Opinion
B305788
09-02-2022
THE PEOPLE, Plaintiff and Respondent, v. JAMES BLAYLOCK, Defendant and Appellant.
Sarah M. Javaheri, under appointment by the Court of Appeal, for Defendant and Appellant. Rob Bonta, Attorney General, Lance E. Winters, Chief Assistant Attorney General, Susan Sullivan Pithey, Assistant Attorney General, Steven D. Matthews and Analee J. Brodie, Deputy Attorneys General, for Plaintiff and Respondent.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County, No. BA475333 Mark S. Arnold, Judge. Affirmed in part, reversed in part, and remanded for further proceedings.
Sarah M. Javaheri, under appointment by the Court of Appeal, for Defendant and Appellant.
Rob Bonta, Attorney General, Lance E. Winters, Chief Assistant Attorney General, Susan Sullivan Pithey, Assistant Attorney General, Steven D. Matthews and Analee J. Brodie, Deputy Attorneys General, for Plaintiff and Respondent.
KALRA, J. [*]
James Blaylock convinced longtime country club friends into investing millions in a real estate investment fund. Blaylock claimed the investments were risk free because they were guaranteed by deeds of trust on real property. It turns out the funds were not secured by anything real.
Blaylock was convicted of six counts of grand theft, in violation of Penal Code section 487, subdivision (a); six counts of using false or misleading statements in the sale of a security, in violation of Corporations Code section 25401; six counts of the sales of securities that have not been qualified, in violation of Corporations Code sections 25110; and one count of using a device, scheme or artifice to defraud, in violation of Corporations Code section 25541.[ The jury also found true a sentencing enhancement for committing felonies involving fraud or embezzlement involving a taking or loss that exceeds $500,000, in violation of Penal Code section 186.11, subdivision (a)(2).
All further undesignated statutory references are to the Corporations Code.
The trial court denied probation and ordered Blaylock to serve a total of 13 years in prison. The sentence consisted of the upper term of five years on the base term of count 11 for violating section 25401, plus three years on the great taking enhancement. The court imposed consecutive one-year terms on the remaining five violations of section 25401. As to the remaining 13 counts, the court imposed two-year terms, but stayed the sentences, pursuant to Penal Code section 654.[
In the oral pronouncement of sentence, the trial court indicated, "on all other counts, the defendant is sentenced to the middle term of two years, each term to stay pursuant to Penal Code section 654." The minute order also indicates the midterm of two years. While the middle term for the five grand theft counts is two years, the middle term for the remaining six Corporations Code convictions is in fact three years. The abstract of judgment reflects three-year terms for these six convictions.
Blaylock appeals from a final judgment of conviction raising numerous claims including statute of limitations violations, instructional error, sufficiency of the evidence, sentencing errors and judicial bias. In supplementary briefing, Blaylock contends Senate Bill No. 567 and Assembly Bill No. 124 entitle him to a new sentencing hearing.
We find merit in two of his arguments related to instructional error. Specifically, we conclude that the trial court erred in failing to instruct on the mens rea element of section 25401 and the exemption affirmative defense for section 25110 and the error is prejudicial as to 10 of those 12 convictions. We therefore reverse 10 of these securities' convictions and vacate Blaylock's sentences. We remand to allow the People the option to retry Blaylock on these charges, and for resentencing in accordance with Penal Code section 1170, including a new restitution hearing. We reject Blaylock's other claims of error and affirm the judgment in all other respects.
FACTUAL AND PROCEDURAL BACKGROUND
I. The Scheme
The People alleged that beginning in 2004 and continuing through 2013, Blaylock ran a Ponzi scheme disguised as a real estate investment fund. He presented himself as a successful real estate professional, through two separate companies, Inclusive Realty Services, Inc. and Inclusive Realty Advisors. Blaylock preyed upon longtime friends, relationships he had cultivated at his Whittier country club. He claimed that his investment fund made loans to property owners who could not qualify for traditional financing. He promised investors high interest rates, guaranteeing that the investments were risk free because they were secured with trust deeds and the assets and income of his business. For many years, he was able to make interest payments but when the disbursements stopped, his scheme unraveled. In April 2015, civil litigation commenced, and the Los Angeles County District Attorney's Office was informed. Investors eventually learned that his business had no income or assets and there were no trust deeds to be found.
On February 28, 2019, a felony complaint charging Blaylock with 19 felonies was filed and an arrest warrant was issued. As to each of the six named investor groups, the People charged Blaylock with one count of grand theft, one count of using false or misleading statements, and one count of sales of securities that have not been qualified. The People also filed one count of using a device scheme or artifice to defraud all six of the named victims.
II. The Trial
The jury trial occurred in December 2019. The People presented seven witnesses. Blaylock, representing himself, called one witness, his investigator.
Allen and Nancy Sheals
Allen and Nancy Sheals together were the named victims in counts four, nine and fourteen for offenses occurring from October 1, 2004 through November 18, 2010. Only Allen Sheals testified. Sheals was a retired vice president for a manufacturing company. He met and became friends with Blaylock in 2002 at the country club where they were both members. Sheals learned that Blaylock was in the investment business and one of his investments vehicles was real estate, backed by trust deeds. Although he had investment accounts with Schwab and Merrill Lynch, he was inexperienced with the real estate business, so it sounded to Sheals that it was a good place to invest. Within a few years, he believed that he could trust Blaylock and that Blaylock would advise him properly on investments. The first investment was in 2004 for $275,000, with funds his wife Nancy had inherited. There were numerous other investments, and over time, as Mr. Sheals became more confident, he invested more.
As a novice investor, it was important for Sheals to have collateral, so Blaylock provided a variety of written instruments to guarantee each investment including trust deeds to his residence, trust deeds and assignment of rents to commercial properties and corporate notes. The notes were labeled "Corporate Note/Guarantee," on Inclusive Realty Services, Inc. letterhead, guaranteed by the income and assets of Inclusive Realty Services, signed by Blaylock as president and allowed for repayment upon 60 days' notice. On January 1, 2013, Blaylock presented Mr. and Mrs. Sheals each a 12-month replacement note payable at eight and a quarter percent interest to supersede and consolidate all of the previous notes related to their individual investments. Mr. Sheals' note was in the amount of $699,927 and Mrs. Sheals' note was for $195,781. Sheals acknowledged that he and his wife had received regular interest payments totaling $450,000 and that "the investments had gone smoothly for quite a while." In fact, because the investments had done so well for so long, the Sheals refinanced their house to raise additional capital to invest with Blaylock. The interest payments stopped at the end of 2014.
Long before the payments ceased, however, the Sheals voiced concern regarding the safety of their investments with Blaylock. In a series of emails beginning in the spring of 2014, the Sheals demanded better documentation of the collateral, return of principal funds and set repeated deadlines that Blaylock promised to keep, but ultimately, he did not.[
Significantly, on May 3, 2014, the Sheals sent Blaylock an email communicating their frustration with Blaylock for failing to respond to their concerns from a prior March meeting. Apparently for almost two years, the Sheals had expressed skepticism that the corporate notes and guarantees issued by Blaylock were sufficient collateral for their investments totaling $895,000. The Sheals set a hard deadline of June 30 for better security. Blaylock responded, "Will do Al." When Blaylock failed to meet the June deadline, Sheals requested repayment of "$275,000 asap." In an October 9, 2014 email, Sheals noted that Blaylock missed the deadline to pay off the $275,000, repeated that for two years he had been requesting information on the funds' assets to no avail, and demanded to see evidence of assets in the form of an audit or balance sheet signed off by a CPA or an attorney by October 15, 2014.
Finally, in a March 17, 2015 email, the Sheals reiterated that they believed that Blaylock will only perform with threat of litigation, but they were still willing to meet to settle and, on March 18, 2015, Blaylock responded that he understood. By an April 6, 2015 email exchange, the Sheals had now filed suit and Blaylock offered to schedule an April 27, 2015 meeting to discuss settlement.
The Sheals never received their $900,000 back. They did not foreclose on any properties. They did receive $50,000 from Blaylock's wife however.
Sheals denied that he believed that their investments were loans.
Ignacio Hurtado
Hurtado was the named victim in counts two, seven, and twelve for offenses occurring from September 21, 2009 to December 30, 2013. He owned a successful aerospace business, several commercial real estate properties and had made millions in investments. He considered Blaylock a good friend. They had met at the country club over 20 years prior to the trial. They socialized, traveled together extensively and had taken many golf trips, as far away as Scotland and China. Hurtado knew that Blaylock was a real estate broker. His first investment with Blaylock was for $40,000 in 2007. Blaylock told him the investment paid eight percent interest and was for loans to people who had poor credit. Blaylock pledged that there was no risk at all because the loans were secured by property. That first investment was repaid in full within two or three months. Although he used investment advisors, he did not consult with any regarding his investments with Blaylock. The first investment was $50,000 for investing in real estate secured by trust deeds. Blaylock presented Hurtado notes as a guarantee for the investments. On April 25, 2012, Blaylock gave Hurtado a note in the amount of $1,021,000 that consolidated all of the previous notes. The note was labeled "Corporate Note/Guarantee," paying an interest rate of seven and nine tenths percent, guaranteed by the income and assets of Inclusive Realty Services, Inc., written on Inclusive Realty Services, Inc., letterhead, signed by Blaylock as president and allowed for early repayment with notice of 60 days.[ Blaylock gave Hurtado two additional notes totaling $625,000 for separate investments. These notes were otherwise similar in all other respects to the prior note. From time to time, Blaylock made principal and interest payments including a check for $478,127.08 in 2013.
There was no term written on this note.
In late 2013, Blaylock stopped making payments. For the next year, Blaylock beseeched Hurtado for time, urging Hurtado to hang in there and that he was trying to gather funds to repay him. It culminated with a March 12, 2015 email from Blaylock inviting Hurtado to his office to discuss repayment options, including having Blaylock's other company, Inclusive Realty Advisors, Inc., rescue the "Whittier messes."[ That is when Hurtado knew there were no properties securing the investments. At some point, Hurtado tried to file a police report with the Whittier Police Department but they would not take it so he went to the district attorney's office. Hurtado joined in the Corey and Nancy Fords' and Sho Sato's lawsuit but did not recover any money. Hurtado lost over a million dollars investing with Blaylock.
