California Court of Appeals, Fourth District, First Division
& mod. order 4/6/17
APPEALS from judgments of the Superior Court of San Diego
County No. SCD219673Peter C. Deddeh, Judge. Remanded with
directions; affirmed as modified.
Charles R. Khoury, under appointment by the Court of Appeal,
for Defendant and Appellant, Francisco Jose Martinez.
Cynthia M. Jones, under appointment by the Court of Appeal,
for Defendant and Appellant, Daniel P. Romero.
Barbara A. Smith, under appointment by the Court of Appeal,
for Defendant and Appellant, Marcellus Lopes Lee.
D. Harris, Attorney General, Kathleen Alice Kenealy, Chief
Deputy and Acting Attorney General, Gerald A. Engler and
Julie L. Garland, Assistant Attorneys General, Sharon Rhodes
and Ryan H. Peeck, Deputy Attorneys General, for Plaintiff
found Marcellus Lopes Lee, Daniel Paul Romero and Francisco
Jose Martinez, Jr. (together, appellants or the defendants)
guilty of fraud in the offer or sale of commodities. (Corp.
Code, § 29536.) Lee and Romero were also convicted of
conspiracy and grand theft of personal property. (Pen. Code,
§§ 182, subd. (a)(4), 487, subd. (a).) The jury
found that the takings exceeded certain dollar amounts and
that the victims' losses were in excess of $150, 000.
(Pen. Code, §§ 186.11, subds. (a)(2) & (a)(3),
12022.6, subd. (a)(2) (collectively, aggravated white collar
criminal enhancements).) The trial court subsequently granted
the defendants' motions for a new trial on some of the
counts and dismissed other counts for insufficiency of the
evidence. The People appealed. (People v. Lee (Mar.
7, 2014, No. D061235) [nonpub. opn.] (Lee).)
Lee, we concluded that the trial court abused its
discretion in reversing the jury's verdicts. We reversed
the trial court's orders and remanded the case with
instructions to reinstate the verdicts rendered by the jury
and sentence the defendants accordingly. In the interests of
justice, we ordered the proceedings on remand to be heard
before a trial judge other than the judge whose orders were
reviewed on appeal. (Lee, supra, No.
remand, at the People's request, the sentencing court
dismissed the counts on which the defendants were subject to
retrial. The court sentenced Romero to a total of seven years
in prison. Martinez received a one-year jail sentence and a
five-year probation term. Lee was sentenced to a total of
five years in prison.
instant appeal, Appellants assert there is not sufficient
evidence to support their convictions for commodities fraud
because they entered into money management contracts with
their clients, not contracts for the sale or purchase of
commodities. Martinez also argues there is not sufficient
evidence to sustain his convictions even if money management
contracts qualify as commodities contracts within the meaning
of section 29536. Appellants claim the trial court
prejudicially erred by failing to instruct the jury that
scienter is an element of the offense of commodities fraud.
They also contend reversal is required because the sentencing
court refused to consider a motion for a new trial on grounds
not decided by the trial court.
argues the trial court did not properly instruct the jury
about the statute of limitations requirement for conspiracy.
He contends the sentencing court erroneously ordered him to
pay restitution to several alleged victims for crimes for
which he was not convicted, and duplicating the amount of
restitution owed to one of the victims. Romero and Martinez
maintain there is insufficient evidence to support an
aggravated white collar crime enhancement under Penal Code
section 186.11, subdivision (a)(2), which requires a taking
to be greater than $500, 000. Finally, Romero contends the
sentencing court erred by reinstating count six, which the
court later dismissed at the People's request, and by
reinstating his conviction on count seven, and sentencing him
for that offense.
People concede the sentencing court erroneously reinstated
counts six and seven, and we accept their concession. The
People also concede the trial court erred when it did not
instruct the jury that scienter is an element of the offense
of commodities fraud, but contend the error was harmless. The
People ask this court to review the possibility the
sentencing court may not have imposed a mandatory fine under
Penal Code section 186.11, subdivision (c).
conclude that the restitution award to Ricky Lutz was
incorrectly determined. We vacate Romero's conviction on
count seven and remand for resentencing. Otherwise, we find
no error and affirm.
AND PROCEDURAL BACKGROUND
detailed the factual and procedural background of this case
in our earlier decision, Lee, supra, No.
D061235. We need not repeat those details here. Instead, we
summarize the background of the case where relevant to the
issues raised in these appeals.
early 2004, Romero and Martinez became interested in
international currency trading. They had no background in
trading or foreign currency. Romero and Martinez contacted
Lee, a former stockbroker who had started trading in
off-exchange foreign currency (forex). Lee's company was
New England Capital Traders (NECT).
