Utah man pleads guilty to four counts of securities fraud and one racketeering count of UPUAA
64 year old Douglas P. Beecher admitted collecting about $2.85 million in investments from at least 14 investors under false pretenses and without a legal license. Beecther, an established accountant, promised investment with “well-vetted companies” guaranteeing an 8 percent interest rate and the ability to fully withdraw with 30 days notice.
Beecher admitted to selling stock/investment contracts despite not being licensed with the Utah Division of Securities
Many victims did receive some returns on their money, but were still owed substantial sums by last year when Beecher started sending investors letters apologizing for misusing funds and promising to repay them somehow. Sentencing has been delayed until December to allow Beecher to make what additional restitution payments he can. According to Assistant Attorney General Michael Palumbo, the amount still owing is about $1.05 million.
Christensen & Jensen’s Commercial Litigation practice group pursue and defend “Utah Pattern of Unlawful Activity Act” (UPUAA) claims in state and federal courts and in arbitration. Whatever your involvement with the UPUAA, Christensen & Jensen can advise you on the best legal strategy.
In early May, a Saratoga Springs man was charged with hacking into the United Airlines website and stealing travel vouchers that he then sold to other people. Ammon Cunningham was charged in 3rd District Court with various computer crimes, theft, communications fraud, and engaging in a pattern of unlawful activity, all second-degree felonies.
Cunningham Hacked United Airlines Website to Obtain Travel Vouchers
According to the charging documents, from approximately July 2012 through September 2012, Cunningham (who went by the alias Jacob Colvin) “unlawfully accessed (hacked) the United Airlines website and obtained Personal Identification (PIN) codes for Electronic Travel Certificates that had been assigned to United customers but had not yet been redeemed by those customers.”
Cunningham Used Vouchers for Himself or Sold Them to Others at Below Market Value
Prosecutors said that, once Cunningham obtained the travel vouchers, “He either used the ETCs for personal travel, or he sold them through various classified ad sites, including Craigslist and KSL.com.” Cunningham was alleged to have used 13 certificates for himself, valued at more than $7,800. Prosecutors also alleged that Cunningham sold some 120 vouchers to others, which were valued at more than $58,000. Prosecutors said Cunningham sold the vouchers at discounted prices, and that one couple purchased two vouchers valued at approximately $2,400 for less than $2,000, and booked a roundtrip vacation from New Jersey to Munich with the vouchers.
Cunningham Contacted United Airlines About “Massive Hole” He Found in Website Using Alias
Interestingly, in September 2012, prosecutors said that Cunningham contacted United Airlines through email using an alias, explaining to United that he had “found a massive hole in the United.com website.” Cunningham told United that he was willing to disclose to them this alleged “massive hole” he had found, but only if United would pay him $10,000 and supply him with first-class airfare to any place in the world for himself, his wife and, his child, the charges set forth.
Cunningham Pleads Guilty, Charge May be Reduced
Now, more than three months after he was charged, Cunningham has pleaded guilty to one count of engaging in a pattern of unlawful activity as part of a plea bargain. As part of the plea deal, the other second-degree felonies of computer crimes, theft, and communications fraud were dismissed. Additionally, prosecutors have agreed to hold Cunningham’s plea in abeyance, meaning that any potential prison sentence will be stayed and the charge could be reduced to a Class A misdemeanor in one year if Cunningham is able to complete 80 hours of community service, he pays restitution, and commits no additional crimes.
Pursuant to the Utah Pattern of Unlawful Activity Act (“UPUAA”), the state must prove that an individual engaged in a “pattern of unlawful activity.” As defined by the statute, a “‘[p]attern of unlawful activity’ means engaging in conduct which constitutes the commission of at least three episodes of unlawful activity.” The UPUAA lists approximately 64 violations of Utah law that constitute unlawful activity for purposes of the UPUAA. A Violation of the Utah Uniform Securities Act is included within the offenses that constitute “unlawful activity” under the UPUAA.
In a case that has involved an investigation and lawsuit by the Securities and Exchange Commission (“SEC”), a federal prosecution for obstruction of justice and providing false information, and state charges for securities fraud and engaging in a pattern of unlawful activity, Third District Judge Elizabeth Hruby-Mills recently sentenced Roger S. Bliss to a minimum of four years in the Utah State Prison. Mr. Bliss’ sentence follows his guilty plea to four counts of communications fraud and one count of engaging in a pattern of unlawful activity. Judge Hruby-Mills said that Mr. Bliss’ four year sentence will run consecutively with his one-year prison term imposed from federal court as it relates to the charges of obstruction of justice and providing false information.
