810 F.3d 702
9th Cir.2016Background
- Mark F. Spangler, a registered investment adviser, ran The Spangler Group and created pooled funds (notably "Equity" and "Income") and separate venture funds that invested in startups TeraHop and Tamarac.
- Beginning in 2003 Spangler diverted money from Equity and Income into the startups (sometimes via Spangler Ventures funds), used incoming funds to pay investor distributions, and produced portfolio reports that minimized private-equity exposure.
- In 2008 revised PPMs gave Spangler more discretion; many clients signed without close review because they trusted him. When liquidity requests increased after 2008, Spangler could not satisfy them and The Spangler Group entered receivership in 2011.
- A second superseding indictment charged Spangler with 25 wire-fraud counts, 7 money-laundering counts, and 1 investment-adviser-fraud count; the jury convicted him on 32 of 33 counts; he was sentenced to 192 months.
- On appeal Spangler challenged (1) exclusion of his expert (John Keller), (2) admission of testimony about his fiduciary status, (3) refusal to dismiss count 33 for not citing 15 U.S.C. §80b-17 or alleging "willful," and (4) cumulative error.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Exclusion of defense expert (Keller) | Government: district court properly excluded Keller under Rule 702/Daubert as not relevant. | Spangler: exclusion was abuse of discretion and violated his Sixth Amendment right to present a defense. | Court: no abuse of discretion; testimony irrelevant to fraud theory; any error harmless; no Sixth Amendment violation. |
| Admission of testimony re: fiduciary status | Government: testimony explained why clients trusted and did not audit Spangler; relevant to how scheme succeeded. | Spangler: references and prosecutor argument risked jurors equating civil fiduciary breaches with criminal fraud; limiting instruction should have been given. | Court: no abuse of discretion; testimony necessary context; jury instructions on elements cured any risk. |
| Sufficiency of Count 33 (Investment-adviser fraud) | Government: indictment read in common-sense way; §80b-17 criminalizes §80b-6 violations; willfulness inferable from allegations. | Spangler: indictment defective for not citing §80b-17 and not alleging "willful," violating Fifth Amendment. | Court: indictment sufficient when read liberally; failure to cite §80b-17 not prejudicial; willfulness reasonably inferable from alleged scheme. |
| Cumulative error | N/A | Spangler: combined trial errors require reversal. | Court: no individual errors shown, so cumulative-error doctrine inapplicable. |
Key Cases Cited
- Laurienti v. United States, 611 F.3d 530 (9th Cir.) (standard for reviewing exclusion of expert testimony)
- Daubert v. Merrell Dow Pharm., 509 U.S. 579 (U.S. 1993) (gatekeeping for expert admissibility)
- Holmes v. South Carolina, 547 U.S. 319 (U.S. 2006) (right to present a defense subject to rules of evidence)
- Christo v. United States, 614 F.2d 486 (5th Cir.) (danger of bootstrapping civil violations into criminal liability)
- Wolf v. United States, 820 F.2d 1499 (9th Cir.) (risk that regulatory violations improperly substitute for criminal elements)
- Lo v. United States, 231 F.3d 471 (9th Cir.) (indictment sufficiency reviewed de novo; liberal construction when tardily challenged)
- Awad v. United States, 551 F.3d 930 (9th Cir.) (willfulness may be inferable from indictment allegations)