Hurtado also had invested $300,000 with Inclusive Realty Advisors, Inc.
Allen G. Sheals
Allen G. Sheals,[ the son of the Sheals, was the named victim in counts 16, 17, and 18 for offenses occurring from September 17, 2010 through November 6, 2013. A.G. Sheals was a graduate of MIT, where he received both bachelor's and master's degrees. He was a financial advisor at Merrill Lynch. Previously, from November 2012 to approximately March 2015, he was the Chief Financial Officer of Inclusive Realty Advisors, a company he started with Blaylock that offered real estate and financial consulting services. His father introduced him to Blaylock in 2009 at Blaylock's office to discuss investing. A.G. Sheals knew that his parents were already investors with Blaylock. At their initial meeting, Blaylock solicited him to invest. Blaylock stated that he had borrowers that would pay above market interest because they were unable to secure loans from traditional sources. Since Blaylock represented that the loans were secured by trust deeds, A.G. Sheals believed that the investment risk was reduced.
To avoid confusion, we will refer to him as A.G. Sheals.
The following year, on September 17, 2010, A.G. Sheals made his initial investment of $200,000 payable to Inclusive Realty Services. Ultimately, he made a series of investments over a four or five year period that generally followed the same pattern.[ Blaylock would provide A.G. Sheals with a "Corporate Note-Guarantee." All of the notes were guaranteed by the income and assets of Inclusive Realty Services, Inc., were on company letterhead, signed by Blaylock as president of Inclusive Realty Services, Inc. and allowed for early repayment after 60 days' notice. Blaylock timely paid interest quarterly and would repay the principal at the end of the note's term, which was usually 12 months. A.G. Sheals then would reinvest the same principal with Blaylock. He made his last investment in November 2013. A.G. Sheals believed that all of the capital he invested was to be used to fund loans secured by trust deeds. However, he never asked for borrower information or trust deeds and Blaylock never provided such documentation either.
The first investment paid three percent interest until Blaylock was able to use the funds to originate loans.
Starting in January 2014, A.G. Sheals stopped receiving interest payments. He repeatedly pressed for his money back, but Blaylock claimed the borrower was in default. In August 2014, Blaylock gave him $25,000 of his principal back and restructured the remaining principal balance of $175,000 into a new "Corporate Note/Guarantee Restructure" to be repaid on October 1, 2014. Blaylock defaulted on that note, so A.G. Sheals had a new note created on November 15, 2014 that evidenced all of the outstanding debt that was due and payable that same day. The last payment he received was in December 2015, when Blaylock paid him $50,000. (3RT 644.) Blaylock still owed him $125,000 in principal and approximately $10,000 in interest. A.G. Sheals never reported Blaylock's activities to a police department, but was interviewed by a district attorney investigator.
James and Carol Roberts
James and Carol Roberts were jointly named as victims in count five, ten and fifteen with an offense date of November 4, 2010. Only James Roberts, a retired California Highway Patrol Officer, testified. The Roberts first met Blaylock in the 1990's through the Whittier Business Network, an organization where professionals from different business specialties were represented. Carol Roberts's field was income tax preparation and Blaylock's was real estate. Carol Roberts thereafter prepared Blaylock's income tax for several years in the 1990's. In 1997, Blaylock helped the Roberts sell an apartment building and, in 1999, he helped them buy their home in Whittier. Blaylock also performed property management services for them. In general, the Roberts were satisfied with Blaylock's prior business services.
In November 2010, they met with Blaylock to discuss investing in an insurance settlement. Blaylock asked them to join a real estate property investment group comprised of individuals from the area. He told them the investment fund paid eight and three quarters percent interest, was backed by his company, Inclusive Realty, and was not federally insured, but otherwise provided no other details. On November 4, 2010, they invested $50,000 and received a document labeled "Inclusive Realty Services Inc. Corporate Note/Guarantee" which purported to guarantee the investment with "the income and assets of Inclusive Realty Services, Incorporated," was on company letterhead, signed by Blaylock as president of Inclusive Realty Services, Inc. and permitted early repayment with 60 days' notice. Although the face of the note contained a 12-month term, they never received any interest payments nor was their principal returned at its maturity date. Blaylock represented that their principal and interest were being reinvested. Blaylock told them that since the interest was being reinvested, the tax forms were not necessary. The Roberts did not worry because, based upon their prior dealings with Blaylock, the Roberts "felt confident that [they] could trust" Blaylock.
In 2015, James Roberts heard rumors that there were problems with Blaylock's investments. On April 29, 2015, James Roberts telephoned Blaylock, and under the terms of the note, exercised his 60 day right to have the funds returned. Blaylock told him that several investors in the group had pulled out so he no longer had any money. The Roberts received no money back from Blaylock and had no further contact with him. Roberts believed that, at some point, he filed a criminal report with the California Department of Real Estate.
Sho Sato
Counts three, eight, and thirteen charged that Blaylock engaged in a course of conduct beginning on March 1, 2013, through November 19, 2013, victimizing Sho Sato. Sato was a retired business owner who had lived in Whitter for 15 years. Sato met Blaylock through their country club. He remembers speaking to him about investing when they traveled with other members of the country club to play golf in China. After they returned to the United States, they had a follow up meeting at Sato's office in Buena Park. After Blaylock inquired about Sato's real estate and capital holdings, Blaylock advised Sato that it was wasteful to have equity in real estate without using it. Blaylock encouraged Sato to withdraw the equity in one of his investment properties and invest the funds with Blaylock. Blaylock assured Sato that he would suffer no losses because the investments were guaranteed by trust deeds. Sato followed Blaylock's advice and took out $300,000 in equity from the property and invested the funds with Blaylock. Sato had consulted with investment advisors in the past when purchasing stocks, but he had no discussion with them regarding his investments with Blaylock. Sato trusted Blaylock because Blaylock was a prominent figure in club activities, even serving as its president.
Sato invested about $1.7 million over four or five separate occasions beginning on April 1, 2013. With each investment, Blaylock provided Sato notes labeled "Corporate Note/Guarantee" that were guaranteed by the income and assets of Inclusive Realty Services, Inc., signed by Blaylock as president and granted early repayment with 30 to 46 days' notice.
In the beginning, Sato received interest payments. When the payments stopped, Sato repeatedly telephoned and emailed Blaylock. Blaylock would not return any phone calls and just kept ignoring Sato. Sato acknowledged that his memory was not very good so he could not recall what else Blaylock may have told him. Sato was also a major client of Blaylock's other company, Inclusive Realtor Advisors, whose advice he followed to purchase an apartment building. Ultimately, he joined in a lawsuit filed by other investors but did not recover any funds. His total loss was approximately $1.7 million.
Corey Ford
Corey Ford was the named victim in counts one, six, and eleven with an offense date of July 25, 2013.[ Ford was a retired telecommunications executive and former attorney. He was living off of a pension and investments. He had over 30 years of investment experience and had an investment advisor. Ford met Blaylock at their country club about 15 years earlier. They became friends while playing golf and serving on the Board of Directors of the club. At one point, each even served as president. Ford was aware that Blaylock managed, developed and invested in real estate and appeared to be successful.
Although only Corey Ford is the named victim in these counts, both he and his wife, Nancy, were investors. Each received separate notes and interest payments and, as such, are discussed in this opinion. We identify Corey individually as Ford and Corey and Nancy collectively as the Fords.
In about 2012 or 2013, Ford went to Blaylock's office to inquire about investing. Blaylock explained that he had an investment fund of several million dollars that invested in deeds of trusts. Blaylock assured Ford that he had been investing in trust deeds for years, there had never been a loss, which made the investment virtually risk free. Blaylock added that he was looking to expand the fund and that many members of the country club already participated, virtually everyone Ford knew. Blaylock's fund was paying over eight percent interest, which was significantly higher than bank CDs were offering. It seemed like a prudent investment, but Ford did not have any funds to invest at the time. Blaylock invited Ford to join in the future if he ever had money.
On July 25, 2013, after selling a laundromat business, Ford and his wife invested $200,000 with Blaylock. A few days later, Blaylock gave Ford and his wife two, $100,000 notes labeled "Corporate Note/Guarantee" paying seven and nine tenths percent for a one-year term guaranteed by the income and assets of Inclusive Realty Services, signed by Blaylock as president and authorized withdrawal with 60 days' notice.
Ford objected when he got the notes because there was no mention of deeds of trust. Ford asked for additional representations in writing. Blaylock responded that he was not going to provide documentation mentioning deeds of trust because they were between the borrowers and Inclusive Realty, and he was not going to allow Ford to get between the business and the borrowers. Blaylock told him that he was just going to have to accept the notes as evidence of the obligation adding, "This is in your best interest. You don't want to know who these people are behind these properties. I will take care of that for you. What you've got are my representations to you and this note." Ford acceded and accepted Blaylock's representations.
The Fords received interest payment for about five quarters before they stopped in December 2014. But even before the checks stopped, Ford started having concerns because, in the late summer or early fall of 2014, he heard rumors that Blaylock was having problems paying investors. On October 10, 2014, Ford emailed Blaylock and asked for his money back in 60 days per the terms of the agreement. Blaylock did not return the money as requested.