SEC Files Suit
In February 2015, the SEC sued Mr. Bliss in Utah federal court. In its complaint, the SEC alleged Mr. Bliss solicited investors by offering them a membership in purported investment club. Mr. Bliss communicated to potential investors that he could day trade (speculation in securities) Apple stock for annual returns of 100 to 300 percent and that he had not lost money on a day trade in the last six years, the SEC said.
In order to further entice investors, Mr. Bliss told them that he was trading more than $300 million in assets. However, the SEC has said that Mr. Bliss’ brokerage account actually showed losses of at least $3 million over a three year period, with an ending balance of only $32,000.
According to court papers filed by the SEC, Mr. Bliss allegedly structured the scheme as an investment club following a meeting with attorneys, whereby the attorneys told him that structuring the scheme as an investment club would keep him from having to register as an investment adviser or a broker-dealer.
SEC Obtains TRO and Asset Freeze
On the same day the SEC lawsuit was filed, a Utah federal court also entered a temporary restraining order and asset freeze against Mr. Bliss. In July 2015, the SEC filed a motion for an order to show cause, claiming that Mr. Bliss had violated the court’s asset freeze when he failed to disclose ownership of a catamaran and had the boat removed from his property five days after the asset freeze was entered. In response to the SEC’s motion, Mr. Bliss said in a sworn declaration that his brother-in-law, Kevin Fortney, who had not been named in the SEC’s lawsuit, owned the boat but stored it at his house in Bear Lake during the off-season.
Mr. Bliss Held in Contempt
Following the statements in Mr. Bliss’ sworn declaration, U.S. District Judge Robert J. Shelby held Mr. Bliss in civil contempt. Judge Shelby stayed any sanctions against Mr. Bliss, and, instead, referred the matter to the U.S. Attorney’s Office for the District of Utah for a consideration of whether criminal charges should be brought against Mr. Shelby for criminal contempt.
Mr. Bliss and Mr. Fortney Indicted in Utah Federal Court
In August 2015, Mr. Bliss and Mr. Fortney were indicted by a federal grand jury for allegedly lying about the ownership of the catamaran during the SEC’s investigation. Mr. Bliss ultimately pled guilty to the federal charges, and was sentenced to a one-year prison term.
As previously noted, State charges were also filed against Mr. Bliss in connection with his alleged Apple investment scheme, including four counts of securities fraud and one count of engaging in a pattern of unlawful activity. The State was able to include a charge for engaging in a pattern of unlawful because they had alleged four “episodes” of securities fraud attributable to Mr. Bliss. A charge under the UPUAA is a second degree felony, but also carries the potential penalties of cost of suit, restitution, disgorgement, or other reasonable restrictions that may be placed on the future activities or investments of the individual, including ordering the dissolution or reorganization of any enterprise as defined by the UPUAA.
Mr. Bliss Ordered to Pay Restitution in Addition to Prison Time
Mr. Bliss ultimately pled guilty to the State charges, which led to the court imposing a four-year sentence against him. In addition to sentencing Mr. Bliss to prison, the court also ordered him to pay approximately $21 million in restitution to the victims of his securities scheme.
In the fall of 2014, the Utah Supreme Court ruled to reverse a 2012 Utah Court of Appeals decision in the Grace Kelson case.
In the fall of 2014, the Utah Supreme Court ruled to reverse a 2012 Utah Court of Appeals decision in the Grace Kelson case, which had vacated Ms. Kelson’s conviction for pattern of unlawful activity and reversed and remanded for a new trial on all other charges. The Utah Supreme Court’s decision remanded the case back to the court of appeals for further consideration of any remaining issues in the case, namely to consider an alternative ground for reversal of Ms. Kelson’s convictions that the court of appeals did not consider.
As background, in or around October 2001, Ms. Kelson and the owners of a mortgage company attempted to purchase a $15 million letter of credit to fund the two development projects. In order to secure the letter of credit, Ms. Kelson and the owners had to raise $125,000. As a result, they set about persuading friends, colleagues, and the families of their friends and colleagues, to provide funds for the letter of credit. In exchange for funding the letter of credit, the investors received promissory notes signed by Ms. Kelson for amounts several times larger than the amounts they provided. The promissory notes stated a financial services company that Ms. Kelson was the registered agent of would pay the investors within thirty days. However, Ms. Kelson failed to secure the line of credit and the investors were never paid. Ms. Kelson was subsequently charged and convicted on three counts of securities fraud, one count of offering or selling unregistered securities; one count of sales by an unlicensed broker-dealer, agent, or investment advisor; and one count of engaging in a pattern of unlawful activity. Ms. Kelson appealed her convictions.