August 2004, Romero opened an account with a futures
commodity merchant (FCM). He acknowledged receiving a risk
disclosure statement from the FCM, which stated stop-loss or
stop-limit orders intended to limit losses to certain high
returns and minimal risk through stop-loss discipline may not
be effective because market conditions may make it impossible
to execute such orders. Notwithstanding this advisement,
Martinez developed a web site for his and Romero's
company, Kingdom Advisors, which stated: "Investors may
lower their exposure to risk by employing risk-reducing
strategies such as 'stop-loss' or 'limit'
and Martinez solicited and received more than $600, 000 in
loans from two individuals to start trading. Using Lee as a
trader, they had highly favorable returns for three to five
months and were able to recruit other investors. After the
initial period, Lee began to incur large trading losses.
Despite the losses, Lee personally profited from every trade.
Based solely on Lee's short-lived success, Lee, Romero
and Martinez solicited several million dollars from other
persons for the purpose of trading forex contracts. Lee and
Romero told potential investors they had significant success
trading foreign currency. They promised high rates of return
and said they mitigated risk by implementing stop-loss
that Lee was taking commissions, Romero and Martinez opened a
trading account with another FCM, and received commissions or
rebates on every trade regardless of performance. Romero and
Martinez contracted with another trader, who was
inexperienced and incurred large losses. Their clients lost
most or all of their money. According to Romero's
estimates, during a period of 16 to 18 months, Kingdom
Advisors received from 10 to 30 percent of several million
dollars in commissions from trading forex contracts.
approximately late 2005, Romero and Martinez, together with
Lee, decided to stop trading in the forex market and start an
FCM, which they named TradeCo. They told existing clients the
only way to recoup their losses was to invest in TradeCo.
They solicited other persons to finance their new enterprise
by promising high rates of return and the possibility of
equity positions. After operating for two to three months,
the NFA increased TradeCo's capitalization requirements
and TradeCo ceased functioning.
March 25, 2009, the People charged Lee, Romero and Martinez
with conspiracy to defraud, commodities fraud and grand
theft. The People alleged defendants falsely claimed
substantial expertise and success trading foreign currency,
promised returns of 10 to 15 percent per month on investment
funds and guaranteed investors they would not lose more than
20 percent of the initial value of their portfolio through
the use of stop-loss mechanisms. The People also alleged as a
result of their misrepresentations, defendants took more than
2.4 million dollars from individual victims, who lost most or
all of their investments.
began on February 28, 2011, and concluded on April 6, 2011.
In the interests of brevity, we discuss only those counts for
which the defendants were convicted and sentenced. Additional
facts are set out in Discussion where relevant to the issues
raised on appeal.
People charged Lee, Martinez and Romero with conspiracy to
defraud and alleged they committed 19 overt acts in
furtherance of their conspiracy, including obtaining $100,
000 from Robert Smith on or about November 3, 2004; $260, 000
from Ricky Lutz between August to September 2005; $45, 000
from Curtis Brown and $100, 000 from Michael Mauch on or
about November 28, 2005; $10, 000 from Greg Hughes on or
about March 30, 2006; $110, 000 from Greg Sabal between May
10 and July 5, 2006; and $150, 000 from Paul Cannon between
September 25 and 28, 2006. The complaint alleged the
defendants failed to return all but a small fraction of the
money to their victims, despite demands by the victims for
Eight and Nine (Robert Smith)
People charged the defendants with grand theft of personal
property and fraud in the offer or sale of a commodity to
Robert Smith. After several meetings with Romero and
Martinez, and with Lee, Romero and Martinez, Brian Smith, a
financial advisor, advised his client, Robert Smith, to
invest with the defendants. Brian Smith was aware that forex
trading was high risk. Romero told Brian Smith they could
provide a monthly return of six percent and had clients who
were earning that rate. Brian Smith discussed foreign
currency markets, liquidity leverage, technology and
stop-loss as risk mitigation in technical terms with Lee.
