United States v. Richard Bailey
696 F.3d 794
9th Cir.2012Background
- Bailey was CEO, President, and Chairman of Gateway, a small public company selling health and dietary supplements.
- In 2003 the SEC filed a civil complaint against Bailey and Gateway alleging violation of Rule S-8; Bailey settled with no admission of liability.
- In 2004 Bailey was criminally charged for issuing stock to Richard Owens to raise capital and for Bailey and Gateway’s benefit; Bailey pleaded not guilty.
- Before trial the government mov"ed in limine to admit the fact of the SEC complaint; the court allowed only the fact of the complaint to be mentioned, not deeper discussion.
- At trial, witnesses including FBI Agent Schofield and Owens testified to the 2004 transactions; Bailey did not testify; the defense presented alternative explanations; Bailey was convicted and sentenced to 30 months.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the prior SEC complaint was admissible under Rule 404(b). | Bailey argues the complaint is impermissible character/propensity evidence. | Bailey contends the complaint is not proof of the act and lacks sufficient basis. | The court held the complaint improperly admitted under Rule 404(b) and reversed. |
| Whether the error was harmless beyond a reasonable doubt. | Bailey’s conviction could stand if error harmless given other evidence. | The improperly admitted evidence could have tipped the jury; error not harmless. | Error not harmless; conviction vacated and new trial ordered. |
| What standard governs Rule 404(b) admissibility and its application here. | Application of Huddleston standard requires sufficient evidence of the prior act. | Knowledge/intent could be shown by the complaint without proving the act. | The panel applied Huddleston and concluded the complaint did not meet the standard. |
Key Cases Cited
- Huddleston v. United States, 485 U.S. 681 (1988) (sufficiency standard for 404(b) evidence; jury may find prior act noted if evidence supports finding.)
- United States v. Romero, 282 F.3d 683 (9th Cir. 2002) (four-part test for Rule 404(b) admissibility; government bears burden.)
- United States v. Tarallo, 380 F.3d 1174 (9th Cir. 2004) (willfulness can be shown by intentional act known to be wrongful.)
- United States v. Houser, 929 F.2d 1369 (9th Cir. 1990) (illustrates admissibility thresholds for 404(b) evidence.)
- United States v. Donnell, 596 F.3d 913 (8th Cir. 2010) (illustrates limitations on prior arrests/evidence and admissibility.)