On appeal, Ms. Kelson argued that her convictions should be overturned on the basis of ineffective assistance of counsel, and that the trial court erred in denying her motion for directed verdict because the court misapplied the UPUAA. The Utah Court of Appeals agreed, overturning Ms. Kelson’s UPUAA conviction and remanding for a new trial on all other charges. Specifically as it related to the pattern of unlawful activity conviction, Ms. Kelson argued that her activity in this case didn’t constitute a pattern of unlawful activity as a matter of Utah law. The court of appeals agreed. According, to the holding in Hill v. Estate of Allred, “[t]he proper test for determining whether there was a pattern of unlawful activity is whether there was `a series of related predicates extending over a substantial period of time’ or a demonstrated threat of continuing unlawful activity and not whether there were multiple schemes.” In the eyes of the court of appeals, the State had failed to satisfy the Hill test because:
Although Kelson’s actions involved multiple alleged crimes committed for the common purpose of obtaining cash, Kelson’s alleged crimes took place over a matter of days. Kelson first alerted Employee about the opportunity shortly before October 11, 2001, and all checks exchanged for promissory notes were deposited by October 15, 2001. Thus, Kelson’s alleged unlawful activity took place over a “closed period,” and the State was required to show “‘a series of related predicates extending over a substantial period of time.'” The State does not contend that it has done so, nor could it have made such a showing. As the Supreme Court noted in H.J., “[p]redicate acts extending over a few weeks or months,” which do not threaten “future criminal conduct,” do not constitute a substantial period of time sufficient to show continuity. Accordingly, Kelson’s acts over the course of only a few days are insufficient as a matter of law to satisfy Hill’s requirement that a pattern of unlawful activity must occur over a substantial period of time.
The State thereafter filed a petition of certiorari to the Utah Supreme Court, but did not challenge the court of appeals ruling on the pattern of unlawful activity conviction. The Utah Supreme Court disagreed with the court of appeals ruling on the securities conviction, and overturned the decision. The Utah Supreme Court reasoned “the jury instruction in question was an accurate statement of the underlying criminal law and not a burden-shifting evidentiary presumption.” As a result, the Utah Supreme Court “reject[ed] Kelson’s claims of ineffective assistance of counsel and plain error, and reverse[d] and remand[ed] to the court of appeals,” for further consideration of any remaining issues in the case.
While Ms. Kelson’s vacated convictions for securities fraud were ultimately overturned by the Utah Supreme Court, the court of appeals decision regarding the UPUAA has stood. The court of appeals decision is important because it further solidifies the Hill test, which recognizes that in order to constitute a pattern of unlawful activity under Utah law, the criminal activity must extend over a “substantial period of time.” If it does not, then a UPUAA charge may not be sustained as a matter of law. It remains to be seen what will happen to the rest of Ms. Kelson’s appeal, but at least her case has produced one favorable result, even if her convictions are ultimately upheld by the court of appeals.
(1) A person injured in his person, business or property by a person engaged in conduct forbidden by an provision of Section 76-10-1603 may sue in an appropriate district court and recover twice the damages he sustains, regardless of whether:
(a) the injury is separate and distinct from the injury suffered as a result of the acts or conduct constituting the pattern of unlawful conduct alleged as part of the cause of action; or
(b) the conduct has been adjudged criminal by any court of the state or the United States.
Furthermore, a principal, in addition to being responsible for actual damages caused by his or her agent(s), may also be liable for double damages:
[I]f the pattern of unlawful activity alleged and proven as part of the cause of action was authorized, solicited, requested, commanded, undertaken, performed, or recklessly tolerated by the board of directors or a high managerial agent acting within the scope of his employment.
However, even if a civil plaintiff is able to recover double damages under either section of the UPUAA, how does a court properly calculate the plaintiff’s actual damages award?