Brian Smith said the strategies Lee described for managing
risk included stop-loss discipline and were "very
November 2004, Robert Smith invested $100, 000 with Kingdom
Advisors. He received a six percent return each month for
three or four months. Kingdom Advisors did not provide any
account or trade summaries. When Kingdom Advisors stopped
sending checks, Brian Smith kept communicating with Romero,
who assured him that Robert Smith's principal was intact
and profits would resume. Robert Smith received one or two
additional payments in the third quarter of 2005. Brian Smith
never learned what happened to Robert Smith's principal.
accounting showed that Robert Smith's funds were
commingled in a Kingdom Advisors trading account where
Lee's company, NECT, had trading authority. The total
initial balance was $478, 385. Of that amount, there were
trading losses of $149, 630.50 and withdrawals of $328,
754.50. The withdrawals included payments of $78, 638 to
Kingdom Advisors, $15, 000 to Martinez, $11, 000 to
Martinez's organization, Luz de Vida, and transfers
totaling $53, 000 to Romero's personal bank account. In
April 2005, Kingdom Advisors made a $5, 000 payment to Robert
Smith from another investor's account.
Ten and Eleven (Brian Smith et al.)
People charged the defendants with grand theft and
commodities fraud from Brian Smith. At various times, six
investors gave a total of $460, 000 to Brian Smith, which he
invested with the defendants through his company, Olympia
Capital Management (Olympia). A few weeks later, the account
suffered losses of approximately 70 percent. Brian Smith
contacted Romero, who blamed the trading loss on a young
trader. Brian Smith had met the trader but had not expected
him to have any direct role in trading his accounts. When the
trader suffered initial trading losses, he abandoned
stop-loss discipline in hopes of recovering the funds,
compounding the losses.
Smith met with Romero and Martinez, who said Smith could
recover his assets by investing in TradeCo. Martinez told
Smith they could provide seven percent interest a month while
maintaining safety on the principal. Smith invested the funds
remaining in his trading account in TradeCo. He never learned
what happened to those funds.
to a forensic accountant, Jeremy Connelly deposited $10, 000
in a Kingdom Advisors bank account in June 2005. That $10,
000, along with other deposits, was withdrawn in various
transactions that month. Kingdom Advisors received $4, 300 of
Connelly's money, of which $2, 500 went to Romero's
personal account. Between February and June 2006, Connelly
received approximately $3, 000 in payments from Olympia.
November 2005, Michael Mauk deposited $100, 000 with Olympia,
which was wired to a trading account where Kingdom Advisors
had trading authority. The trading account had losses of $69,
514 in two months, including commissions. From November 28,
2005 to January 26, 2006, Kingdom Advisors received
approximately $63, 500 in payments from the trading account.
Romero personally received $9, 500. Four thousand dollars was
transferred to another one of Romero's business accounts.
Brown deposited $45, 000 with Olympia in November 2005. A
month later, Brown's funds were deposited in a trading
account. There were transfers from the trading account to
Olympia in February, May and June 2006 totaling $34, 076.76.
Those funds became part of Olympia's $75, 000 deposit
with Kingdom Advisors for TradeCo in July 2006. Of those
funds, $69, 000 was deposited in a TradeCo bank account. The
remaining $6, 000 was used to pay part of a settlement in a
civil lawsuit that Romero owed to a third party.
Hughes deposited $10, 000 with Olympia in March 2006. Those
funds, together with Greg Sabal's $100, 000 deposit, were
distributed as follows: In May, $30, 000 was placed in a
trading account; $35, 000 was transferred to a Kingdom
Advisors bank account; and the remaining funds were part of
Olympia's $75, 000 transfer to Kingdom Advisors for
TradeCo. Romero used the funds that were transferred to
Kingdom Advisors for his personal expenses, included a $24,
500 payment to Hoehn Motors, and other payments to Disney
Resort, Romero's credit cards, airlines, hotels and
restaurants, and to replenish another client's trust
September 2006, Cannon deposited a total of $152, 600 with
Olympia. His funds comprised a large portion of a $140, 000
transfer to Kingdom Advisors. Of that transfer, a $10, 000
check made out to Daniel Romero's wife was deposited in
Romero's personal account. Cannon's money was never
deposited in any trading account.
Twelve and Thirteen (Lutz)
and Lee were charged with grand theft and fraud in the offer
or sale of commodities to Ricky Lutz. In early 2005, Lutz
contacted Romero for information about forex. Romero sent him
a brochure stating Kingdom Advisors had returns of 10 to 14
percent a month. The brochure stated "the investment
manager has established a stop-loss policy with authorized
traders such that they are to cease trading should any
account suffer a 20 percent loss below the series' most
recent highest asset valuation."
spoke to Lee on numerous occasions about stop-loss. Lee told
him if the investment funds dropped below 80 percent of their
original amount, trading would stop and the investor would be
notified. Lee showed Lutz returns showing that investors had
doubled their money in eight months. Lutz knew that a forex
investor could make a lot of money and could lose a lot of
money. That was why he was "such a stickler" about
the stop-loss provision. Lutz believed that a loss of 20
percent of his investment was the worst case scenario.