Over the next several months, Ford had numerous communications with Blaylock asking about the condition of their investments, the location of the properties backing the notes and the status of the outstanding loans on these properties. Blaylock responded that he was having trouble with borrowers paying him on time, but he refused to identify the properties encumbered with the trust deeds. At one point, Blaylock claimed that he had an investor lined up to create a pool of funds to pay off all of the investors, anticipating that the new buyer making payouts on the outstanding notes around February 15, 2014. Ford repeatedly asked Blaylock to identify the buyer and property locations, but Blaylock refused to provide details and, instead, continued to make excuses for the delay. Blaylock also asked Ford to try and quiet rumors about Blaylock at the country club so it would not jeopardize the sale of the outstanding notes to this new investor. In a March 25, 2015 email, Blaylock claimed that he recently met with a structured settlement specialist to liquidate investments in order to raise cash to pay off investors so he was feeling confident that he would be able to reach a resolution and expected to set up individual meetings with investors in April 2015. Ford asked Blaylock to identify the specialist, but Blaylock refused. Ford repeatedly telephoned Blaylock to schedule such a meeting but that meeting never occurred. Instead, the communications ended in a mid-April 2015 telephone conversation. Ford implored Blaylock to identify the assets, the notes and their values and even offered to take a discounted settlement in order to avoid an expensive lawsuit. Blaylock responded that Ford and the other victims "could spend a million dollars on a forensic audit and you'll never find out where the money went."
Ford then went to the Whittier police along with Hurtado and Sato. The police department told them to file a complaint with the Los Angeles District Attorney's Office. He ended up mailing a complaint to the district attorney's office. In late April 2015, the Fords, Hurtado and Sato filed a lawsuit against Blaylock. Blaylock never appeared in the lawsuit, so Ford obtained a default judgment for about $2 million. Ford conducted a property search in April 2015 in Los Angeles and Orange Counties and learned that there were no trust deeds in favor of Blaylock or Inclusive Realty. Their lawyers did an asset search as well and learned that neither Blaylock nor Inclusive Realty Investments, Incorporated had sufficient assets to satisfy the default judgment. They did find a home that was sold by other creditors and a bank account that had $8 in it. Ford acknowledged that he took a theft loss on his taxes.
Pete Radovic
Pete Radovic, a senior investigator with the Los Angeles District Attorney's Office, White Collar Crime Unit, was the third investigator assigned to the case. He searched Los Angeles and Orange County records for deeds recorded under Blaylock's name or the entity Inclusive Realty Investments, Incorporated. He learned that the two deeds of trust Blaylock gave to the Sheals were never recorded, found no deeds recorded under the business' name, and discovered only two previous deeds in Blaylock's name-one was for his former Newport Beach residence and the other was for an apartment in Whittier. He also ascertained that neither Blaylock nor Inclusive Realty Investments, Incorporated, had any securities that were qualified with the State Department of Business Oversight and Blaylock was not licensed to work as an investment broker, dealer or advisor. A prior investigator did confirm that another Blaylock company, Inclusive Realty Management, was licensed by the California Department of Real Estate.
III. Defense Case
Timmy Lee Gibson
Blaylock called one witness, defense investigator Timmy Lee Gibson, who determined that Inclusive Realty Service, Inc., had a real estate corporation license issued in 2000 that expired in 2015.
DISCUSSION
I. The Statute of Limitations Had Not Run Before the Prosecution Began.
Blaylock contends that his 19 convictions are invalid because by the time the charges had been filed in 2019, the statute of limitations had run. We disagree.
A. General principles of law
The statute of limitations is the maximum time within which a criminal proceeding must commence or otherwise, the prosecution is prohibited. Ordinarily, the statute begins to run on the offense date and ends on the day the prosecution is initiated. For offenses involving fraud, the time does not begin to run until the offense has been discovered or could have reasonably been discovered.[ (People v. Zamora (1976) 18 Cal.3d 538, 562 (Zamora); Pen. Code, § 803, subds. (c), (d).) In Zamora, the Supreme Court stated that if discovery of the crimes is delayed, a prosecutor should plead facts explaining: "(1) when and how the facts concerning the fraud became known . . .; (2) lack of knowledge prior to that time; [and] (3) that . . . no means of knowledge or notice which followed by inquiry would have shown at an earlier date the circumstances upon which the cause of action is founded." (Zamora, at p. 562)
The parties agree that pursuant to Penal Code section 801.5 and section 803, subdivision (c), there is a four-year statute of limitations for each of the charged offenses and that the offenses are subject to the fraud discovery date rule.
Discovery does not require actual knowledge. Rather, constructive knowledge is sufficient. Knowledge is imputed if either the victim or law enforcement learn of facts, if investigated with reasonable diligence, that could have alerted them that a crime had occurred. (Zamora, supra, 18 Cal.3d at p. 562.) However, suspicion of wrongdoing alone does not equate to constructive knowledge. "[I]t is the discovery of the crime, and not just a loss, that triggers the running of the statute." (People v. Lopez (1997) 52 Cal.App.4th 233, 246, fn. 4.) Particularly when theft or fraudulent activity is concealed, discovery entails knowledge that the "'loss occurred by virtue of a criminal agency.'" (People v. Crossman (1989) 210 Cal.App.3d 476, 481 (Crossman).) Even if suspicion should be aroused, subsequent reliance on reassurances made by the suspect, are sufficient to further delay the discovery. (See Garrett v. Perry (1959) 53 Cal.2d 178,181-182.) Moreover, the diligence standard may be further relaxed if the suspect owes the victims a fiduciary duty. (Crossman, at p. 482.)
The date on which the prosecution starts is purely a question of law. (People v. Castillo (2008) 168 Cal.App.4th 364, 374.) Penal Code section 804 lists four events that trigger the beginning of a criminal prosecution. "[P]rosecution for an offense is commenced when any of the following occurs: [¶] (a) An indictment or information is filed. [¶] (b) A complaint is filed charging a misdemeanor or infraction. [¶] (c) The defendant is arraigned on a complaint that charges the defendant with a felony. [¶] (d) An arrest warrant or bench warrant is issued, provided the warrant names or describes the defendant with the same degree of particularity required for an indictment, information, or complaint."
Given that the statute of limitations is not an element of the offense, at trial, the prosecution's burden of proving the prosecution was timely commenced is a preponderance of the evidence. (Zamora, supra, 18 Cal.3d at p. 565, fn. 27.)
B. The prosecution was timely commenced
Although counts one through eighteen were alleged to have occurred between 2004 and 2013, the charging documents alleged that the offenses could not have been discovered with reasonable diligence until at the earliest, March 10, 2015.[ These tolling allegations delayed the start of the statute of limitations time clock to March 10, 2015, and postponed the deadline to commence criminal proceedings under the four-year statute of limitations to March 9, 2019. Since the arrest warrant naming Blaylock was issued on February 28, 2019, nine days before the statute of limitations expired,[ and the issuance of an arrest warrant commences a prosecution pursuant to Penal Code section 804, subdivision (d), the Attorney General contends the prosecution was timely commenced. Blaylock questions the validity of the tolling allegations by arguing that the named victims should have been suspicious that he was defrauding them long before March 2015. We will affirm if we can determine from "the available record, including both the trial record and the preliminary hearing transcript," that the action is not time barred. (People v. Smith (2002) 98 Cal.App.4th 1182, 1189.)
In general, the pleadings alleged that discovery of the theft crimes was delayed until March 2015 because Blaylock "continually gave assurances of repayment" and discovery of the securities offenses was delayed until July 18, 2015 because no victim had prior knowledge that securities violations had occurred. The allegations tracked the pleading format for delayed discovery set forth by our Supreme Court in Zamora, supra, 18 Cal.3d 538 at page 562. The February 28, 2019 felony complaint for arrest warrant, the October 29, 2019 Information, and the December 18, 2019 Amended Information all contained these allegations.
It is indisputable that the arrest warrant was issued on February 28, 2019. (People v. Castillo, supra, 168 Cal.4th at p. 366.) We reject Blaylock's suggestion that the warrant did not name him with the same particularity required for an indictment, information, or complaint, as required by Penal Code section 804, subdivision (d). Identifying Blaylock by name, as the warrant did here, is sufficient to comply with the Penal Code. (People v. Robinson (2010) 47 Cal.4th 1104, 1137-1138.)
Blaylock ignores the unchallenged evidence that he successfully hid his criminal enterprise by consistently reassuring each investor that there was nothing to worry about until well past March 2015.
To be sure, from May of 2014 through April 2015, Blaylock made repeated promises to the Sheals that he would repay them. He urged Hurtado to "hang in there," inviting Hurtado to his office to discuss repayment options as late as March 12, 2015. Blaylock created a new note for A.G. Sheals in November 2014 and continued to pay him as late as December 2015. The Roberts put their faith and trust in Blaylock's assurances that their principal and interest were being reinvested and had no idea there were any problems until they contacted Blaylock on April 29, 2015, in response to rumors they heard and Blaylock, for the first time, admitted the funds had no money. Even then he blamed it on withdrawals by other investors, not on any type of malfeasance on his part, and vaguely promised to pay them back in the future. Sato had no reason to doubt Blaylock until he filed a civil suit in late April 2015 with the other investors. Sato's trust was bolstered by the fact that he was a major client with Blaylock's other business, Inclusive Realtor Advisors, whose advice he used to successfully invest in an apartment building and Blaylock was a prominent figure in the country club. As late as April 2015, Blaylock was doing everything to assuage Ford including claiming he had an investor lined up to buy the notes and had retained a settlement specialist. Blaylock even tried to recruit Ford to assist him in his propaganda operation by asking Ford to silence rumors at the club regarding his financial difficulties. Only after Blaylock told Ford that he could spend a million dollars in an audit and never find the money did Ford finally contact law enforcement and initiate a civil lawsuit in late April 2015.
Blaylock took advantage of trusted friendships to defraud investors. He exploited those same relationships to successfully hide his criminality for years by engaging in a campaign of disinformation with bogus promises designed to lull his friends into a false sense of security. (See Crossman, supra, 210 Cal.App.3d at p. 481.) Blaylock also abused his fiduciary duty as their investment advisor to delay discovery of his deceit. (Ibid.) Blaylock may not now claim that his friends and fiduciaries should not have relied on his deception and instead should have discovered his criminal wrongdoing earlier than March 2015. (Ibid.)
As to the security crimes, they were not discovered until shortly after the district attorney's office commenced their investigation in April 2015. It was only then that law enforcement investigators learned that no deeds of trust were recorded in favor of either Blaylock or his company and that the securities were not registered.