In Alta Indus. v. Hurst, the Utah Supreme Court sought to shed some light on the damages calculation question as it related to civil liability under the UPUAA. There, Steelco had sued defendants alleging claims for fraud, conversion, conspiracy, receiving stolen property, and a pattern of unlawful activity. Following a bench trial, the trial court ruled that defendants had converted property, had entered into a civil conspiracy, and committed fraud in its dealings with Alta Industries. However, the court also dismissed Steelco’s claims for relief and double damages under the UPUAA. Defendants appealed the judgment, and Steelco cross-appealed the court’s ruling dismissing its pattern of unlawful activity claim.
On appeal, the Utah Supreme Court had two issues to consider as it related to Steelco’s pattern of unlawful activity claim: 1) whether the trial court erred in dismissing the claim; and 2) if so, what the proper calculation of damages was sustained by Steelco. As to the first question, the court found that the trial court had erred in its interpretation of the UPUAA. According to the trial court, for the act to apply, “there must be three similar episodes that involve separate and different entities, and not within the same entity.” However, the supreme court disagreed, holding:
While subsection 76-10-1602(3) requires the commission of at least three episodes of unlawful activity, the Act does not require three separate entities. The term “entity” does not even appear in the statute. Furthermore, while the Act requires the existence of an enterprise, section 76-10-1603 expressly provides that the existence of one enterprise is sufficient to invoke liability under the Act. Indeed, our case law establishes that the Act requires proof of only a single enterprise.
Having determined that the UPUAA did not require proof of separate enterprises, the court went on to find that defendants had engaged in a pattern of unlawful activity in this case. As a result, Steelco was entitled to double damages under the UPUAA. However, an issue remained concerning the calculation of the damages sustained by Steelco.
The court started its damages calculations analysis by pointing out that the civil prong of the UPUAA “does not provide a method for calculating actual damages. Furthermore all of the predicated acts, or unlawful activities, under the Act are crimes, not civil causes of action. Accordingly, we must look outside the Act to determine a method of calculating damages.” To that end, the court looked to causes of action similar to the crimes charged in this case. According to the court:
In the instant case, because the elements of civil conspiracy are subsumed in the crime of bribery proven in this case, the damage calculation applicable to a civil conspiracy can be used to arrive at the actual damages Steelco sustained due to the kickback arrangements. Similarly, because the elements of conversion are subsumed in the crime of receiving stolen property proven in this case, the damage calculation applicable to conversion can be used to arrive at the actual damages Steelco sustained because of the theft of the steel. The trial court awarded Steelco damages on the bases of fraud, in connection with the kickback scheme, and conversion, in connection with the steel theft. Those damages may also be used to arrive at the damages Steelco sustained as a result of the pattern of unlawful activity.
However, defendants claimed that the trial court erred in its damages calculation as it related to Steelco’s conversion claim.
The trial court awarded Steelco the amount of money received by defendants from the sale of the steel plus interest. Defendants disagreed with the award, claiming that the “appropriate market for a retailer of steel is the wholesale market, not the retail market, and therefore, Steelco was only entitled to recover its replacement costs.” To answer the question raised by defendants, the court noted that the Restatement (Second) of Torts gave Steelco three options for determining its damages, which included the amount of money defendants received from the sale of the steel. The trial court’s award was based upon the amount of money defendants received from the sale of the steel. As a result, the trial court’s damages calculation was not in error, and therefore “the measure of damages is twice the amount Wasatch received for the sale of the steel plus interest.”
The Utah Supreme Court’s ruling in Alta Industries rejects any argument that in order to recover a civil judgment under the UPUAA a plaintiff must prove the existence of different enterprise. However, it also provides guidance for determining the proper damages calculations for the various offenses a defendant may commit under the UPUAA. While the UPUAA does not provide for a way to properly calculate a plaintiff’s actual damages, other areas of the law can be examined for guidance on the issue.
Merely being an individual engaged in a pattern of unlawful of activity does not necessarily subject a criminal defendant to a racketeering charge under the UPUAA.
Merely being an individual engaged in a pattern of unlawful of activity does not necessarily subject a criminal defendant to a racketeering charge under the UPUAA. In order to sustain a racketeering conviction under the UPUAA, the state must prove more than just the substantive offense. Rather, the State must prove the existence of an “enterprise” and its relation to the racketeering activity.
In State v. Hutchings, the Utah Court of Appeals answered the questions of whether a person could also be an entity under the UPUAA, and whether the same facts could be used to prove the unlawful activity and the existence of an “enterprise”. Even still, a question lingered regarding the “enterprise” issue. In 2004, the Utah Court of Appeals reiterated the supreme court’s words, and further clarified the required proof to sustain a racketeering charge under the UPUAA.