"100 percent" on Lee and Romero's
representations, Lutz recruited four other investors.
Together, they deposited $260, 000 in Lee's trading
company in August and September 2005. In early September, Lee
sent Lutz an e-mail stating the investment was up 67 percent.
Approximately three weeks later, Lutz learned that one of his
accounts had lost more than 50 percent of its initial value
and another account was down approximately 40 percent. Lutz
told Lee he was in violation of their agreement and demanded
that Lee restore the accounts to 80 percent of their original
value. Lee said the lack of notice to Lutz at the 20 percent
mark was an oversight. He had some safer, small trades that
would bring the account balances back to their original
amounts. Lutz authorized Lee to continue trading.
October 12, 2005, Lutz told Lee to close his accounts and
return the balance of $105, 000 to him. On November 6, Lee
notified Lutz he had closed the trading account and was
ending his forex trading career. Lee said Lutz's account
was down approximately 90 percent but he had a solution that
would help them both succeed. He asked Lutz to invest his
investors' remaining funds, and additional funds, in
TradeCo. Lee promised Lutz he would return the expected
profits on his original investment to him. After declining
Lee's offer, Lutz received a payment of $24, 162, which
he returned to one of his investors.
testified he was not responsible for the way trades were
conducted. He said he did not have access to trading accounts
or records, or authority over the disbursement of funds from
Kingdom Advisors. Martinez said he did not misrepresent
Kingdom Advisors' success to any prospective clients or
guarantee that a client would not lose his or her investment.
Martinez testified he confronted Romero about his use of
Kingdom Advisors funds. Romero had built a pool at his home,
and purchased a Porsche and a BMW, all-terrain vehicles, a
trailer and jewelry. Martinez acknowledged he was vice
president of Kingdom Advisors, a partner in TradeCo, but said
he did not have an ownership interest in the company.
Martinez acknowledged he had signatory authority for Kingdom
Advisors' bank accounts and signed documents as the vice
president of Kingdom Advisors, and he had trading authority
over its accounts.
testified when he spoke to potential clients, he simply
relayed his experience in the market during the early months
of trading. He promised "best efforts" but never
guaranteed a specific rate of return. Romero was not
responsible for Kingdom Advisors' Web site, which stated
that stop-loss discipline would be used to limit losses.
Martinez developed the Web site with content from an FCM.
not testify on his own behalf.
jury convicted Romero of conspiracy (count one), commodities
fraud (counts seven, nine, eleven and thirteen) and grand
theft (counts eight, ten and twelve). The jury found Martinez
guilty of commodities fraud (counts nine and eleven). As to
Lee, the jury returned guilty verdicts on the counts of
conspiracy, commodities fraud (counts nine, eleven and
thirteen) and grand theft (count twelve). As to all of the
defendants, the jury made true findings on three white collar
penalty enhancements under Penal Code sections 186.11 and
defendants filed new trial motions under section 1181,
subdivision (6) on the ground there was insufficient evidence
to support the verdicts. The trial court granted new trials
on counts nine, eleven and thirteen, and dismissed counts
two, three, four, five, eight, nine, twelve and thirteen. The
trial court also dismissed count one as to Martinez, and
count ten as to Martinez and Lee. (Lee,
supra, No. D061235, at pp. 16-17.)
People appealed. Our court determined the trial court erred
in granting the motions for new trial on grounds of
instructional error. In addition, the trial court applied an
incorrect legal standard in dismissing the defendants'
convictions for legal insufficiency of the evidence.
(Lee, supra, No. D061235, at p. 3.) We
reversed the trial court's orders and remanded the matter
to the superior court with instructions to reinstate the jury
verdicts and sentence the defendants accordingly. The People
had the discretion to seek a retrial on the counts that ended
in mistrial. (Lee, at p. 60.)
the matter was remanded to the sentencing court, Martinez
filed an opposed motion for new trial on his convictions for
commodities fraud. He argued the trial court did not rule on
his new trial motion and he was entitled to a decision on the
merits. The sentencing court denied the motion for a new
trial, stating it had an obligation to follow the order on
remand to reinstate the verdicts and sentence the defendants.
sentencing hearings,  the court sentenced Martinez to one
year in the county jail and five years of probation for his
convictions on two counts of commodities fraud. The court did
not impose a sentence on the white collar criminal
enhancements. Martinez was ordered to pay various fines and
fees, and provide restitution to his victims in an amount to
sentencing court denied Romero's request for probation
and sentenced him to a total of seven years in prison, as
follows: two years on count seven, which the court designated
as the principal count; two years, stayed, for conspiracy;
count nine, one year, consecutive; count ten, two years,
stayed; count eleven, one year, consecutive; count twelve,
two years, stayed; and count thirteen, one year, consecutive.