We have carefully reviewed the record, attentive for details explaining (1) when the facts concerning the fraud became known; (2) how the fraud became known; and (3) why no victim or member of law enforcement had actual or constructive knowledge prior to March 1, 2015. The unrebutted evidence established that discovery of Blaylock's criminal enterprise was delayed at least until after March 10, 2015, as alleged in the charging documents. Moreover, Blaylock did not dispute this evidence at trial. Rather, his focus was on painting his victims as wealthy and sophisticated, so that they could afford such losses. Accordingly, we reject his challenges. We are satisfied that the evidence presented sufficiently supports the delayed discovery allegations in the pleadings, and, as a result, the People satisfied their burden of proof, by a preponderance of the evidence, that the action was timely commenced.[
As to count nineteen, the pleadings allege a course of conduct beginning on October 1, 2004 and ending on April 29, 2015. The statute of limitations does not commence until the offense is completed. (In re Parks (1986) 184 Cal.App.3d 476, 479.) Since the statute of limitations did not expire as to this count until April 28, 2019, two months after the complaint was filed, no tolling allegation was necessary to make this charge timely.
C. Instructional error
Blaylock further contends that the trial court had a sua sponte duty to instruct the jury on the statute of limitations question. "As a general rule, the trial court need only instruct on the statute of limitations when it is placed at issue by the defense as a factual matter in the trial. [Citations'] To hold otherwise would render moot the discussion in [People v.] Williams [(1999) 21 Cal.4th 335] as to whether the defendant may raise a statute of limitations claim for the first time on appeal. If the trial court has a sua sponte duty to instruct on the statute of limitations, even if factually not placed at issue by the defendant at trial, there would never have been an issue as to forfeiture of the right to raise the statute of limitations for the first time on appeal; the claim always would be preserved under the rubric of instructional error for failure to give a required instruction sua sponte." (People v. Smith, supra, 98 Cal.App.4th at pp. 1192-1193.)
At the jury trial, Blaylock did not contest any of the 18 tolling allegations as a factual matter during the evidentiary portion of the trial. Nor did Blaylock ask the trial court to make any findings on any issue related to the statute of limitations either.
Blaylock nonetheless contends that he did raise the statute of limitations issue at trial in his cross examination and closing argument. It is true that Blaylock questioned three witnesses- Ford, Hurtado and Roberts-regarding their failure to file "police" reports. Inquiring of a few witnesses on their failure to file crime reports with their local police agency is hardly controverting the factual basis for delayed discovery.[ We likewise reject Blaylock's claim that he challenged the tolling allegations during his closing argument when he shared his mistaken belief that the statute of limitations was three years.[ Blaylock did not testify. So even if his belief was somehow relevant, it was not admitted in evidence. "Nothing that the attorneys say is evidence. In their opening statements and closing arguments, the attorneys discuss the case, but their remarks are not evidence." (CALCRIM No. 222.) The rule that argument of counsel is not evidence applies equally to a self-represented litigant.
Blaylock's cross-examination appears to be an attempt to suggest that the reason the victims did not file a "police report" was that the victims did not believe his conduct was criminal. Such an inference undermines his statute of limitations argument because it would further justify deferred discovery. "[I]t is the discovery of the crime, and not just a loss, that triggers the running of the statute." (People v. Lopez, supra, 52 Cal.App.4th at p. 246, fn. 4.)
In his closing argument, the Blaylock made the following comments regarding the statute of limitations: "[A]ccording to the district attorney investigator . . ., [h]e said the statute of limitations is four years. He said that - and he was committed to that statement. I don't know if it is. I think it is three years, but I don't know if it is."
In sum, Blaylock failed to sufficiently challenge, as a factual matter, whether the statute of limitations had been triggered or properly tolled.[
We further note the appellate record is bare of any pretrial motion questioning the timeliness of the prosecution such as through a demurrer, a non-statutory motion to dismiss or a Penal Code section 995 motion to dismiss. We disagree with Blaylock's characterization that he raised a statute of limitations challenge at the preliminary hearing. At the conclusion of the preliminary hearing, Blaylock's then counsel moved to dismiss the charges for insufficient evidence, but made no specific claim that the statute of limitations had run. Instead, the preliminary hearing magistrate, sua sponte, asked the prosecutor to address the Zamora delayed discovery allegations. Thereafter, the magistrate found sufficient evidence for all of the charged counts and expressly found that there was probable cause that the prosecution was timely commenced-the People's burden of proof at a preliminary hearing. (Zamora, supra, 18 Cal.3d at p. 564, fn. 26.) In any event, Blaylock did not challenge the holding order in the trial court via a Penal Code section 995 motion.
II. Instructional Error
Blaylock makes three claims of prejudicial instructional error. First, as to his thirteen security related convictions, he contends the trial court failed to sufficiently define the term "security." Second, as to his six convictions for fraudulent sales of a security, he argues the trial court omitted the mens rea element. Third, as to his six convictions for sale of unqualified securities, he asserts the trial court had a sua sponte duty to instruct on the securities' exemption affirmative defense. We reject his first claim but find partial merit in the latter two claims.
A. General principles of law and standard of review
"In a criminal case, the trial court has a sua sponte duty to instruct the jury on all general principles of law relevant to the issues raised by the evidence. [Citation.] 'Even if the court has no sua sponte duty to instruct on a particular legal point, when it does choose to instruct, it must do so correctly.' . . .[¶] . . . 'An appellate court reviews the wording of a jury instruction de novo and assesses whether the instruction accurately states the law.'" (People v. Sorden (2021) 65 Cal.App.5th 582, 599.)
"' "Generally, a party may not complain on appeal that an instruction correct in law and responsive to the evidence was too general or incomplete unless the party has requested appropriate clarifying or amplifying language." '" (People v. Catlin (2001) 26 Cal.4th 81, 149.) The trial court has no duty to give a clarifying instruction in the absence of a request if the term in the instruction has a plain and unambiguous meaning that is "'commonly understood by those familiar with the English language'; it does have such a duty where the terms have a 'technical meaning peculiar to the law.'" (People v. Kimbrel (1981) 120 Cal.App.3d 869, 872.)
"When instructions are claimed to be conflicting or ambiguous, 'we inquire whether the jury was "reasonably likely" to have construed them in a manner that violates the defendant's rights.' [Citation.] We look to the instructions as a whole and the entire record of trial, including the arguments of counsel. [Citations.] We assume that the jurors are '" 'intelligent persons and capable of understanding and correlating all jury instructions . . . given.'"' [Citation.] If reasonably possible, we will interpret the instructions to support the judgment rather than to defeat it. [Citation.] Instructional error affects a defendant's substantial rights if the error was prejudicial under the applicable standard for determining harmless error." (People v. Franco (2009) 180 Cal.App.4th 713, 720.)
B. The trial court properly instructed the jury on the definition of security.
1. Additional facts
In regards to the 13 security violations, the People presented an instruction which defined the term "security." "A security is any note created in a transaction in which a person: 1. Invests money; 2. In a common enterprise; 3. Premised upon a reasonable expectation of profits; 4. To be derived from the entrepreneurial or management efforts of others."
Blaylock objected to the People's proposed jury instruction, and offered his own "Google definition," which is not part of the appellate record. The trial court denied his requested instruction, overruled his objection, and charged the jury with the instruction proffered by the People.
2. Analysis
The Corporate Securities Law of 1968, modeled after the federal Securities Act of 1933, regulates the sale and offer to sell securities in California. (People v. Schock (1984) 152 Cal.App.3d 379, 386.) There is no all-encompassing definition of a security. Rather, case law and section 25019 enumerates examples of transactions and instruments that are securities. "The list is 'expansive,' but is not applied literally. [Citation.] Rather, the California Supreme Court has stated the critical question in resolving whether a transaction comes within the statutory definition of security is 'whether [the] transaction falls within the regulatory purpose of the law regardless of whether it involves an instrument which comes within the literal language of the definition.' [Citation.] The purpose of the securities laws is' "to protect the public against the imposition of unsubstantial, unlawful and fraudulent stock and investment schemes and the securities based thereon." '" (Reiswig v. Department of Corporations (2006) 144 Cal.App.4th 327, 334.)
Included within section 25019's broad definition of a security is" 'any note;. . . participation in any profit-sharing agreement . . . [or] investment contract.'" (People v. Smith (1989) 215 Cal.App.3d. 230, 235 (Smith).) California courts have used two different tests to ascertain whether a transaction is an investment contract subject to security regulation: the risk capital test and the federal Howey test. (Reiswig v. Department of Corporations, supra, 144 Cal.App.4th at p. 334.) A transaction is a security if it satisfies either definition. (Ibid.) The crucial inquiry in the three prong Howey test is "whether the scheme involves [1] an investment of money [2] in a common enterprise [3] with profits to come solely from the efforts of others." (SEC v. W.J. Howey Co. (1946) 328 U.S. 293, 301.)
In Smith, supra, 215 Cal.App.3d. 230, the court reviewed the trial court's application of the Howey test in constructing jury instructions explaining the terms "securities" and "investment contract." Smith approved of the following instruction defining an investment contract:" 'An investment contract is a contract or a transaction in which a person entrusts money or other capital to another, with the expectation of deriving a profit, income or some financial benefit from a business enterprise, the failure or success of which is dependent upon the managerial efforts of other persons.'" (Id. at p. 235.)
The Smith court also ratified the trial court's instruction defining the term "security:" "In order to find that the investment contract was a security [the jury] must find: (1) that a person entrusted money or other capital to another; (2) that the person who entrusted the money or other capital to another did so with the expectation of receiving a profit, income, or some financial benefit from a business enterprise; and (3) that the failure of success of the business enterprise was dependent upon the managerial efforts of persons other than the person who entrusted his money or other capital." (Smith, supra, 215 Cal.App.3d at p. 236.)
The instruction given here defining security parallels the Howey test and mirrors the definition of an investment contract approved in Smith, supra, 215 Cal.App.3d 230. Accordingly, we find no error in the content of this instruction and reject Blaylock's contention that the instruction is overly broad.