InState v. Bradshaw, the court of appeals was tasked with answering the question of whether the State had to prove the existence of a relationship between the unlawful activity and the “enterprise”. The State alleged Mr. Bradshaw, over a period of several months defrauded eleven people for a total of approximately $5,400. According to the State, Mr. Bradshaw falsely represented himself as the owner of various mortgage companies, and that he would promise to assist his would-be victims in obtaining refinancing or to avoid foreclosure in exchange for a fee. Two of Mr. Bradshaw’s coworkers allegedly witnessed the fraudulent activity, and Mr. Bradshaw in fact asked one of those employees to falsely represent himself as an appraiser to one of the victims. Mr. Bradshaw was charged with eleven counts of communications fraud and one count of pattern of unlawful activity, all second-degree felonies. In response to the charges against him, Mr. Bradshaw filed a motion to quash the racketeering charge under the UPUAA and to reduce the degree of offense of the communications fraud charges. The trial court denied the motion, finding that the State could prove the “enterprise” element even if Mr. Bradshaw only used the funds for personal expenses, and that the State could in fact charge Mr. Bradshaw with all eleven counts of communications fraud.
After his motion was denied, Mr. Bradshaw entered into a plea agreement with the State. Pursuant to the plea agreement, Mr. Bradshaw pled guilty to four counts of attempted communications fraud, but he reserved his right to appeal the trial court’s denial of his motion. The trial court subsequently accepted the plea and the remaining charges were dismissed. Mr. Bradshaw thereafter appealed.
On appeal, the Utah Court of Appeals reversed the trial court’s decision and remanded with instructions to grant Mr. Bradshaw’s motion to quash the UPUAA charge and to reduce the degree of offense of the communications fraud charges. As it related to the racketeering charge, Mr. Bradshaw argued that the State had failed to establish probable cause that he was engaged in an “enterprise”. The court of appeals agreed, finding that neither the criminal information nor the stipulated facts properly alleged the existence of an UPUAA “enterprise”. As the court aptly pointed out:
“The State’s information merely parrots the language of UPUAA and offers no insight into the State’s theory of the alleged enterprise. Likewise, the stipulation nowhere mentions the word “enterprise.” On appeal, the State postulates that its theory of an enterprise is an “association in fact” between Bradshaw and his two former coworkers. An “association in fact” enterprise “is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit.” The stipulation’s vague references to the fact that two of Bradshaw’s acquaintances witnessed some of the misrepresentations and may have participated on one occasion is not suggestive of an “ongoing organization” or that Bradshaw and his so-called accomplices “function[ed] as a continuing unit.”
Continuing on, the court of appeals noted that the State also misunderstood the UPUAA when it argued that it need only to point to the existence of an “individual” to satisfy the “enterprise” element. The court noted that while it is true that under Hutchings, a criminal defendant may be both an “individual” and an “enterprise” under subsections (1) ands (2) of the UPUAA, the State’s arguments in this case “would essentially collapse the ‘enterprise’ and ‘pattern of unlawful activity’ elements into one and would extend the scope of antiracketeering laws to virtually all substantive criminal offenses.” The court rejected this argument.
The court of appeals concluded its analysis of the racketeering charge by finding that the State had also failed to include any facts suggesting Mr. Bradshaw used the funds from his unlawful activity to invest or gain interest in an enterprise as required by subsection (1) of the UPUAA. According to the court of appeals:
The stipulation submitted in this case suffers from an additional fatal defect in that it fails to include any facts suggesting Bradshaw used the proceeds from his fraudulent activity to invest or gain an interest in an enterprise as required by section 76-10-1603(1). Instead, the stipulation states that Bradshaw used the money to pay his “personal bills.” The trial court nevertheless deemed the stipulation sufficient in this respect, finding that, as a matter of law, using the proceeds from a pattern of unlawful activity to pay one’s personal bills “qualif[ies as] racketeering.” We disagree.
