United States v. Weed
2017 U.S. App. LEXIS 19550
| 1st Cir. | 2017Background
- Richard Weed, a securities lawyer, wrote false opinion letters enabling two co-conspirators (Flaherty and Brazil) to convert promissory notes into freely tradable stock and sell overvalued shares in a pump-and-dump scheme (2008–2013).
- Flaherty and Brazil used reverse mergers with a public shell company; they relied on Weed’s opinion letters to transfer agents invoking Rule 144 safe-harbor representations that the sellers were not affiliates.
- In truth Flaherty and Brazil were affiliates, so Rule 144 did not apply; transfers occurred after promoters artificially inflated the stocks’ value.
- Weed was indicted and convicted of securities fraud (15 U.S.C. § 78j(b)), wire fraud (18 U.S.C. § 1343), and conspiracy (18 U.S.C. § 371); he moved for acquittal and a new trial, advancing a novel statutory interpretation on appeal.
- Weed argued Section 3(a)(9) of the Securities Act exempted the securities (permanently) from registration, rendering his Rule 144 misstatements correct or immaterial; the district court denied relief and the First Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (Weed) | Defendant's Argument (Government) | Held |
|---|---|---|---|
| Whether Section 3(a)(9) permanently exempted the securities so that Weed’s statements could not support fraud convictions | Section 3(a)(9) creates a class exemption applying to the initial exchange and all subsequent transactions, so registration was not required | Even if Section 3(a)(9) applied to the initial conversion, the prosecution is for fraud based on false Rule 144 statements—not for selling unregistered securities | Court assumed arguendo Section 3(a)(9) but held convictions stand because prosecution targeted fraudulent misrepresentations, not registration violations |
| Whether legal impossibility (statutory exemption) defeats fraud charges | If securities were exempt, it was legally impossible to commit the charged offense | Exemption (even if correct) does not excuse fraudulent conduct intended to evade the law | Rejected Weed’s legal-impossibility defense; fraud prosecution independent of registration question |
| Whether misstatements re: Rule 144 were immaterial as a matter of law because Section 3(a)(9) provided an alternative exemption | If Section 3(a)(9) applied, Weed’s Rule 144 statements were legally immaterial and cannot support materiality element | Materiality is fact-specific; a reasonable jury could find misstatements material because Weed’s novel interpretation contradicted long-standing SEC views and transfer agents relied on his letters | Affirmed: materiality was for the jury; reasonable jurors could find the lies material despite Weed’s statutory theory |
| Whether the district court constructively amended the indictment via jury instructions | Court’s reference to offering/selling unregistered securities effectively broadened charges | The reference was a fleeting orienting remark; instructions as a whole correctly stated elements and focused on misstatements | No plain error; no constructive amendment proved |
Key Cases Cited
- Manso-Cepeda v. United States, 810 F.3d 846 (1st Cir. 2016) (standard for viewing evidence after jury verdict)
- Ralston Purina Co. v. SEC, 346 U.S. 119 (1953) (registration requirement protects investors via disclosure)
- Kern v. SEC, 425 F.3d 143 (2d Cir. 2005) (Rule 144 safe-harbor provides certainty for Section 4(a)(1) exemption)
- Richard v. United States, 234 F.3d 763 (1st Cir. 2000) (Rule 29 sufficiency standard)
- Neder v. United States, 527 U.S. 1 (1999) (materiality as an element of wire fraud)
- TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976) (materiality standard for securities disclosures)
- Dennis v. United States, 384 U.S. 855 (1966) (fraud cannot be excused by arguing targeted statute did not apply)
- Fernandez v. United States, 722 F.3d 1 (1st Cir. 2013) (legal-impossibility principles)
- Naftalin v. United States, 441 U.S. 768 (1979) (Securities Act proscribes frauds against brokers and intermediaries)
- Taylor v. United States, 848 F.3d 476 (1st Cir. 2017) (constructive amendment and plain-error review)
- Melendez v. United States, 775 F.3d 50 (1st Cir. 2014) (instructions evaluated in totality for amendment claims)
- Villarman-Oviedo v. United States, 325 F.3d 1 (1st Cir. 2003) (standard for Rule 33 new-trial review)