In addition, the sentencing court imposed a two-year
consecutive sentence on aggravated white collar criminal
enhancements. In addition to fines and fees, the court
ordered Romero to pay restitution in the amount of $81, 500
to McClelland, $110, 000 to Capell, $395, 282 to Lutz, $40,
000 to Shemtov, and an amount to be determined to Brian
Lee, the sentencing court imposed a total of five years'
imprisonment. The court set the principal term of three years
on count nine, and sentenced him to three years each on
counts eleven and thirteen, to run concurrently. The court
imposed, and stayed, a one-year sentence for conspiracy and
two years for grand theft (count twelve). Lee received an
additional two-year term on the white collar criminal
enhancement. Lee was ordered to pay fines, fees, and
restitution in an amount to be determined to Brian Smith and
John Shea Buenas,  and restitution in the amount of $81,
500 to McClelland; $110, 000 to Capell; $395, 282 to Lutz;
and $40, 000 to Shemtov.
People charged Romero, Lee and Martinez with violations of
section 29536, subdivision (b) (the statute), which states,
"It is unlawful for any person, directly or indirectly,
in connection with the purchase or sale of, the offer to
sell, the offer to purchase, the offer to enter into, or the
entry into, a commodity, commodity contract, or commodity
option to... willfully make any false report, enter any false
record, make any untrue statement of a material fact, or omit
to state a material fact necessary in order to make the
statements made, in the light of the circumstances under
which they were made, not misleading."
contend there is not sufficient evidence to support their
convictions on charges of commodities fraud. They state
section 29536 is limited to misrepresentations connected to
actual contracts to purchase commodities, and does not
include misrepresentations that may have been made in
non-commodities contracts between investors and money
managers. Appellants contend the relationship between the
defendants and the investors did not involve currency trading
because their clients opened money management accounts, and
did not enter into commodities contracts.
argues merely informing potential clients they could trade in
commodities contacts was not an offer to buy or sell
commodities, and any alleged misrepresentations underlying
the commodity fraud charges were therefore not made in
connection with the purchase or sale of a commodity.
claims the contracts that were discussed in his presence were
money management contracts, not commodities contracts. He
argues a discretionary trading account is not an investment
governed by section 29536. Martinez further argues there is
insufficient evidence to support his convictions on
commodities fraud. He asserts he was a clerk and office
manager, and had nothing to do with the sale or offer of
asserts that as a trader, he never acted as a buyer or seller
of commodities or commodities options. He argues the
contracts he signed with retail customers were several steps
removed from being contracts for commodities sales or
purchases. Lee joins in Romero's and Martinez's
People contend Appellants' interpretation of section
29536 is overly narrow. They argue section 29536 prohibits
the use of fraud and other specified conduct by any person in
connection with the offer or sale of foreign currency,
regardless of how the parties characterize and structure
their agreement. The People assert there is substantial
evidence to support Martinez's convictions for
Legislature Did Not Intend to Limit the Meaning of
"Commodity" and "Commodity Contract" to
Any Particular Type of Account, Agreement or Contract
parties' arguments raise an issue of statutory
interpretation we must address before considering the
sufficiency of the evidence in this case. (Burden v.
Snowden (1992) 2 Cal.4th 556.) Statutory interpretation
is de novo. (Ibid.) "The rules governing
statutory construction are well settled. We begin with the
fundamental premise that the objective of statutory
interpretation is to ascertain and effectuate legislative
intent. [Citations.] 'In determining intent, we look
first to the language of the statute, giving effect to its
"plain meaning." ' [Citations.] Although we may
properly rely on extrinsic aids, we should first turn to the
words of the statute to determine the intent of the
Legislature." (Id. at p. 562.)
arguing their conduct did not come with section 29536,
Appellants rely on CFTC v. White Pine Trust
Corporation (2009 9th Cir.) 574 F.3d 1219 (White
Pine Trust), which held that discretionary trading
accounts are not contracts to purchase commodities under the
federal Commodity Exchange Act, 7 ...