Nonetheless, Blaylock contends this instruction was deficient because the trial court failed to clarify the meaning of element two, "common enterprise," and element four, "efforts of others."
The Attorney General responds that Blaylock's failure to request clarifying language waived this argument. Further, the trial court did not have a sua sponte duty to define these phrases since they were intended to be understood in their nonlegal sense.
The Attorney General is correct that the record is bare of any demand by Blaylock requesting that the trial court further explain these terms to the jury.[ Even assuming the court had such a sua sponte duty, it is not reasonably probable that Blaylock would have achieved a more favorable result, the standard set forth in People v. Breverman (1998) 19 Cal.4th 142, 149, to measure such error. (See People v. Watson (1956) 46 Cal.2d 818.)
To the extent that any error is based upon Blaylock's proffered "Google" definition, any such error is forfeited since we lack an adequate record to review. (People v. Garcia (2018) 29 Cal.App.5th 864, 871 ["When the record on appeal does not include the materials necessary to demonstrate prejudicial error, the appellate court cannot conduct the meaningful review necessary to decide the matter."].)
The questioned two elements of the security instruction- "common enterprise" and "efforts of others"-track prongs two and three of the Howey test. While Howey did not elaborate on the meaning of these terms, subsequent federal cases have addressed what evidence may establish these two parts of the Howey test. Since our state security law is modeled after federal security law, federal authority construing federal law is persuasive authority in interpreting state law. (Moreland v. Department of Corporations (1987) 194 Cal.App.3d 506, 512.)
"A common enterprise is a venture 'in which the "fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking the investment or of third parties."' [Citations.] It is not necessary that the funds of investors are pooled; what must be shown is that the fortunes of the investors are linked with those of the promoters, thereby establishing the requisite element of vertical commonality. [Citation.] Thus, a common enterprise exists if a direct correlation has been established between success or failure of [the promoter's] efforts and success or failure of the investment." (SEC. v. Goldfield Deep Mines Co. (1985) 758 F.2d 459, 461-462.) A common enterprise may also be 'an enterprise common to a group of investors (horizontal commonality).'" (SEC. v. R.G. Reynolds Enterprises, Inc. (1991) 952 F.2d 1125, 1130.)
The term "efforts of others" has been construed as meaning" 'the efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise.'" (Hocking v. Dubois (1989) 885 F.2d 1449, 1455.)
The evidence here was overwhelming and unchallenged that Blaylock's investment scheme had both vertical and horizontal commonality and that the investors relied completely upon the managerial efforts of Blaylock for the success and, ultimate failure, of the venture. Blaylock boasted that his real estate savvy had identified borrowers who were willing to pay higher than market interest to obtain loans secured by their property. He would finance these high interest loans with an investment fund supported by a group of investors who had pooled their monies. Blaylock promised investors they would share in the profit with a higher rate of than bank certificate of deposits, but safer than the stock market. He claimed that he had never suffered a loss. Clearly, the investors were led to believe that the success of the entire scheme relied solely upon Blaylock.
To be sure, the victims played no role in the day-to-day aspects of the enterprise. The investors retained no authority over the investments, or evaluating potential borrowers or valuing pledged security. Instead, it was solely Blaylock's responsibility to find potential borrowers, review their credit history, value their collateral, determine their credit risk, negotiate loan terms, record trust deeds, receive loan payments and disburse interest payments to investors and all of the other facets of running a real estate investment fund. In fact, Blaylock purposefully kept each of the investors in the dark on every aspect of the enterprise. Even when pressed, Blaylock refused to share any details on the operations of the business. As he told Ford, "You don't want to know who these people are behind these properties. I will take care of that for you."
In sum, based upon Blaylock's words and conduct, the investors reasonably expected that (1) Blaylock would pool their investments such that the fortune of the investors were inextricably linked, thus establishing horizontal commonality and (2) that he would assume all day to day managerial and clerical requirements of the venture so that the success of the investment scheme relied entirely upon Blaylock's business ability to find safe investments, thus satisfying vertical commonality and the "efforts of others" requirements. We fail to see how any further clarification of the definitions of "common enterprise" and "efforts of others" would have made any difference in the outcome. Therefore, it is not reasonably probable that Blaylock would have achieved a more favorable result even with further clarifying language.
C. The trial court's failure to instruct the jury on the mens rea element for fraudulent sales of a security was prejudicial, in part.
In People v. Simon (1995) 9 Cal.4th 493 (Simon), our Supreme Court recognized an infirmity in the text of section 25401-the legislature failed to expressly include a mens rea requirement. After engaging in an exhaustive analysis which included a review of federal authority, our high court found that the legislature error was an oversight and declared that the proper mens rea required for violating section 25401 is actual knowledge or criminal negligence and held that it was error to instruct that the crime only required general criminal intent. (Simon, at pp. 517, 522-523.) The Supreme Court added that the timing of this guilty knowledge is equally significant. "[F]or purposes of criminal liability, unless an issuer is aware or should have been aware at the time of the sale that a material representation is untrue, or knew or should have known that an unstated fact was material," the issuer has not committed a violation of section 25401. (Simon, at p. 523.)
Here, the trial court initially instructed on the principle of general criminal intent. Then, the trial court provided the jury the following instruction regarding section 25401: "To [ ] prove that the defendant is guilty of this crime, the People must prove that in the course of selling a security the defendant: (1) Made a written or oral communication which intended-excuse me- which included an untrue statement of a material fact; [¶] OR [¶] (2) Omitted to state a material fact necessary to make the statement made, in light of the circumstances under which it was made, not misleading. [¶] A fact is material if there is a substantial likelihood that under all circumstances a reasonable investor would consider it important in reaching an investment decision."
Noticeably absent from this instruction is any mention of the required scienter. While the Attorney General concedes that the jury was not instructed on the correct mens rea for a violation of section 25401, he nonetheless denies error because, unlike in Simon, the jury was not explicitly told that knowledge was irrelevant.[
While the Attorney General points out that Blaylock did not object, he does not argue that the contention is forfeited. The forfeiture rule does not apply if an instruction is an incorrect statement of law. (People v. Franco, supra, 180 Cal.App.4th at p. 719.)
We are not persuaded by the Attorney General's attempt to distinguish Simon. Over 25 years ago, our Supreme Court could not have been clearer: "We conclude therefore that knowledge of the falsity or misleading nature of a statement or of the materiality of an omission, or criminal negligence in failing to investigate and discover them, are elements of the criminal offense described in section 25401." (Simon, supra, 9 Cal.4th at p. 522, italics added.) Unquestionably, the trial court's failure to tell the jury about the scienter element and, instead, to instruct only on general criminal intent was error.
Turning to the question of prejudice, a trial court's failure to instruct the jury on an element of the offense is reversible, unless the error is harmless beyond a reasonable doubt, the standard set out in Chapman v. California (1967) 386 U.S. 18, 22. (People v. Merritt (2017) 2 Cal.5th 819, 822; Neder v United States (1999) 527 U.S. 1 (Neder).)[ The Attorney General contends that, even if there was error, it was harmless because the evidence indisputably shows that Blaylock made false statements and failed to disclose material facts from the first time he solicited the investments.[ Blaylock responds, that as long as a single juror could reasonably conclude he did not know or did not have reason to believe that the statements were untrue when he made them or the omissions were inadvertent at the time of the funds were procured from the investors, he would have obtained a more favorable outcome.
Both Blaylock and the Attorney General, relying on cases predating Neder, mistakenly state that prejudice is assessed under the Watson state law violation standard.
The Attorney General's reliance on People v. Butler (2012) 212 Cal.App.4th 404, 424, is misplaced. There, in reviewing the sufficiency of the evidence, the court found there was substantial evidence to infer guilty knowledge because the defendant made outrageous and unrealistic promises. The question before us is whether the instructional error has overcome the more demanding Chapman prejudice standard.
The People's theory at trial was that Blaylock falsely claimed to be originating loans secured by trust deeds and failed to disclose to his investors that his corporation had no assets. The absence of locatable trust deeds or corporate assets in 2015, when the scheme exploded, is strong circumstantial evidence that Blaylock engaged in fraud from the inception of the venture in 2004. Still, in order for us to conclude, beyond a reasonable doubt, that Blaylock knowingly made false statements or material omissions at the time of each initial sale, we must review each investor's investment history, including the circumstances surrounding their original security purchase, paying particular attention to the representations Blaylock made to each investor at the time.[
The People's charging document alleges a date range for four of the named victims-the Sheals, Hurtado, A.G. Sheals and Sato. As to each of these victims, the People presented evidence of several different sales occurring over this period that could potentially constitute the offense. The People, however, did not elect the act upon which they were proceeding, nor was the jury given an unanimity instruction. Accordingly, our prejudice analysis is limited to statements and omissions occurring prior to the initial sale as to each of these victims since these acts could have been a basis for conviction.
In summary, the Sheals began investing in 2004, Hurtado in 2007, A.G. Sheals and the Roberts in 2010, and Sato and Ford in 2013. Five of the six investors-the Sheals,[ Hurtado,[ A.G. Sheals,[ Sato,[ and the Fords[ -received timely interest payments, and Hurtado and A.G. Sheals even had principal returned. These same five investors were told that their money was going to be invested in trust deeds. A.G. Sheals was specifically told that this would not happen immediately. Only the Roberts failed to receive any interest, but Blaylock also never made any representations regarding how their money was being invested. Although interest payments continued through 2014 for some investors, the Sheals had been questioning the legitimacy of Blaylock's so-called "Corporate Note/Guarantee" as early as 2012. There was no evidence presented regarding the income or assets of Inclusive Realty Services, Inc. from 2004 to 2012. Only Los Angeles County and Orange County property records were researched.
Sheals acknowledged that "the investments had gone smoothly for quite a while," he and his wife had received regular interest payments totaling $450,000, and the payments did not stop until the end of 2014.
In 2007, Hurtado's first $40,000 investment was paid back in full within months. As to his other investments, from time to time, Blaylock returned principal and interest including a check for $478,127.08 in 2013.