The State appealed the court of appeals decision as it related to the communications fraud charges, but did not challenge the ruling on the UPUAA charge. The Utah Supreme Court overturned the court of appeals decision, and Mr. Bradshaw’s conviction was upheld. Even still, the court of appeals decision in Bradshaw represents an important decision regarding the necessary proof of an “enterprise” under the UPUAA and the connection that must be shown between the “unlawful activity” and that “enterprise”. Going forward, the State must do more than simply parrot the UPUAA in its charging documents and factual stipulations. Rather, it must prove the existence of an “enterprise” beyond the mere existence of the individual and that the enterprise is related to the “unlawful activity” to sustain a conviction under the UPUAA.
In order to sustain a conviction under the UPUAA, the State must prove 1) the defendant is engaged in a pattern of unlawful activity and 2) the defendant is involved in an enterprise.
In order to sustain a conviction under the UPUAA, the State must prove 1) the defendant is engaged in a pattern of unlawful activity and 2) the defendant is involved in an enterprise. Often times the pattern of unlawful activity is easily proven, but proving the existence of an “enterprise” can be more challenging for the State. The UPUAA comprehensively defines “enterprise” as:
[A]ny individual, sole proprietorship, partnership, corporation, business trust, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity, and includes illicit as well as licit entities.
Thus, an “enterprise” for purposes of the UPUAA can be anything from an individual to a group of individuals to a corporation or association, whether legal or illegal. Even still, the question of what constitutes an entity under the various sections of the UPUAA isn’t as easily answered.
In 1988, the Utah Supreme Court, while the issue was not squarely before it, implicitly ruled that the same set of facts could be used to prove the pattern of unlawful activity as well as used to prove the existence of an enterprise. In State v. McGrath, the court rejected the defendant’s argument that there was insufficient evidence to prove the existence of an enterprise under the RICE Act, the predecessor to the UPUAA. In so ruling, the evidence relied on by the court to find a pattern of unlawful activity and the existence of an enterprise was the same, the defendant’s cocaine trafficking. According to the court’s opinion:
These facts show an ongoing enterprise the purpose of which was to traffic in controlled substances. Defendant’s participation in this enterprise, when combined with his acts constituting a pattern of racketeering activity, establishes the necessary elements to convict….
Almost ten years later in 1997, in State v. Hutchings, the Utah Court of Appeals clarified the supreme court’s previous statements in McGrath. In Hutchings, the court of appeals was squarely tasked with answering the question of whether a UPUAA defendant can also constitute a UPUAA enterprise under section 76-10-1603(1), (2), or (3). The court began by examining U.S. Supreme Court and federal circuit court precedent on the issue, which generally found that “the same set of facts used to prove a pattern of racketeering activity may be used to prove a RICO enterprise.” The court then turned to Utah law, which it determined had already “implicitly ruled [in McGrath] that the same set of facts used to prove the pattern of unlawful activity can be used to prove the existence of an enterprise.” As such, the court of appeals agreed with the majority of federal courts and the Utah Supreme Court’s previous implicit holding in McGrath and found that the same set of facts could be used to prove a pattern of unlawful activity and an enterprise.
The court of appeals next turned to the various provisions of the UPUAA to determine whether the whether the “person” under section 76-10-1603(1), (2), or (3) can be the same entity as the “enterprise.” The court held that, for purposes of section 76-10-1603(1), “the liable ‘person’ and the ‘enterprise’ can be the same entity,” under section 76-10-1603(1), as long as the “person” is “actually… the direct beneficiary of the pattern of racketeering activity.” Similarly, the court held that with respect to subsection (2) “the ‘person’ and ‘enterprise’ within section 76-10-1603(2) need not be separate and distinct.” However, the court wasn’t willing to extend the same reasoning to subsection (3). According to the court:
[We] hold that for the purposes of section 76-10-1603(3), the “person” and “enterprise” must be separate and distinct entities. We, too, would be stretching the interpretation of the language in section 76-10-1603(3) to impose liability on both the culpable person and the enterprise. “The enterprise is mentioned in the section only as the instrument of the person doing the racketeering, and there is no suggestion that the enterprise also may be liable, even if it is a wholly illegitimate operation.”
As a result, under Utah law in order to sustain a conviction under subsection (3), the State must prove the existence of an “enterprise” that is distinct from the defendant themselves. Furthermore, the court went on to examine whether the sole proprietorship at issue in this case could constitute an “enterprise” for purposes of subsection (3). The court of appeals determined that as it related to the sole proprietorship at issue in in this case, “the man and the proprietorship really are the same entity in law and fact.” As result the State had failed to pass the distinction test.
