- Court affirmed convictions and most rulings, vacated and remanded restitution order to correct a double-counting error, and affirmed Douglas’s sentence and loss calculation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Jury instruction re: "scheme to defraud" allowed conviction based on silence | Instruction accurately defined scheme and matched precedent | Instruction could permit conviction for nondisclosure absent duty to disclose | Affirmed; statements were made so duty to disclose arose and instruction correct (no abuse) |
| Materiality instruction failed to require considering all circumstances | Government: reasonable-investor standard suffices to capture context | Defendants: jury not told to consider full context or info available to third parties | Affirmed; referring to "reasonable investor" adequately conveyed context; evidence of materiality was sufficient |
| Instruction that investor negligence is not a defense | Government: materiality is objective; victim carelessness not a defense | Defendants: could argue gullible investors negate materiality as defense | Affirmed (plain-error reviewed); instruction correct and any ambiguity was not prejudicial |
| Sufficiency of evidence for securities and wire fraud convictions | Government: abundant evidence showed misleading PPMs, deceptive practices, and other conduct | Defendants: insufficient proof of intent or scheme beyond misstatements | Affirmed; ample evidence (PPMs, transfers, concealment, audit manipulations) supported convictions and aiding/abetting findings |
| Confrontation Clause—admission of co‑defendants’ testimonial statements without limiting instruction | Defendants: admission violated Confrontation and required reversal | Government: statements harmless given other overwhelming evidence | Harmless error; statements were personal to declarants and cumulative of other evidence |
| Restitution amount and loss calculation | Defendants: restitution and victim ID/amounts insufficient or erroneous; some argued over-inclusion | Government: restitution based on master spreadsheet; Court below double-counted reserves | Restitution vacated in part and remanded to reduce amount by identified double-counting; victim identification upheld; Douglas’s loss calculation affirmed as reasonable |
Key Cases Cited
- United States v. Lloyd, 807 F.3d 1128 (9th Cir.) (discussing scheme-to-defraud instruction)
- Blackie v. Barrack, 524 F.2d 891 (9th Cir.) (scheme liability not limited to isolated misrepresentations)
- Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (U.S.) (omission-based liability where statements made)
- Chiarella v. United States, 445 U.S. 222 (U.S.) (limits on nondisclosure liability absent duty)
- United States v. Nevils, 598 F.3d 1158 (9th Cir.) (standard for sufficiency review)
- United States v. Tarallo, 380 F.3d 1174 (9th Cir.) (willfulness definition for securities fraud)
- WPP Lux. Gamma Three Sarl v. Spot Runner, Inc., 655 F.3d 1039 (9th Cir.) (distinguishing conduct beyond 10b-5(b) misstatements)
- Melendez-Diaz v. Massachusetts, 557 U.S. 305 (U.S.) (Confrontation Clause on testimonial evidence)
- United States v. Loftis, 843 F.3d 1173 (9th Cir.) (Rule 404(b) and admissibility of acts integral to charged scheme)