Blaylock paid A.G. Sheals quarterly interest payments and repaid each of the first three principal investments in full until 2013.
Sato received a little in the beginning.
The Fords received interest for five quarters.
From this evidence, the following reasonable inferences can be drawn.[ The inability to locate trust deeds in 2015 in Los Angeles and Orange Counties, does not eliminate the possibility that properties were encumbered in other counties earlier in the funds' history for terms that had matured years earlier. Since the first hint of trouble did not surface until 2012, well after Blaylock made his initial sales to the first four investors-the Sheals, Hurtado, A.G. Sheals, and the Roberts-combined with a history of timely and substantial interest (and sometimes principal) disbursements, Inclusive Realty Services, Inc. may have been financially healthy before 2012. In sum, it could be inferred that Blaylock's investment plan was legitimate initially, but the model became fraudulent at some later date or Blaylock fully intended to lend money secured by trust deeds when he sold the securities, but he decided to modify his strategy and use the funds for riskier investments or different purposes after he received the money from these investors. While the jury was instructed to focus on whether falsehoods were made or omissions occurred, the jury was not instructed that at that moment, the jury had to find that Blaylock had knowledge of their falsity or misleading character. Without an instruction that directed the jury to the timing of this guilty knowledge, the jury did not need to decide whether or not Blaylock knew his statements were false or misleading when he made them, or whether the statements became untrue or deceptive on a later date. As such, we are unable to conclude this error was harmless beyond a reasonable doubt as to the pre-2012 investors. The same cannot be said about the post-2012 investors, Sato and Ford.
In assessing prejudice, unlike sufficiency of the evidence, we do not review the record in the light most favorable to support the judgment.
Blaylock's email exchanges with the Sheals are smoking guns that at least since January 1, 2013, investors were questioning both the value and the authenticity of the funds' assets. Specifically, in a May 3, 2014 email to Blaylock, the Sheals wrote: "This is a reminder that you promised to provide a revision of the evidence of collateral against the approximately $895,000 [in notes]. As I explained in our March meeting, I don't think the current corporate note/guarantee is sufficient so I'm depending on you to produce something that is. . . . it's just too much money for Nancy and me not to insist on a more ironclad collateral instrument. We have been talking about this for more than 2 years." Blaylock responded, "Will do Al." In an October 9, 2014 email, the Sheals stated: "The notes are guaranteed against the assets of Inclusive Realty Services. But I still do not know what those assets are. As time passes and no payoff occurs the asset information becomes critical to me. In fact I had requested this info more than 2 years ago."
Pointedly, Blaylock did not present evidence controverting Sheal's trial testimony. Even more tellingly, in his contemporaneous email response in 2014, Blaylock did not deny the accuracy of the Sheals' complaints. On the contrary, he acknowledged the truth of their charges by replying, "Will do Al." Blaylock's adoptive admission response is powerful evidence of the veracity of Sheals' claim that they had been demanding real collateral and indisputable confirmation of the assets of Inclusive Realty Services for two years. (See Evid. Code, § 1221.)
Two years before May 9, 2014, would place the original demand sometime in 2012. Even assuming the Sheals had only been requiring "ironclad" collateral since their last notes were issued, that would back date their pleas to January 1, 2013.[
On January 1, 2013, Blaylock consolidated all of their outstanding notes which totaled $895,708 into two notes. One note was for $195,781 and the other was for $699,927.
Just as this information was critical to current investors such as the Sheals, it was just as vital to potential investors. In this regard, the Sheals' instruments offer further context to the Sato and Ford securities' transactions. Significantly, the January 1, 2013 notes Blaylock gave to the Sheals resembled the notes given to Sato and Ford later that year in all material respects. They were labeled "Corporate Note/Guarantee," on Inclusive Realty Services, Inc. letterhead, guaranteed by the income and assets of Inclusive Realty Services, signed by Blaylock as president and authorized early repayment upon notice. Stated otherwise, Sato's and the Fords securities were the same or similar to the Sheals'.
Accordingly, it cannot be reasonably disputed that the Sheals' concerns were material to similarly situated investors, that is a reasonable investor would consider it important in reaching an investment decision. It was undisputed that Blaylock was aware of this information and did not disclose this information to either Sato in March 2013 or Ford in July 2013 before each made their initial securities purchases. Failing to disclose such information made any of Blaylock's statements accompanying Sato's and Ford's security sales misleading. (People v. Butler, supra, 212 Cal.App.4th 404, 424 ["[P]romissory notes were misleading in the absence of disclosures about the nature of [issuer's] business enterprises and [issuer's] prior history"].) Therefore, whether the jury was informed of the mens rea timing element or not, we are convinced that the record establishes, beyond a reasonable doubt, that Blaylock knowingly omitted to state material facts to Sato and Ford, prior to selling the securities, that as a result, made his statements misleading. Accordingly, we conclude this instructional error was harmless beyond a reasonable doubt as to the section 25401 convictions related to Ford and Sato, counts eleven and thirteen respectively.
D. The trial court's failure to instruct the jury on the securities' exemption affirmative defense was prejudicial.
"It is well settled that a defendant has a right to have the trial court, on its own initiative, give a jury instruction on any affirmative defense for which the record contains substantial evidence [citation]-evidence sufficient for a reasonable jury to find in favor of the defendant [citation]-unless the defense is inconsistent with the defendant's theory of the case [citation]. In determining whether the evidence is sufficient to warrant a jury instruction, the trial court does not determine the credibility of the defense evidence, but only whether 'there was evidence which, if believed by the jury, was sufficient to raise a reasonable doubt.'" (People v. Salas (2006) 37 Cal.4th 967, 982.)
Section 25110 criminalizes the sale of an unqualified security unless the security is exempt. There are numerous exemptions. While the burden of proof on proving an exemption is on the defendant, the defendant need only raise a reasonable doubt that an exemption applies. (Simon, supra, 9 Cal.4th at p. 501.)
Blaylock contends that substantial evidence was presented warranting instructions on three distinct exemptions that were not inconsistent with his defense. Most relevant to this appeal is the exemption set forth in section 25102, subdivision (f).
1. Substantial evidence of the section 25102, subdivision (f) exemption.
There are four requirements to qualify for the exemption under subdivision (f). It exempts security sales which are (1) made to fewer than 35 persons, (2) who have preexisting personal or business relationships with the offeror or are sophisticated investors, (3) the investors are buying the security for their own account and not with a view for resale, and (4) the offer is not accomplished by the publication of any advertisement. Moreover, in order for a sale to be exempt, all of the purchasers of that particular security must satisfy the requirements of subdivision (f).
a. The sale is made to fewer than 35 persons.
There was no direct evidence on the number of purchasers here. Still, the investigation by the district attorney's office spanned almost four years before charges were eventually filed naming only six victims.[ One reasonable inference from this lengthy and exhaustive probe is that since the district attorney's office could only identify six victims, there were only six participants in the sales of this particular security.
For purposes of this section, spouses are considered one person.
b. The investors are buying the security for their own account and not with a view for resale.
Not one of the victims suggested that they invested with anything but their own personal funds or that they intended to sell the securities. In fact, every one of the victims held on to the securities until they were ultimately worthless.
c. The offer is not accomplished by the publication of any advertisement.
There was no evidence that the investments were publicly advertised. Still, the Attorney General argues that since Blaylock did not obtain a notice of transaction from the Commissioner of Corporations, he did not satisfy this requirement. On its face, section 25102, subdivision (f) states "failure to file the notice or the failure to file the notice within the time specified by the rule of the commissioner shall not affect the availability of the exemption." As such, the Attorney General's objection is not well taken.
d. The investors had preexisting personal or business relationships with Blaylock. [
An investor may also qualify under this prong if they are sophisticated investors. The difference is whose perspective is evaluated. The prior relationship test "is an objective test and looks to what a reasonably prudent investor would be aware of about the offeror from the prior personal or business relationship" (Simon, supra, 9 Cal.4th at p. 502, fn. 8), while the" 'sophisticated investor' test" is measured from the issuer's state of mind. (People v. Graham (1985) 163 Cal.App.3d 1159, 1171- 1172.) Since, as will be shown, each of the investors qualify under the preexisting relationship test, we do not engage in a sophisticated investor analysis.
In Simon, supra, 9 Cal.4th at page 502, footnote 8, our Supreme Court analyzed the requirements of the prior relationship prong. Our Supreme Court began by acknowledging that the text of the statute does not define the meaning of the term. Ultimately, the court formulated the following definition. "Whether a prior relationship warranting reliance on the seller of an unregistered security exists is an objective test and looks to what a reasonably prudent investor would be aware of about the offeror from the prior personal or business relationship. This test is intended to protect investors by placing on the offeror the burden of establishing that the nature and duration of the relationship is one that would enable a reasonably prudent investor to assess the general business and financial circumstances of the issuer."[ (Simon, at p. 502, fn. 8.) The Court added that this was not an exhaustive list: "We do not rule out the possibility that other types of relationships may form a basis on which an investor would be warranted in relying on a person who offers or sells unqualified securities to the investor." (Ibid.) In other words, it is not a hard and fast rule.
Section 25610 authorizes the Commissioner of Corporations to issue rules to carry out the provisions of the Corporations Code. The current guidelines' description of a preexisting relationship is consistent with Simon. (Cal. Code Regs., tit. 10, § 260.102.12, subd. (d)(1).)
Throughout the trial it was undisputed that each of the victims had preexisting relationships with Blaylock from their membership in a private country club or previous business or social contacts. In fact, the prosecutor argued strenuously that Blaylock exploited these pre-exiting relationships in order to have the opportunity to plausibly pull off his scheme. Still, the exemption requires the prior contact to be of sufficient "nature and duration" to allow "a reasonably prudent investor to assess the general business and financial circumstances of" the issuer, Blaylock. (Simon, supra, 9 Cal.4th at p. 502, fn. 8.)
Allen and Nancy Sheals (Date of first sale October 1, 2004)
Allen Sheals met Blaylock in 2002 at the country club where they were both members. Blaylock told Sheals that he was in the investment business. Two years later, in 2004, after they became friends, Sheals approached Blaylock about investing. By this time, Sheals believed that he "could put a lot of trust in [Blaylock] and [Blaylock] would advise me properly."