While the Utah Supreme Court has declined to require distinction between the individual and the entity under subsections (1) and (2), it does require the state to prove the existence of more than a one-man show under subsection (3). Defendants facing charges under the UPUAA need to be cognizant of this fact, and must take steps to ensure their counsel argues that point to the court, and that the jury is properly instructed on the issue at trial.
In Hill v. Estate of Allred, the Utah Supreme Court articulated what it determined to be the proper test for determining whether there was a pattern of unlawful activity under the UPUAA. After moving to Utah from Michigan, Ms. Hill met the leader of a small religious group, Mr. Shugart. Ms. Hill asked Mr. Shugart to help her purchase the Desert Inn Ranch, which was listed for $1.5 million. A friend of Mr. Shugart’s, Mr. Matthews and a former real estate agent, Mr. Putvin agreed to help Ms. Hill purchase the property. Mr. Shugart delivered $1 million in cash, belonging to Ms. Hill, to Mr. Putvin and Mr. Matthews and directed them to proceed with the purchase of the ranch. In addition to the $1 million, Ms. Hill provided another $500,000 for the purchase of the ranch and paid Mr. Putvin $40,000 for his services. However, Mr. Putvin and Mr. Matthews never delivered the ranch or repaid any of the money.
Ms. Hill filed suit to recover her lost money alleging claims of civil conspiracy, constructive fraud, conversion, unjust enrichment, money laundering, fraudulent misrepresentation, racketeering (pattern of unlawful activity), and intentional infliction of emotional distress. Following a bench trial, the district court determined that the defendants had engaged in a civil conspiracy to deprive Ms. Hill of her money, the defendants had converted Ms. Hill’s money, and that they had made false representations to Ms. Hill as well. However, the court found that Ms. Hill did not meet her burden of proof on her claims of racketeering and intentional infliction of emotional distress. Ms. Hill appealed, arguing among other things that the trial court erred in holding that she did not meet her burden of proving a pattern of unlawful activity under her racketeering claim. Defendants cross-appealed.
On appeal, Ms. Hill argued that each unlawful act by defendants in furtherance of the conversion of her money constitutes an episode of unlawful activity and therefore a pattern exists. Defendants argued that the conversion of Ms. Hill’s money, though not accomplished in one single act, was only one episode of criminal activity and, therefore, did not constitute a pattern of unlawful activity. The district court agreed with defendants and held that their actions did not constitute a pattern of unlawful activity because there was only one episode of criminal activity, the conversion of Ms. Hill’s money.
“Over a Substantial Period of Time”
However, the Utah Supreme Court disagreed, and reversed the district court’s holding on Ms. Hill’s pattern of unlawful activity claim. According to the Utah Supreme Court, the proper test for determining a pattern of unlawful activity is the “continuity plus relationship” test articulated in H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229 (1989). “The proper test for determining whether there was a pattern of unlawful activity is whether there was ‘a series of related predicates extending over a substantial period of time’ or a demonstrated threat of continuing unlawful activity and not whether there were multiple schemes.” (emphasis added). As a result, in order to sustain allegations of a pattern of unlawful activity, a prosecutor or civil plaintiff must prove that the defendant(s) engaged in a series of related predicates over a substantial period of time. In Hill v. Estate of Allred, the Utah Supreme Court found that a period of five years was enough to satisfy this requirement. But there is no bright line rule as to what constitutes such a “substantial period of time.” Nevertheless, the substantial period of time requirement imposed in Hill v. Estate of Allred is an element of the offense, and juries should be instructed accordingly. The test adopted in Hill v. Estate of Allred may require previous cases to be reexamined, and will undoubtedly impact UPUAA cases going forward.
As reported on ksl.com, former Vescor executive Shawn H. Moore has been convicted on various state charges, including one under the Utah Pattern of Unlawful Activity Act. The Moore case is No. 081908861, Third District Court.
In August 2012, the Utah Court of Appeals vacated Grace Kelson’s convictionon one count of violating the Utah Pattern of Unlawful Activity Act, because there was insufficient “continuity” in her allegedly unlawful activities. (The activities did not occur over an extended period of time, and ended before she was charged.) The court also reversed convictions and remanded for a new trial on one count of offer or sale of unregistered securities, one count of sale by an unlicensed broker‐dealer, agent, or investment advisor, three counts of securities fraud.
Update: On January 14, 2013, the Utah Supreme Court granted certiorari in the case, agreeing to review the Court of Appeals’ opinion.
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