Ignacio Hurtado (Date of first charged sale September 21, 2009)
Hurtado considered Blaylock a good friend. They first met at their country club over 20 years earlier. They socialized and traveled together extensively, took a cruise to the Baltic Sea and went on many golf outings, even internationally, as far away as Scotland and China. Hurtado was aware that Blaylock was a real estate broker. Hurtado first invested $40,000 with Blaylock in 2007, two years before the charged offenses here were alleged to have occurred. Blaylock told him the money was for people who could not get funds from banks because of poor credit. The original investment paid eight percent interest and was repaid in full within two or three months.
Allen G. Sheals (Date of first sale September 17, 2010)
In 2009, A.G. Sheals' father introduced him to Blaylock at Blaylock's Whittier real estate office. A.G. Sheals was already aware that his parents were investing with Blaylock. At the initial meeting, A.G. Sheals learned the details of Blaylock's investment strategy of lending to distressed borrowers at above market interest with the loans secured by trust deeds. Armed with this knowledge, A.G. Sheals still waited until the following year before he first invested with Blaylock in 2010.
James and Carol Roberts (Date of first sale November 4, 2010)
The Roberts met Blaylock in the 1990's. Carol Roberts prepared Blaylock's income tax for several years in the 1990's and they were both members of the Whittier Business Network. They had several other prior business contacts with Blaylock. They hired Blaylock twice before 2010 for real estate related transactions. The first time was in 1997, when Blaylock helped them sell an apartment building and the second was when he helped them buy a home in Whittier. Blaylock also performed property management services for them. In general, the Roberts were satisfied with Blaylock's business services. In fact, it was because of these aforementioned, business dealings with Blaylock that they "felt confident that [they] could trust" Blaylock with the real estate investments they made with him in 2010.
Sho Sato (Date of first sale March 1, 2013)
Sato met Blaylock at some point through their country club. They spoke when they traveled with other members of the country club to China to play golf. They had their first business meeting after they returned to the United States. Sato trusted Blaylock's investment advice because Blaylock was a prominent figure in club activities including serving as president.
Corey Ford (Date of sale July 25, 2013)
Ford met Blaylock approximately in 2004, 15 years before the trial, through their membership at their county club. They were both in leadership positions serving together on the Board of Directors. They played golf a lot over the years and became friends. Ford believed that Blaylock successfully managed, developed and invested in real estate. He knew many people who had done business with Blaylock. He had this knowledge before he went to Blaylock's office to discuss investing in his fund in 2012.
In reviewing the record, it is apparent that each of the investors had prior personal or business relationships with Blaylock of such a nature and duration before any security sale occurred that, whether they actually investigated his background, they each had the opportunity to evaluate the general business and financial circumstances of Blaylock. In other words, a properly instructed jury may have believed that prior personal or business relationships between the investors and Blaylock might have qualified the security sales for this exemption.
This exemption defense was not inconsistent with Blaylock's defense either.[ In part, Blaylock's relationship with the investors was a feature of his defense, beginning with his opening statement: "[T]he evidence will also show that the actual knowledge of myself and the victims, we became -that we became friends in about 2001 and we had a very close relationship. . . . I mean very close friends. The kinds of friends that you have Thanksgiving dinner at their home, or my home." Blaylock reiterated this point in his closing argument: "When you think of these investors, they weren't [sic] general public. They weren't, like, solicited on a TV add [sic] in some sort of scheme." Blaylock's defense was toothless, however, because the jury was never instructed that his argument constituted a defense to the registration charges.
The main thrust of Blaylock's defense was that the investors were sophisticated and that they made loans to his corporation.
The probability that a correctly instructed jury might have had a reasonable doubt is strengthened upon reviewing the prosecutor's closing arguments. (People v. Powell (2021) 63 Cal.App.5th 689, 715 ["Courts look to the prosecutor's arguments as a relevant circumstance in determining whether instructional error is harmless"].) The prosecutor argued that a prior relationship has no relevance to any defense. "The law says that's not good enough because even your close friends can betray your trust." The prosecutor went on discounting the significance of a prior relationship by insisting that, in every instance, issuers have a legal obligation to "first run it by the Department of Business Oversight. You have to go to them and say here's what I want to do." The prosecutor's argument that all securities must be qualified by the Department of Business Oversight and a prior relationship is never a defense misstates the law. There are many exemptions from the registration requirement and a pre-existing relationship certainly is a relevant factor that can potentially raise an affirmative defense, even without any prior governmental review of the security.
In sum, substantial evidence was presented demonstrating each of the four elements of the exemption defense under section 25102, subdivision (f)-the sales were nonpublic offerings, not subject to resale, involved no more than 35 persons, and each investor had an adequate preexisting relationship with Blaylock prior to the first sale. Additionally, the People affirmatively exploited the absence of an affirmative defense instruction. Accordingly, we conclude that it is reasonably probable that an outcome more favorable to Blaylock might have been reached had the jury been properly instructed regarding this exemption defense.[ Thus, as in Simon, the error here was prejudicial and necessitates reversal of the six section 25110 sale of unqualified securities convictions.
Therefore, we need not address Blaylock's contention that the sales were also exempt under section 25102, subdivision (e), for any offer or sale of any evidence of indebtedness and section 25102.5, for transactions involving notes secured by real property.
III. Sufficiency of evidence
Blaylock makes two challenges on the sufficiency of the evidence. First, he contends even if the instruction defining "security" was accurate, that the evidence was insufficient to demonstrate that the investment products were in fact securities. Second, he contends, as to his six Penal Code theft convictions, the evidence was insufficient. We reject these challenges.
A. General principles of law and standard of review
" 'When considering a challenge to the sufficiency of the evidence to support a conviction, we review the entire record in the light most favorable to the judgment to determine whether it contains substantial evidence-that is, evidence that is reasonable, credible, and of solid value-from which a reasonable trier of fact could find the defendant guilty beyond a reasonable doubt.' [Citation.] We determine 'whether, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.' [Citation.] In so doing, a reviewing court 'presumes in support of the judgment the existence of every fact the trier could reasonably deduce from the evidence.'" (People v. Edwards (2013) 57 Cal.4th 658, 715.)
B. Substantial evidence supports the jury's finding that Blaylock's investment instruments were securities.
Blaylock contends that even if the challenged instruction defining the term "security" was correct, there was insufficient evidence that the notes involved a common enterprise and that they derived their success based upon the efforts of others.[
Blaylock does not challenge that substantial evidence was presented as to element one, that each of the named victims invested money with Blaylock, and element three, that they made the investments premised upon a reasonable expectation of profit.
As shown above, the evidence that Blaylock's investment instruments were investment contracts and therefore securities, was not only substantial, but overwhelming. Nonetheless, Blaylock insists that, as a matter of law, he did not sell securities, but rather, the investors made six short-term loans to him that are exempt from security regulation. He relies on People v. Black (2017) 8 Cal.App.5th 889 (Black) for authority.
In Black, the defendant convinced his friend Knarr to invest in a real estate development project in exchange for a promissory note. (Black, supra, 8 Cal.App.5th at p. 892.) The promissory note was structured in such a way that if the project was successful, Knarr would receive either a percentage of the profits of the endeavor or two lots. (Ibid.) If the project was unsuccessful, Knarr was guaranteed a fixed interest rate. (Ibid.) Black was charged with, among other things, making false statements in the sales of securities in violation of section 25401. The trial court granted a Penal Code 995 motion and dismissed the securities violation charges finding that, as a matter of law, the promissory note was not a security. (Ibid.) The Black court affirmed the dismissal. (Id., at p. 909.) Black acknowledged that whether an instrument is a security is a fact intensive inquiry, but under the unique circumstance of this transaction, a one-on-one contract that guaranteed repayment irrespective of the success of any enterprise, the promissory note in question was not a security. (Ibid.)
Blaylock argues that the multiple notes he gave to his many investors are similar to the single note Black gave Knarr so, as a matter of law, the instruments here are not securities. He points to the face of the notes, which purport to promise to pay a set sum, at a fixed rate of interest, for a specified term, completely unrelated to the success of any business, in support of his contention that he was only borrowing money and not selling securities.
Our Supreme Court has rejected the literal reading of documents in determining whether a transaction involves a security and so do we. (See People v. Figueroa (1986) 41 Cal.3d. 714, 735 [critical question is "whether a transaction falls within the regulatory purpose" of securities regulation and not "literal language" of instrument].) The recommended approach is to look at the entire context of the investment scheme. "[T]o determine whether a scheme involves a security, the inquiry is not limited to the contract or other written instrument. 'Characterization of the inducement cannot be accomplished without a thorough examination of the representations made by the defendants as the basis of the sale.'" (Hocking v. Dubois, supra, 885 F.2d at p. 1457.)
The facts here hardly resemble the facts in Black. To begin with, even Black acknowledged that its ruling was limited to a situation involving a single investor and one instrument. (Black, supra, 8 Cal.App.5th at p. 906.) Here, by contrast, Blaylock offered similar instruments to least six investors. More to the point, no credible evidence was presented that the scheme here involved investors making loans to Blaylock. All of the victims uniformly testified that Blaylock told them they were investing in a pool of funds that Blaylock would use to originate loans to other, distressed borrowers. Not one investor construed the investment as a loan to Blaylock. Sheals denied that he was making a loan when directly asked by Blaylock. Turning to the so-called promissory note-the "Corporate Note/Guarantee"-the evidence was unrebutted that Blaylock unilaterally decided to document the investments in this manner in lieu of producing the actual trust deeds. In fact, Ford expressly objected when given the "Corporate Note/Guarantee" days after his investment. He wanted mention of trust deeds as evidence of his investment, but Blaylock adamantly refused. The Sheals, for that matter, openly complained for several years that they were not satisfied with the "Corporate Note/Guarantee" as evidence of adequate collateral for their investments.
Even if we were to accept Blaylock's argument and limit our review to a literal reading of the text of the Corporate Note/Guarantee, that still would not remove these notes from the security regulation arena. "The return on any investment which has not been secured with adequate collateral depends on the success of the business. This is true whether the investment contemplates a percentage of the profits or a fixed return." (People v. Figueroa, supra, 41 Cal.3d at p. 738.) "[A] finding of inadequacy of collateral, in addition to the investors' dependency on the promoter's success for a return on the investment, will subject the superficial loan transaction to security regulation." (People v. Schock, supra, 152 Cal.App.3d at p. 386.) In other words, under-capitalized, uncollateralized or unsecured promissory notes are securities. (See Simon, supra, 9 Cal.4th at p. 497, fn. 4.)
Here, the so-called loans far exceeded the value of pledged security. First, the collateral supporting the four million dollars in notes was illusory. There were no trust deeds. Second, the promise that the notes were guaranteed by the income and assets of Inclusive Realty Services was equally a sham. There was no income and no assets to speak of, only eight dollars in one account. (People v. Miller (1987) 192 Cal.App.3d 1505, 1510 [so-called loans were securities because they "were so far in excess of the value of secured interests that no resale or foreclosure could recoup more than a few cents on the dollar to the individual lenders"].) Even accepting Blaylock's arguments, these notes bear the hallmark of superficial loans and are, thus, still subject to security regulation.
We reject Blaylock's attempts to recast the evidence here to fit into the limited holding of Black. The suggestion that the investors made separate, one-on-one discrete loans, as a matter of law, is simply not supported by the record. On the contrary, substantial, credible evidence was presented demonstrating that the scheme here involved Blaylock peddling investment instruments that were securities.
C. Substantial evidence was presented to support the six grand theft convictions.
As to the grand theft counts, the jury was only instructed on a theory of theft by embezzlement. "The offense of embezzlement contemplates a principal's entrustment of property to an agent for certain purposes and the agent's breach of that trust by acting outside his authority in his use of the property." (People v. Sisuphan (2010) 181 Cal.App.4th 800, 813-814.) Even if "the money was originally obtained in good faith and that defendant later developed a design to appropriate the money for his own use would support [a] conviction under the theory of embezzlement." (People v. Cuccia (2002) 97 Cal.App.4th 785, 797.)" '[I]ntent is inherently difficult to prove by direct evidence. Therefore, the act itself, together with its surrounding circumstances must generally form the basis from which the intent of the actor may legitimately be inferred.'" (People v. Edwards (1992) 8 Cal.App4th 1092, 1099.)
The trial court instructed the jury with CALCRIM No. 1806, which reads in relevant part:
"To prove that the defendant is guilty of this crime, the People must prove that: 1. An owner entrusted his/her property to the defendant; 2. The owner did so because he/she trusted the defendant; 3. The defendant fraudulently converted that property for his/her own benefit; [and] 4. When the defendant converted the property, he/she intended to deprive the owner of its use."
Blaylock does not question the sufficiency of evidence as to the first two elements listed in CALCRIM No. 1806.[ It appears Blaylock only disputes the sufficiency of evidence as to whether he converted the property for his own benefit and had an intent to deprive the owner of its use. The facts surrounding the downfall of Blaylock's investment scheme reveal substantial evidence that Blaylock converted the property for his own benefit and that he had an intent to deprive the owners of its use.
The evidence was unquestionable that each of the named victims entrusted Blaylock with their money. Each investor trusted Blaylock because of their friendship with Blaylock stemming from their shared country club membership or previous business relationship and from Blaylock's self-professed real estate acumen.
First, it was undisputed that Blaylock stopped making interest payments years before the charges were filed and failed to return millions even when repeatedly pressed.
Second, the circumstances surrounding each investor's entrustment of funds with Blaylock were strikingly similar. Blaylock targeted friends with promises that he would pool their capital with other community members in a real estate investment fund. As proof of their investments, Blaylock presented each investor a note guaranteeing monthly interest payments secured by "the income and assets of Inclusive Realty Services, a California Corporation." Blaylock warranted that the investors could demand repayment of their principal at any time. For five of the six investors, he explicitly promised that their investments were secured by trust deeds. He even provided the Sheals documents that were purportedly trust deeds on Blaylock's own home and personal investment property. He told the Roberts a slightly different version of the swindle. He claimed that their interest was being reinvested and also assured them that they did not need tax documentation because of that reason as well.
Third, despite consistent demands, Blaylock adamantly refused to provide the investors any accounting of the four million dollars in principal. He rebuffed requests to disclose the funds' assets or their value. He would not identify the borrowers or the locations of their properties. He consistently declined to deliver legitimately recorded trust deeds. While the Shields were given trust deeds to properties, they were valueless because they were never recorded. In short, Blaylock never provided his investors any proof that he in fact invested the four million dollars he was entrusted with, in real estate investments or loans, secured by trust deeds, or any other failsafe investments.
Fourth, the People presented unrebutted evidence that they could not identify any recorded trust deeds. Ford testified that his attorney did a public record search but was unable to find any trust deeds under Blaylock's name or his business' name. Investigator Radovic testified that he checked public records for Los Angeles and Orange County. He found no property recorded under the business name Inclusive Realty Services. He did find a deed for Blaylock's former residence in Newport Beach and one property in Whittier.
Fifth, investors and investigators could not locate income or assets of Inclusive Realty Services, Inc. He told Roberts that he had no money in investments. Ford's attorney uncovered evidence that Blaylock only had eight dollars in one of his bank accounts. Without any corporate assets or income to speak of, the so-called corporate guaranteed notes were worthless.
Sixth, evidence was presented that Blaylock was going through a financial crisis. Blaylock admitted to investors that the investment money was gone, and that he was struggling financially and enmeshed in legal battles.
Viewing this evidence in a light most favorable to support the judgment, substantial evidence supports the following inferences. Blaylock preyed on acquaintances by design, correctly assuming that it would be easy to have friends trust him and willingly participate in an investment scheme that provided little tangible documentation. The lack of identifiable trust deeds or corporate income or assets indicate that the funds were not invested in collateralized investments, as promised. Instead, the pattern of delay and his repeated, but empty, assurances that the money was coming, his utter refusal to provide borrower documentation, combined with his confessing that he was having financial difficulties, were sufficient bases for a rational jury to infer that he was redirecting the funds for his own, unauthorized use and benefit. Whether this was Blaylock's intention at the inception of his investment scheme or whether he may have later "developed a design to appropriate the money for his own use" matters not for the crime of theft by embezzlement. (People v. Cuccia, supra, 97 Cal.App.4th at p. 797.) Substantial evidence supports an inference that at some point, he acted outside of his authority by using the funds for other, unapproved purposes.
Nonetheless, Blaylock asserts that there was insufficient evidence supporting these charges because the People did not show where the money went. While it is true that the record does not show precisely what Blaylock did with the cash he was entrusted to invest, such evidence is not necessary to establish that Blaylock fraudulently converted that property for his own benefit. Ironically, the inability of the victims or law enforcement to trace the funds after a diligent search is revealing of Blaylock's felonious intent. Significantly, when Ford pleaded with Blaylock to tell the group of investors exactly where the assets and the properties securing the funds were located, Blaylock refused, boasting that Ford and the other victims could spend a million dollars on a forensic audit and still would be unable to find out what Blaylock did with the money. This chilling taunt coupled with the inability of the victims or law enforcement to locate the funds or the secured property is further compelling circumstantial evidence that Blaylock exceeded the scope of his authority to make loans backed by trust deeds, and instead, converted the funds for his own use. In sum, there is overwhelming evidence that Blaylock did not invest the funds in loans secured by trust deeds or any other safe investments, as guaranteed, an instead misappropriated the funds for his own use.
IV. Senate Bill No. 567 and Assembly Bill No. 124
While this appeal was pending, the Governor signed Senate Bill No. 567 and Assembly Bill No. 124 which amended determinate sentencing laws effective January 1, 2022. In light of the possible retrial on security counts, "a full resentencing as to all counts is appropriate, so the trial court can exercise its sentencing discretion in light of the changed circumstances" including implementing the requirements of these new sentencing laws. (People v. Buycks (2018) 5 Cal.5th 857, 893.) Accordingly, any remaining contentions as to these issues are moot.
V. Judicial bias and cumulative error
Blaylock contends the trial court expressed judicial bias and the cumulative effect of the trial errors demand reversal of all convictions. We disagree. During the trial, the defendant never claimed that the trial judge was prejudiced against him. The Attorney General argues that Blaylock forfeited this claim on appeal because he failed to object citing People v. Sturm (2006) 37 Cal.4th 1218, 1237. In any event, our independent review of the record does not support defendant's claim of judicial bias rendering his trial unfair. Similarly, "[i]n examining a claim of cumulative error, the critical question is whether defendant received due process and a fair trial." (People v. Sedillo (2015) 235 Cal.App.4th 1037, 1068; accord, People v. Rivas (2013) 214 Cal.App.4th 1410, 1436.) We are satisfied that Blaylock received a trial that comported with due process.
DISPOSITION
The judgment for conviction is reversed as to counts six to ten, twelve, fourteen, fifteen, seventeen and eighteen and the sentences are vacated. The matter is remanded for the trial court to provide the People with an opportunity to retry these charges. At the conclusion of any such retrial, or on remand if the People elect not to conduct such a retrial, the court is directed to conduct a full resentencing hearing, including a restitution hearing. In all other respects, the judgment is affirmed.
Blaylock also contends he was denied a restitution hearing. While we need not analyze this claim of error since Blaylock will be entitled to a new sentencing hearing, we do note the scope of a statutorily mandated restitution hearing. (Pen. Code, § 1202.4, subd. (f)(1).)" '" 'A defendant's due process rights are protected when [he or she has] notice of the amount of restitution claimed . . ., and . . . has an opportunity to challenge the figures . . . at the sentencing hearing.'" '" (People v. Prosser (2007) 157 Cal.App.4th 682, 692.)
We concur: EDMON, P. J. LAVIN, J.
[*] Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.